ITEM 7 MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion should be read
in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this report. Past operating
results are not necessarily indicative of results that may occur in future periods. This discussion contains forward-looking statements,
which involve a number of risks and uncertainties. See Forward Looking Statements included elsewhere in this report.
This section discusses year over year comparisons
for the fiscal years ended September 30, 2022 and 2021. Discussion of year over year comparisons between the fiscal years ended September
30, 2021 and 2020 have been excluded from this Form 10-K and can be found in “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended September
30, 2021.
Overview
We
are in the development stage and have not earned any revenues since our inception in 2004. We do not anticipate earning any revenues
until we can establish an alliance with other companies to develop, co-develop, license, acquire or market our products.
Our operating costs consist primarily
of research and development activities including the cost of clinical trials and clinical supplies as well as clinical drug manufacturing
and formulation. Research and development expenses also include personnel related costs such as salaries and wages, and third-party
contract research organization (CRO) expenses in support of these clinical trials. Personnel costs include salaries and wages,
benefits, and non-cash stock-based compensation charges associated with options and other equity awards granted to employees and
consultants who are directly engaged in support of our research and development activities.
General and administrative expenses
consist of personnel costs, expenses for outside professional services and expenses associated with operating as a public company.
Personnel costs consist of salaries and wages, benefits and stock-based compensation for general and administrative personnel.
Outside professional services and public company expenses, include expenses related to compliance and reporting, additional
insurance expenses, audit and SOX compliance, expenses associated with patent research, applications and filings, investor and
stockholder relations activities and other administrative expenses and professional services.
Year ended September 30, 2022
During fiscal 2022, we advanced our business and clinical trials
through the following events:
Operating Expenses
Our operating expenses for fiscal 2022 increased to $51.0 million, from $42.0
million in fiscal 2021. The increase is attributable to an increase in research and development expenses of $4.9 million in 2022 to $37.9
million, as described below.
The following table summarizes our research and development
expenses for the years ended September 30, 2022, and 2021 (in thousands):
Costs of external service providers $ 18,102 $ 21,243
License fees 500 —
Other common costs 52 94
Total research and development costs $ 37,916 $ 32,984
During fiscal 2022, external service
providers costs by product candidate were as follows (in thousands):
All other product candidates 298
Other external service provider costs 43
Total external service provider costs $ 18,102
The
decrease in external service provider costs from fiscal 2021 to fiscal 2022 is related to a decrease in clinical trial expenditures over
the comparable period, associated with the completion of the enrollment and recruitment activities for our Phase 2b/3 trial in Alzheimer’s
disease, and manufacturing activities in the comparable period associated with the Rett syndrome program. This decrease was offset by
an increase in personnel costs and non-cash stock-based compensation associated with an expanding team directly engaged in support of
ongoing research and development activities.
General and administrative expenses for
fiscal 2022 increased to $13.1 million, from $9.0 million in fiscal 2021, most significantly related to an increase in personnel and
an increase in associated non-cash stock option compensation charges.
During
fiscal 2022, we utilized cash and cash equivalents of $24.2 million to fund our operations, compared to $30.4 million during fiscal 2021.
Our cash position decreased to $149.2 million at September 30, 2022, a decrease of $2.9 million over the prior year. Cash for operations
was generated through the issuance of shares of common stock under the financing arrangements described below.
We will continue to see an increase in our research and development expenditures as we advance our ANAVEX®2-73
clinical trials, including planned advancement of ANAVEX®2-73 for Parkinson’s disease program, planned initiation
of a Fragile X clinical program, ongoing extension studies of our current clinical programs, continued advancement of our other
pipeline compounds such as ANAVEX®3-71, and as we continue to add additional staffing to manage and support these
clinical initiatives.
Other income
Net other income for the year ended September
30, 2022 was $3.4 million as compared to $4.4 million for fiscal 2021. The primary reason for the decrease in other income was due to
a decrease in research and development incentive income and an increased foreign exchange loss associated with incentive and other receivables
denominated in Australian dollars, and related impact from the fluctuation of the Australian dollar against the US dollar during the
year. The decrease was offset by an increase in interest income.
During fiscal 2022, we recorded $3.3 million
in research and development incentive income, consisting of the Australian research and development incentive credit administered through
the Australian Tax Office, in connection with fiscal 2022 eligible expenditures. In comparison, research and development incentive income
for fiscal 2021 was $4.5 million in connection with fiscal 2021 eligible expenditures and fiscal 2020 expenditures for which an overseas
finding ruling was obtained during fiscal 2021. We expect to continue to receive support from the Australian government for various clinical
trials being conducted within Australia.
Net loss
Net loss for fiscal 2022 was $48.0 million,
or $0.62 per share, compared to a net loss of approximately $37.9 million, or $0.54 per share for fiscal 2021.
Liquidity and Capital Resources
Working Capital
At September 30, 2022, we had $149.2 million
in cash and cash equivalents, a decrease of $2.9 million, from $152.1 million at September 30, 2021. The decrease in cash and cash equivalents
during the year is a result of cash utilized in operations, partially offset by cash provided by financing activities, as described below.
We intend to
continue to use our capital resources to advance our clinical trials for ANAVEX®2-73 and ANAVEX®3-71, and
to perform work necessary to prepare for future development of our pipeline compounds.
Cash Flows
Cash flow used in operating activities
There was a decrease in cash used in operating
activities of $6.1 million during fiscal 2022 primarily due to the collection of incentive and tax receivables.
Cash flow provided by financing activities
Cash provided by financing activities
in fiscal 2022 was $21.3 million, net of financing costs, primarily attributable to cash received from
the issuance of common shares at various market prices under the Sales Agreement.
Cash provided by financing activities in
fiscal 2021 was $153.2 million, net of financing costs, primarily attributable to cash received from the issuance of common shares
at various market prices under the 2019 Purchase Agreement, the Sales Agreement and a direct registered offering.
Other Financings
Purchase Agreement
On June 7, 2019, we
entered into a Purchase Agreement (the “2019 Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln
Park”), as amended on July 1, 2020, pursuant to which Lincoln Park committed to purchase up to $50.0 million of our common
stock. Concurrently with the execution of the 2019 Purchase Agreement in 2019, we issued 324,383 shares of our common stock to
Lincoln Park as a fee for its commitment to purchase shares of our common stock under the 2019 Purchase Agreement and became obligated
to issue up to 162,191 shares pro rata, when and if Lincoln Park purchased, at our discretion, the $50.0 million aggregate commitment.
During fiscal year 2021, the Company
issued to Lincoln Park an aggregate of 4,086,209 shares of common stock under the 2019 Purchase Agreement, including 4,007,996
shares of common stock for an aggregate purchase price of $24.1 million and 78,213 commitment shares. As of
September 30, 2022 and 2021, no shares of our common stock remain available for purchase by Lincoln Park under the 2019 Purchase
Agreement.
Controlled Equity Offering Sales
Agreement
On May 1, 2020, we entered into an Amended
and Restated Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. and SVB Leerink LLC (the “Sales
Agents”), pursuant to which we may offer and sell shares of common stock registered under an effective registration statement
from time to time through the Sales Agents (the “At-the-Market Offering”).
Upon delivery of a placement notice based on
our instructions and subject to the terms and conditions of the Sales Agreement, the Sales Agents may sell shares of common stock
by methods deemed to be an “at the market offering”, in negotiated transactions at market prices prevailing at the
time of sale or at prices related to such prevailing market prices, or by any other method permitted by law, including negotiated
transactions, subject to our prior written consent. We are not obligated to make any sales of shares under the Sales Agreement.
We or the Sales Agents may suspend or terminate the At-the-Market Offering upon notice to the other party, subject to certain conditions.
The Sales Agents will act as agents on a commercially reasonable efforts basis consistent with their normal trading and sales practices,
applicable state and federal law, and rules and regulations and the rules of Nasdaq.
We have agreed to pay the Sales Agents’ commissions
for their services of 3.0% of the gross proceeds from the sale of shares of common stock pursuant to the Sales Agreement. We have
also agreed to provide the Sales Agents with customary indemnification and contribution rights.
During fiscal 2022, 1,623,813 shares were sold
pursuant to the At-the-Market Offering for gross proceeds of $21.0 million (net proceeds of $20.3 million after deducting offering
expenses).
During fiscal 2021, 5,634,576 shares were sold
pursuant to the At-the-Market Offering for gross proceeds of $79.1 million (net proceeds of $76.7 million after deducting commissions
and offering expenses).
Registered Direct Offering
On June 24, 2021, the Company completed a registered
direct offering off of the Company’s shelf registration statement on Form S-3 filed with the SEC on July 3, 2019. The Company
issued 2,380,953 common shares at $21.00 per share for gross proceeds of $50.0 million (net proceeds of $46.9 million after deducting
offering fees and expenses).
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.
Application
of Critical Accounting Policies
Our
financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States.
Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities,
revenue and expenses. These estimates and assumptions are affected by management’s
application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with
the following aspects of our financial statements is critical to an understanding of our financial statements.
We base our assumptions and estimates
on historical experience and other sources that we believe to be reasonable at the time. Actual results may vary from our estimates due
to changes in circumstances, politics, global economics, general business conditions and other factors. Our significant estimates are
related to the valuation of warrants and options.
There are accounting policies that we
believe are significant to the presentation of our financial statements. The most significant of these accounting policies relates to
the accounting for our research and development expenses and stock-based compensation expense.
Research and Development Expenses
Research and development costs are expensed
as incurred. These expenses are comprised of the costs of the Company’s proprietary research and development efforts, including
preclinical studies, clinical trials, manufacturing costs, employee salaries and benefits and stock based compensation expense,
contract services including external research and development expenses incurred under arrangements with third parties such as contract
research organizations (“CROs”), facilities costs, overhead costs and other related expenses. Milestone payments made
by the Company to third parties are expensed when the specific milestone has been achieved. Manufacturing costs are expensed as
incurred in accordance with Accounting Standard Codification (“ASC”) 730, Research and Development, as these materials
have no alternative future use outside of their intended use.
Nonrefundable advance payments for goods or
services that will be used or rendered for future research and development activities are deferred and amortized over the period
that the goods are delivered, or the related services are performed, subject to an assessment of recoverability. The Company makes
estimates of costs incurred in relation to external CROs, and clinical site costs. The Company analyzes the progress of clinical
trials, including levels of patient enrollment, invoices received and contracted costs when evaluating the adequacy of the amount
expensed and the related prepaid asset and accrued liability. Significant judgments and estimates must be made and used in determining
the accrued balance and expense in any accounting period. The Company reviews and accrues CRO expenses and clinical trial study
expenses based on work performed and relies upon estimates of those costs applicable to the stage of completion of a study. Accrued
CRO costs are subject to revisions as such trials progress to completion. Revisions are charged to expense in the period in which
the facts that give rise to the revision become known. With respect to clinical site costs, the financial terms of these agreements
are subject to negotiation and vary from contract to contract. Payments under these contracts may be uneven and depend on factors
such as the achievement of certain events, the successful recruitment of patients, the completion of portions of the clinical trial
or similar conditions. The objective of our policy is to record expenses in our financial statements based on actual services received
and efforts expended. As such, expense accruals related to clinical site costs are recognized based on our estimate of the degree
of completion of the event or events specified in the specific clinical trial contract.
In addition, we incur expenses in respect
of the acquisition of intellectual property relating to patents and trademarks. The probability of success and length of time to develop
commercial applications of the drugs subject to the acquired patents and trademarks is difficult to determine and numerous risks and
uncertainties exist with respect to the timely completion of the development projects. There is no assurance the acquired patents and
trademarks will ever be successfully commercialized. Due to these risks and uncertainties, we expense the acquisition of patents and
trademarks.
Stock-based Compensation
We account for all stock-based payments and awards under the
fair value-based method.
The fair value of all share purchase options
and warrants are expensed over their contractual vesting period, or over the expected performance period for only the portion of awards
expected to vest, in the case of milestone-based vesting, with a corresponding increase to additional paid-in capital.
Compensation costs for stock-based payments
with graded vesting are recognized on a straight-line basis. Stock based compensation expense is adjusted for actual forfeitures of unvested
awards as they occur.
We have granted share purchase option
awards that vest upon achievement of certain performance criteria, or milestone-based awards. We estimate an implicit service period
for achieving performance criteria for each award and recognizes the resulting fair value as expense over the implicit service period
when we conclude that achieving the performance criteria is probable. We periodically review and update as appropriate our estimates
of implicit service periods and conclusions on achieving the performance criteria. Performance awards vest upon achievement of the performance
criteria.
We use the Black-Scholes option valuation model to calculate the fair value
of share purchase options and warrants at the date of the grant. This model requires the input of subjective assumptions, including the
expected price volatility, and expected life of each award. These assumptions consist of estimates of future market conditions, which
are inherently uncertain, and therefore, are subject to management’s judgment. Changes in these assumptions can materially affect
the fair value estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
For a discussion of recent accounting
pronouncements and their possible effect on our results, see Note 2 to our Consolidated Financial Statements found elsewhere in this
Annual Report.
ITEM 7A QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We
invest our excess cash in investment-grade, interest-bearing securities. The primary objective of our investment policy is to preserve
principal and liquidity. To achieve this objective, our investment policy allows for investments in domestic money market certificates,
certificates of deposit, money market funds, commercial papers, bonds or commercial papers, and establishes diversification and credit
quality requirements and limits investments by maturity and issuer. At September 30, 2022 and 2021, the majority of our excess cash was
held in a JP Morgan Chase Prime Money Market Fund. The average amount invested at any given time throughout the year ended September
30, 2022 was $132.7 million (high: $133.2 million; low: $132.2 million) and the average rate of return was 0.74%. A hypothetical 100
basis point change in interest rates during any of the periods presented would not have a material impact on the fair market value of
our cash and cash equivalents as of September 30, 2022 and 2021. To date, we have not experienced a loss of principal on any of our investments
and as of September 30, 2022 we did not have any allowance for credit losses from our cash and cash equivalents.
Foreign Exchange Risk
We face foreign exchange risk as a result of entering into
transactions denominated in currencies other than U.S. dollars and as a result of the existence of sales and tax incentive receivables
denominated in other than U.S. dollars. Due to the uncertain timing of expected payments in foreign currencies, we do not utilize any
forward exchange contracts. All foreign transactions settle on the applicable spot exchange basis at the time such payments are made.
Volatile market conditions and supply chain shortages may result in significant changes in exchange rates, and in particular a change
in foreign currencies values relative to the U.S. dollar may affect our operating expenses as expressed in U.S. dollars. An adverse movement
in foreign exchange rates could have a material effect on payments made to foreign suppliers.
For the year ended September 30, 2022,
a majority of our expenses were denominated in U.S. dollars. A hypothetical 10% change in foreign exchange rates applied to foreign currency
transactions for the year ended September 30, 2022 would not have had a material impact on our consolidated financial statements.
At
September 30, 2022, we held net assets of $6.4 million (AUD $9.9 million) denominated in Australian dollars.A
hypothetical 10% change in foreign exchange rates at September 30, 2022 would result in a change in reported net assets of +/-
$0.6 million.
Inflation Risk
Inflation generally may affect us by
increasing our cost of labor and clinical trial costs. We do not believe that inflation has had a material impact on our results
of operations during the periods presented.
ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
ANAVEX LIFE SCIENCES CORP.
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Anavex Life Sciences Corp.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting
of Anavex Life Sciences Corp. (a Nevada corporation) and subsidiaries (the “Company”) as of September 30, 2022, based
on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of September 30, 2022, based on criteria established in the 2013 Internal Control—Integrated
Framework issued by COSO.
We also have audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the
Company as of and for the year ended September 30, 2022, and our report dated November 28, 2022 expressed an unqualified opinionon those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility
is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of
the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial
reporting
A company’s internal control over financial reporting
is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Hartford, Connecticut
November 28, 2022
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Anavex Life Sciences Corp.
Opinion on the financial statements
We have audited the accompanying consolidatedbalance sheet of Anavex Life Sciences Corp. (a Nevada corporation) and subsidiaries (the “Company”) as of September
30, 2022, the related consolidatedstatements of operations and comprehensive loss, changes in
stockholders’ equity, and cash flows for the year ended September 30, 2022, and the related notes (collectively referred
to as the “financial statements”). In our opinion, theconsolidated financial statements
present fairly, in all material respects, the financial position of the Companyas of September
30, 2022, and the results of itsoperations and itscash flows
for the year ended September 30, 2022, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over
financial reporting as of September 30, 2022, based on criteria established in the 2013 Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated November
28, 2022 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audit in accordance with the standards
of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation
of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical audit matters
Critical audit matters are mattersarising from the current period audit of the financial statements that were communicated or required to be communicated
to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved
our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2022.
Hartford, Connecticut
November 28, 2022
248
Report of Independent Registered
Public Accounting Firm
Shareholders and Board of Directors
Anavex Life Sciences Corp.
New York, New York
Opinion on the
Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Anavex Life
Sciences Corp. (the “Company”) as of September 30, 2021, the related consolidated statements of operations and comprehensive
loss, stockholders’ equity, and cash flows for each of the two years in the period ended September 30, 2021, and the related notes
(collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of the Company at September 30, 2021, and the results of its operations
and its cash flows for each of the two years in the period ended September 30, 2021, in conformity with accounting principles generally
accepted in the United States of America.
We also have audited, in accordance with the standards
of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial
reporting as of September 30, 2021, based on criteria established in Internal Control – Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated November 24,
2021 expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance
with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess
the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe
that our audits provide a reasonable basis for our opinion.
Critical Audit
Matters
Critical audit matters are matters arising from the
current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee
and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially
challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ BDO USA, LLP
We served as the Company’s auditor from 2013 to 2022.
New York, New York
November 24, 2021
Assets
Current
Liabilities and Stockholders' Equity
Current Liabilities
Commitments and Contingencies - Note 6
Capital stock
Authorized:
Issued and outstanding:
See Accompanying Notes to Consolidated Financial Statements
Operating expenses
Other income (expenses)
Net Loss per share
Basic and diluted $ (0.62 ) $ (0.54 ) $ (0.45 )
Weighted average number of shares outstanding
See Accompanying Notes to Consolidated Financial Statements
Cash Flows used in Operating Activities
Adjustments to reconcile net loss to net cash used in operations:
Changes in working capital balances related to operations:
Deferred grant income — 443,831 —
Cash Flows provided by Financing Activities
Proceeds from exercise of warrants — 1,466,500 —
Supplemental Cash Flow Information
See Accompanying Notes to Consolidated Financial Statements
Common Stock
Additional
Paid-in Accumulated
Shares Par Value Capital Deficit Total
Shares issued under 2019 purchase agreement
Shares issued pursuant to cashless exercise of stock options 721 1 (1 ) — —
Shares issued under 2019 purchase agreement
See Accompanying Notes to Consolidated Financial Statements
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September 30, 2022 Page 1
Note 1 Business Description and Basis of Presentation
Business
Anavex Life Sciences Corp. (“Anavex” or
the “Company”) is a clinical stage biopharmaceutical company engaged in the development of differentiated therapeutics by
applying precision medicine to central nervous system (“CNS”) diseases with high unmet need. Anavex analyzes genomic data
from clinical studies to identify biomarkers, which are used to select patients that will receive the therapeutic benefit for the treatment
of neurodegenerative and neurodevelopmental diseases. The Company’s lead compound ANAVEX®2-73 is being developed
to treat Alzheimer’s disease, Parkinson’s disease and potentially other central nervous system diseases, including rare diseases,
such as Rett syndrome, a rare severe neurological monogenic disorder caused by mutations in the X-linked gene, methyl-CpG-binding protein
2 (“MECP2”).
Basis of Presentation
These consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and the instructions to Form
10-K and have been prepared under the accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Liquidity
All of the Company’s potential drug compounds
are in the clinical development stage and the Company cannot be certain that its research and development efforts will be successful or,
if successful, that its potential drug compounds will ever be approved for sale or generate commercial revenues. To date, we have not
generated any revenues from our operations. The Company expects the business to continue to experience negative cash flows for the foreseeable
future and cannot predict when, if ever, its business might become profitable.
Management believes that the current working capital
position will be sufficient to meet the Company’s working capital requirements beyond the next 12 months after the date that these
consolidated financial statements are issued. The process of drug development can be costly, and the timing and outcomes of clinical trials
is uncertain. The assumptions upon which the Company has based its estimates are routinely evaluated and may be subject to change. The
actual amount of the Company’s expenditures will vary depending upon a number of factors including but not limited to the design,
timing and duration of future clinical trials, the progress of the Company’s research and development programs and the level of
financial resources available. The Company has the ability to adjust its operating plan spending levels based on the timing of future
clinical trials.
Other than our rights related to the Sales Agreement
(as defined below in Note 5), there can be no assurance that additional financing will be available to us when needed or, if available,
that it can be obtained on commercially reasonable terms. If the Company is not able to obtain the additional financing on a timely basis,
if and when it is needed, it will be forced to delay or scale down some or all of its research and development activities.
Coronavirus Disease 2019 (COVID-19)
The recent global outbreak of COVID-19 did not have
a material impact on the Company’s result of operations or financial condition for the year ended September 30, 2022. However,
the future course of the pandemic could have adverse effects in the U.S and global economies and thus negatively impact our business
and financial results.
Note 2 Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in accordance
with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and expenses in the reporting period. The Company regularly evaluates
estimates and assumptions related to accounting for research and development costs, incentive income receivable, valuation and recoverability
of deferred tax assets, stock-based compensation and loss contingencies. The Company bases its estimates and assumptions on current facts,
historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the
basis for making judgments about the book values of assets and liabilities and the accrual of costs and expenses that are not readily
apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s
estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will
be affected.
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September 30, 2022 Page 2
Principles of Consolidation
These consolidated financial statements include the
accounts of Anavex Life Sciences Corp. and its wholly owned subsidiaries, Anavex Australia Pty Limited. (“Anavex Australia”),
a company incorporated under the laws of Australia, Anavex Germany GmbH, a company incorporated under the laws of Germany, and Anavex
Canada Ltd., a company incorporated under the laws of the Province of Ontario, Canada. All inter-company transactions and balances have
been eliminated.
Cash and equivalents
The Company considers only
those investments which are highly liquid, readily convertible to cash and that mature within three months from the date of purchase to
be cash equivalents.
Highly
liquid investments that are considered cash equivalents include money market accounts, money market funds and certificates
of deposit. The carrying value of cash equivalents approximates fair value due to the short-term maturity of these securities. The Company’s
investment policy allows for investments in domestic money market certificates, certificates of deposit, money market funds, bonds or
commercial papers, and establishes diversification and credit quality requirements and limits investments by maturity and issuer. The
Company currently maintains its investments at one large well known financial institution.
The
Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Accounts are guaranteed by the
Federal Deposit Insurance Corporation (FDIC) up to $250,000, under current regulations. At September 30, 2022 and 2021, substantially
all of the Company’s cash balances were in excess of these federally insured limits. The Company mitigates this risk by maintaining
the majority of its cash balances in a large well-known financial institution. The Company has not experienced any losses in such accounts.
Research and Development Expenses
Research and development costs are expensed as incurred.
These expenses are comprised of the costs of the Company’s proprietary research and development efforts, including preclinical studies,
clinical trials, manufacturing costs, employee salaries and benefits and stock-based compensation expense, contract services including
external research and development expenses incurred under arrangements with third parties such as contract research organizations (“CROs”),
facilities costs, overhead costs and other related expenses. Milestone payments made by the Company to third parties are expensed when
the specific milestone has been achieved. Manufacturing costs are expensed as incurred in accordance with Accounting Standard Codification
(“ASC”) 730, Research and Development, as these materials have no alternative future use outside of their intended use.
Nonrefundable advance payments for goods or services
that will be used or rendered for future research and development activities are deferred and amortized over the period that the goods
are delivered, or the related services are performed, subject to an assessment of recoverability. The Company makes estimates of costs
incurred in relation to external CROs, and clinical site costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes
progress of the studies including the phase or completion of events, invoices received and contracted costs. Judgments and estimates are
made in determining the accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates.
The Company’s historical accrual estimates have not been materially different from actual costs.
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September 30, 2022 Page 3
In addition, the Company incurs expenses in respect
of intellectual property costs relating to patents and trademarks. The probability of success and length of time to develop commercial
applications of the drugs subject to the underlying patent and trademark costs is difficult to determine and numerous risks and uncertainties
exist with respect to the timely completion of the development projects. There is no assurance the drugs subject to the underlying patents
and trademarks will ever be successfully commercialized.
Due to these risks and uncertainties, the patent and
trademark costs do not meet the definition of an asset and thus are expensed as incurred within general and administrative expenses.
Research and Development Incentive Income
The Company is eligible to obtain certain research
and development tax credits, including the Australian research and development tax incentive credit (the “Australia R&D credit”)
through a program administered through the Australian Tax Office (the “ATO”) and AusIndustry, a division of the Australian
Government’s Department of Industry, Innovation and Science (“AusIndustry”), which provides for a cash refund based
on a percentage of eligible research and development activities undertaken in Australia by the Company’s wholly owned subsidiary,
Anavex Australia. Anavex Australia is also eligible under the Australia R&D credit program to receive the cash refund for certain
research and development expenses incurred by Anavex Australia outside of Australia, to the extent such expenses are pre-approved by AusIndustry
pursuant to an advanced overseas finding application.
The Australia R&D credit program is available
to eligible companies with an annual aggregate revenue of less than $20.0 million Australian during the reimbursable period.
The tax incentives are available on the basis of specific
criteria with which the Company must comply. Although the tax incentive may be administered through the local tax authority, the Company
has accounted for the incentives outside of the scope of ASC Topic 740, Income Taxes (“ASC 740”), since the incentives are
not linked to the Company’s taxable income and can be realized regardless of whether the Company has generated taxable income in
the respective jurisdictions.
With respect to the Australia R&D credit, as there
is no authoritative guidance under GAAP for accounting for grants to for-profit business entities, the Company accounts for the grant
by analogy to IAS20 Accounting for Government Grants and Disclosure of Government Assistance (“IAS 20”). The Company
recognizes the Research and Development Incentive income as it incurs costs eligible for reimbursement under the Australia R&D credit
Program when it is reasonably assured that the cash incentive will be received, as evidenced through enrollment in the program and when
the applicable conditions under the program have been met. The Company accrues for the amount of cash refund it expects to receive in
relation to research and development expenses outside of Australia only to the extent it has received advanced approval from AusIndustry,
pursuant to an approved advanced overseas finding application.
In addition, Anavex Australia and Anavex Canada incur
Goods and Services Tax (GST) on certain services provided by local vendors. As a domestic entity in those jurisdictions, Anavex Australia
and Anavex Canada are entitled to a refund of the GST paid. Similarly, Anavex Germany incurs Value Added Tax (VAT) on certain services
provided by local vendors, to which it is entitled to a refund of such VAT paid. The Company’s estimate of the amount of cash refund
it expects to receive related to GST and VAT incurred is included in Incentive and tax receivables in the accompanying consolidated balance
sheets.
Basic and Diluted Loss per Share
Basic income/(loss) per common share is computed by
dividing net income/(loss) available to common stockholders by the weighted average number of common shares outstanding during the period.
Diluted income/(loss) per common share is computed by dividing net income/(loss) available to common stockholders by the sum of (1) the
weighted-average number of common shares outstanding during the period, (2) the dilutive effect of the assumed exercise of options and
warrants using the treasury stock method and (3) the dilutive effect of other potentially dilutive securities. For purposes of the diluted
net loss per share calculation, options and warrants are potentially dilutive securities and are excluded from the calculation of diluted
net loss per share because their effect would be anti-dilutive.
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September 30, 2022 Page 4
As of September 30, 2022, diluted loss per share excludes
13,329,616 potentially dilutive common shares (2021 – diluted loss per share excludes 11,540,903 potentially dilutive common shares;
2020 – diluted loss per share excludes 10,576,266 potentially dilutive common shares) related to outstanding options and warrants,
as their effect was anti-dilutive.
Financial Instruments
The book value of the Company’s financial instruments,
consisting of cash and equivalents, incentive and tax receivables, accounts payable and accrued liabilities approximate their fair value
due to the short-term maturity of such instruments. Unless otherwise noted, it is management’s opinion that the Company is not exposed
to significant interest, currency or credit risks arising from these financial instruments.
Foreign Currency Translation
The functional currency of the Company is the US dollar.
Monetary items denominated in a foreign currency are translated into US dollars at exchange rates prevailing at the balance sheet date
and non-monetary items are translated at exchange rates prevailing when the assets were acquired, or obligations incurred. Foreign currency
denominated expense items are translated at exchange rates prevailing on the transaction date. Unrealized gains or losses arising from
the translations are credited or charged to income in the period in which they occur.
The Company has determined that the functional currency
of Anavex Australia Pty Limited, Anavex Germany GmbH, and Anavex Canada Ltd. is also the US dollar.
Segment and Geographic Reporting
Operating segments are defined as components of an
enterprise for which separate discrete information is available for evaluation by the chief operating decision maker or decision-making
group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business as
one operating segment, which is the business of developing novel therapies for the management of CNS diseases.
Grant Income
Grant income is recognized at the fair value of the
grant when it is received, and all substantive conditions have been satisfied. Grants received from government and other agencies in advance
of the specific research and development costs to which they relate are deferred and recognized in the consolidated statement of operations
in the period they are earned and when the related research and development costs are incurred.
Income Taxes
The Company follows the provisions of ASC 740, which
requires the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying
amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September 30, 2022 Page 5
The Company follows the provisions of ASC
740 regarding accounting for uncertainty in income taxes. The Company initially recognizes tax positions in the financial statements
when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions are
initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon
ultimate settlement with the tax authority assuming full knowledge of the position and all relevant facts. Application requires
numerous estimates based on available information. The Company considers many factors when evaluating and estimating its tax positions
and tax benefits, and its recognized tax positions and tax benefits may not accurately anticipate actual outcomes. As additional