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.
Financial Operations 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 studies 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 studies. 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.
Comparison of year ended September 30, 2023 to year
ended September 30, 2022
Operating Expenses
Our operating expenses for fiscal 2023 increased to
$55.8 million, from $51.0 million in fiscal 2022. The increase is attributable to an increase in research and development expenses
of $5.7 million in 2023 to $43.7 million.
The following table summarizes our research and development
expenses for the years ended September 30, 2023, and 2022 (in thousands):
Costs of external service providers $ 22,542 $ 18,102
License fees — 500
Other common costs 99 52
Total research and development costs $ 43,717 $ 37,916
External service providers cost by product
candidate was as follows (in thousands):
All other product candidates 6 298
Other external service provider costs 372 43
Total external service provider costs $ 22,542 $ 18,102
The
increase in external service provider costs from fiscal 2022 to fiscal 2023 is primarily due to (1) an increase in manufacturing
costs for both ANAVEX®2-73 and ANAVEX®3-71, in preparation for planned clinical trials or studies
and (2) an increase in clinical trial expenditures related to our Rett program in connection with the completed enrollment and
dosing of our Phase 2/3 Excellence pediatric clinical trial.
During
fiscal 2023, our personnel costs increased to $10.3 million from $8.0 million as a result of our expanded team.However,
this was offset by a decrease in stock-based compensation expense as a result of the vesting of previously awarded milestone-based
option awards.
General and administrative expenses
for fiscal 2023 decreased to $12.0 million, from $13.1 million in fiscal 2022, most significantly related to a decrease in non-cash
stock option compensation charges as a result of the vesting of previously awarded milestone-based option awards.
During
fiscal 2023, we utilized cash and cash equivalents of $27.8 million to fund our operations, compared to $24.2 million during fiscal
2022. Our cash position increased slightly to $151.0 million at September 30, 2023, an increase of $1.9 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
expect to continue to see an increase in our research and development expenditures as we advance our ANAVEX®2-73
clinical studies, including planned advancement of ANAVEX®2-73 for Parkinson’s
disease 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)
Net other income for the year ended
September 30, 2023 was $8.3 million as compared to $3.4 million for fiscal 2022. The primary reason for the increase in other
income was due to an increase in interest income earned on cash and cash equivalents, due to an increase in market wide interest
rates year over year.
During fiscal 2023, we recorded
$2.7 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 2023 eligible expenditures. In comparison, research
and development incentive income for fiscal 2022 was $3.3 million in connection with fiscal 2022 eligible expenditures. 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 2023 was $47.5 million,
or $0.60 per share, compared to a net loss of approximately $48.0 million, or $0.62 per share for fiscal 2022.
Liquidity and Capital Resources
Working Capital (in thousands)
At September 30, 2023, we had $151.0
million in cash and cash equivalents, an increase from $149.2 million at September 30, 2022.
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
Following
is a summary of sources of cash flows for the years ended September 30, 2023 and 2022 (in thousands)
Cash flows used in operating activities $ (27,785 ) $ (24,238 )
Cash flows provided by financing activities 29,651 21,288
Increase (decrease) in cash $ 1,866 $ (2,950 )
Cash flow used in operating activities
There was an increase in cash used in operating activities
of $1.9 million during fiscal 2023 primarily due to the collection of incentive and tax receivables in the comparable period.
Cash flow provided by financing activities
Cash provided by financing activities in
fiscal 2023 was $29.7 million, primarily attributable to cash received from the issuance of common shares at various market
prices under the 2023 Purchase Agreement (as defined below).
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.
Other Financings
2023 Purchase Agreement
On February 3, 2023, the Company entered into
a $150,000,000 purchase agreement (the “2023 Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln
Park”), pursuant to which the Company has the right to sell and issue to Lincoln Park, and Lincoln Park is obligated to purchase,
up to $150.0 million in value of its shares of Common Stock from time to time over a three-year period until February 3, 2026.
On any business day and subject to certain
customary conditions, the Company may direct Lincoln Park to purchase up to 200,000 shares of Common Stock (such purchases, “Regular
Purchases”). The amount of a Regular Purchase may increase under certain circumstances based on the market price of the
Common Stock; provided, however, that Lincoln Park’s committed obligation under any Regular Purchase shall not exceed $4.0
million. The purchase price of shares of Common Stock will be based on the then prevailing market prices of such shares at the
time of sales as described in the Purchase Agreement. There are no limits on the price per share that Lincoln Park may pay to purchase
Common Stock under the Purchase Agreement. In addition, if the Company has directed Lincoln Park to purchase the full amount of
Common Stock available as a Regular Purchase on a given day, it may direct Lincoln Park to purchase additional amounts as “accelerated
purchases” and “additional accelerated purchases,” each as set forth in the Purchase Agreement.
The Purchase Agreement limits the Company’s
sale of shares of Common Stock to Lincoln Park to 15,606,426 shares of Common Stock, representing 19.99% of the shares of the Common
Stock outstanding on the date of the Purchase Agreement unless (i) stockholder approval is obtained to issue more than such
amount or (ii) the average price of all applicable sales of Common Stock to Lincoln Park under the Purchase Agreement equals
or exceeds the lower of (A) the closing price of the Common Stock on the Nasdaq Capital Market immediately preceding the Execution
Date or (B) the average of the closing price of the Common Stock on the Nasdaq Capital Market for the five Business Days immediately
preceding the Execution Date.
The Purchase Agreement also prohibits the Company
from directing Lincoln Park to purchase any shares of Common Stock if those shares, when aggregated with all other shares of Common
Stock then beneficially owned by Lincoln Park and its affiliates, would result in Lincoln Park and its affiliates having beneficial
ownership, at any single point in time, of more than 4.99% of the then total outstanding shares of Common Stock, as calculated
pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended, and Rule 13d-3 thereunder.
In consideration for entering into the 2023
Purchase Agreement, the Company issued to Lincoln Park 75,000 shares of Common Stock as a commitment fee (the “initial commitment
shares”) during the year ended September 30, 2023 and agreed to issue up to 75,000 shares pro rata (collectively with the
initial commitment shares, the “commitment shares”), when and if, Lincoln Park purchased, at the Company’s discretion,
the $150.0 million aggregate commitment.
During the year ended September 30, 2023, the
Company issued to Lincoln Park an aggregate of 3,288,943 (2022: 0) shares of Common Stock under the 2023 Purchase Agreement, including
3,275,000 (2022: 0) shares of Common Stock for aggregate proceeds of $27.9 million (2022: $0) and 88,943 (2022: 0) commitment shares
(inclusive of the 75,000 initial commitment shares).
As of September 30, 2023, an amount of
$122.1 million in shares of our common stock remain available for purchase by Lincoln Park under the 2023 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.
No shares were sold during the year ended September
30, 2023 under the Sales Agreement. The Company currently does not have access to sell shares of common stock with the Sales Agents.
During the year ended September 30, 2022, 1,623,813
shares were sold under the Sales Agreement for gross proceeds of $21.0 million (net proceeds of $20.3 million after deducting commissions
and offering expenses).
2019 Purchase Agreement
On June 7, 2019, we
entered into a Purchase Agreement (the “2019 Purchase Agreement”) with 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, 2023 and 2022, no shares of our common stock remained available for purchase by Lincoln Park under the 2019 Purchase
Agreement.
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, bonds or commercial
papers, and establishes diversification and credit quality requirements and limits investments by maturity and issuer.At September 30, 2023 and 2022, 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, 2023 was $138.4 million (high: $145.4 million; low: $129.5
million) and the average rate of return was 4.69%.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, 2023 and 2022 and would impact our net loss by approximately $1.4 million.
To date, we have not experienced a loss of principal on any of our investments and as of September 30, 2023 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, 2023, 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, 2023 would not have had a material impact on our consolidated financial statements.
At
September 30, 2023, we held net assets of $5.0 million (AUD $7.8 million) denominated in Australian dollars.A
hypothetical 10% change in foreign exchange rates at September 30, 2023 would result in a change in reported net assets of +/-
$0.5 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, 2023
F-1
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, 2023, 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, 2023, 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, 2023, and our report dated November 27, 2023 expressed an unqualified opinion on 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
Melville, New York
November 27, 2023
F-2
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 consolidated balance sheets of Anavex
Life Sciences Corp. (a Nevada corporation) and subsidiaries (the “Company”) as of September 30, 2023 and 2022, the related
consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for each of the two
years in the period ended September 30, 2023, and the related notes (collectively referred to as the “financial statements”).
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company
as of September 30, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended
September 30, 2023, 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, 2023, 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 27, 2023 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 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 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 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 audits 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 audits provide a reasonable basis for our opinion.
Critical audit matters
Critical audit matters are matters arising from the current period audit
of the 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 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.
Melville, New York
November 27, 2023
248
F-3
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 consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the year
ended September 30, 2021, and the related notes (collectively referred to as the “consolidated financial statements”) of
Anavex Life Sciences Corp. (the “Company”). In our opinion, the consolidated financial statements present fairly, in all
material respects, the results of the Company’s operations and cash flows for the year ended September 30, 2021, in conformity
with accounting principles generally accepted in the United States of America.
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 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 consolidated 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 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 audit 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 audit provides 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, P.C.
We served as the Company's
auditor from 2013 to 2022.
New York,
New York
November
24, 2021
F-4
Anavex
Life Sciences Corp.
Consolidated Balance Sheets
(in
thousands, except share and per share amounts)
September 30,
Assets
Current
Incentive and tax receivables 2,709 3,193
Prepaid expenses and other current assets 653 354
Liabilities and Stockholders' Equity
Current Liabilities
Deferred grant income - Note 4 917 444
Commitments and Contingencies - Note 6 — —
Capital stock
Authorized:
Total Liabilities and Stockholders' Equity $ 154,386 $ 152,705
See
Accompanying Notes to Consolidated Financial Statements
F-5
Anavex
Life Sciences Corp.
Consolidated
Statements of Operations and Comprehensive Loss
(in
thousands, except share and per share amounts)
Years Ended September 30,
Operating expenses
Other income (expenses)
Other financing expense (964 ) — —
Foreign exchange loss (40 ) (904 ) (266 )
Income tax expense, current (7 ) (358 ) (268 )
Net Loss per share Basic and diluted $ (0.60 ) $ (0.62 ) $ (0.54 )
See
Accompanying Notes to Consolidated Financial Statements
F-6
Anavex
Life Sciences Corp.
For
the years ended September 30, 2023, 2022 and 2021
(in
thousands, except share and per share amounts)
Years ended September 30,
Cash Flows used in Operating Activities
Adjustments to reconcile net loss to net cash used in operations:
Non-cash financing related charges 845 — —
Changes in working capital balances related to operations:
Prepaid expenses and deposits (299 ) 1 88
Deferred grant income 473 — 444
Cash Flows provided by Financing Activities
Proceeds from exercise of warrants — — 1,467
Increase in cash and cash equivalents during the period 1,866 (2,950 ) 122,859
Supplemental Cash Flow Information
Cash paid for state and local minimum income taxes $ 136 $ 327 $ 140
See
Accompanying Notes to Consolidated Financial Statements
F-7
Anavex
Life Sciences Corp.
Consolidated
Statements of Changes in Stockholders' Equity
(in thousands, except share and per share amounts)
Common Stock Additional Paid- Accumulated
Shares Par Value in Capital Deficit Total
Shares issued under 2019 purchase agreement
Commitment shares 78,213 — — — —
Less: share issue costs — — (2,438 ) — (2,438 )
Less: share issue costs — — (3,097 ) — (3,097 )
Share based compensation — — 8,231 — 8,231
Less: share issue costs — — (723 ) — (723 )
Commitment shares 13,943 — — — —
See
Accompanying Notes to Consolidated Financial Statements
F-8
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2023 – Page 9
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 trials to identify biomarkers, which are used in the analysis of its clinical
trials for the treatment of neurodegenerative and neurodevelopmental diseases.
The
Company’s lead compound ANAVEX®2-73 (blarcamesine) 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 sales to pharmaceutical
companies 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 from operations for the foreseeable future and cannot predict when, if ever, our 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 are 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 Purchase 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.
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 carrying 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.
F-9
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2023 – Page 10
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, 2023 and 2022, 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 trials and 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.
F-10