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.
64
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 share-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 share-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, 2024 to year ended
September 30, 2023
Operating Expenses
Our operating expenses for fiscal 2024 decreased to $52.9 million,
from $55.8 million in fiscal 2023. The decrease is attributable to a modest decrease in research and development expenses of $1.9 million
(4.3%) to $41.8 million in fiscal 2024 as well as a small decrease in general and administrative expenses of $1.0 million (8.3%) to $11.0
million in fiscal 2024, as more fully described below.
During fiscal 2024, we experienced an overall decrease
in total research and development expenses over the comparable fiscal 2023 financial year.
The decreases were largely due to:
These decreases were largely offset by the following
increases in research and development expenditures over the comparable fiscal 2023 financial year:
65
The following table summarizes our research and development expenses for
the years ended September 30, 2024, and 2023 (in thousands):
Costs of external service providers $ 21,974 $ 22,542
Total research and development costs $ 41,838 $ 43,717
External service provider cost by product candidate
was as follows (in thousands):
All other product candidates 150 6
Other external service provider costs 504 372
Total external service provider costs $ 21,974 $ 22,542
General and administrative expenses were $11.0 million
for the fiscal 2024 financial year, as compared to $12.0 million in fiscal 2023. The primary reason for the decrease in general and administrative
expenses was a reduction in share-based compensation charges of $1.9 million, as a result of the vesting of previous option awards and
the extended timeline of milestone based vesting awards.
We
expect to see our research and development expenditures increase from current levels as we advance our clinical programs, including continuation
of ANAVEX®3-71 trial in Schizophrenia and subsequent advancements, planned advancement of ANAVEX®2-73 for
Parkinson’s disease, planned initiation of an ANAVEX®2-73
for a Fragile X clinical trial, and as we continue to grow our staffing to manage and support these clinical initiatives.
Other income (net)
Net other income for the year ended September 30, 2024 was $9.9
million as compared to $8.3 million for fiscal 2023. The primary reason for the increase in other income was due to a one-time financing
charge of $0.9 million recognized in the comparable year associated with entering into the 2023 Purchase Agreement (as described below),
as well as an increase in interest income in fiscal 2024 earned on cash and cash equivalents, due to an increase in market wide interest
rates year over year.
During
fiscal 2024, we recorded $2.3 million in research and development incentive income, consisting of the Australian research and development
incentive credit administered through the ATO, in connection with fiscal 2024 eligible expenditures. In comparison, research and development
incentive income for fiscal 2023 was $2.7 million in connection with fiscal 2023 eligible expenditures. This income is driven by the clinical
trial expenditures incurred in Australia, and the decrease is a result of the completion of the EXCELLENCE trial in Rett Syndrome and
the Phase 2b/3 clinical trial in Alzheimer’s disease, as well as
related open label extension trials, which were completed during fiscal 2024. We expect to continue to receive support from the Australian
government for future clinical trials which we plan to conduct, in part, within Australia.
Net loss
Net loss for fiscal 2024 was $43.0 million, or $0.52
per share, compared to a net loss of approximately $47.5 million, or $0.60 per share for fiscal 2023.
66
Liquidity and Capital Resources
Working Capital (in thousands)
At September 30, 2024, we had $132.2 million in cash and cash
equivalents, a decrease from $151.0 million at September 30, 2023.
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, 2024 and 2023 (in thousands)
Cash flows used in operating activities $ (30,812 ) $ (27,785 )
Cash flows provided by financing activities 11,975 29,651
(Decrease) increase in cash $ (18,837 ) $ 1,866
Cash flow used in operating activities
There was an increase in cash used in operating activities of
$3.0 million during fiscal 2024. The principal reason for this is an increase in net cash expenses, after taking into account non-cash
share-based compensation, over the comparable period of approximately $3.3 million.
Cash flow provided by financing activities
Cash provided by financing activities in fiscal 2024 was $12.0
million, comprised of $11.3 attributable to cash received from the issuance of common shares at various market prices under the 2023 Purchase
Agreement (as defined below) and $0.7 million received pursuant to the exercise of stock options.
Cash provided by financing activities in fiscal 2023 was $29.7
million, comprised of $27.9 million attributable to cash received from the issuance of common shares under the 2023 Purchase Agreement
and $1.8 million received pursuant to the exercise of stock options.
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.
67
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 2023 Purchase
Agreement. There are no limits on the price per share that Lincoln Park may pay to purchase Common Stock under the 2023 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 2023 Purchase Agreement.
The 2023 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 2023 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 2023 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 2023 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, 2024, the Company
issued to Lincoln Park an aggregate of 2,455,646 shares of Common Stock under the 2023 Purchase Agreement, including 2,450,000 shares
of Common Stock for an aggregate purchase price of $11.3 million and 5,646 commitment shares. During the year ended September 30, 2023,
the Company issued to Lincoln Park an aggregate of 3,288,943 shares of Common Stock under the 2023 Purchase Agreement, including 3,275,000
shares of Common Stock for an aggregate purchase price of $27.9 million and 13,943 commitment shares as well as the 75,000 initial commitment
shares.
On September 30, 2024, an amount of $110.8 million
remained available under the 2023 Purchase Agreement.
Controlled Equity Offering Sales Agreement
On May 1, 2020, we entered into an Amended and Restated
Sales Agreement (the “2020 Sales Agreement”) with Cantor Fitzgerald & Co. and SVB Leerink LLC (the “Sales Agents”),
pursuant to which we could 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”).
No shares were sold during the years ended September
30, 2024 and 2023 under the 2020 Sales Agreement. The Company terminated the 2020 Sales Agreement on July 24, 2024.
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.
68
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 share-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 share-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.
69
Share-based Compensation
We account for all share-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 share-based payments with graded vesting
are recognized on a straight-line basis. Share-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
Not required for smaller reporting companies.
70
ITEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
ANAVEX LIFE SCIENCES CORP.
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
F-1
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, 2024 and 2023, 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, 2024, and the related notes (collectively referred to as the “financial statements”).
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September
30, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended September 30, 2024,
in conformity with accounting principles generally accepted in the United States of America.
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 Public Company Accounting Oversight Board (United States) (“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. The Company is not required to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control
over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion.
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
December 23, 2024
248
F-2
Anavex Life Sciences Corp.
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
September 30,
Assets
Current
Incentive and tax receivables 2,449 2,709
Prepaid expenses and other current assets 931 653
Liabilities and Stockholders’ Equity
Current Liabilities
Deferred grant income - Note 4 842 917
Commitments and Contingencies - Note 6 — —
Capital stock
Authorized:
Issued and outstanding:
Total Liabilities and Stockholders’ Equity $ 135,567 $ 154,386
See
Accompanying Notes to Consolidated Financial Statements
F-3
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 (expense)
Research and development incentive income 2,291 2,718
Other financing expense — (964 )
Foreign exchange gain (loss) 189 (40 )
Net loss before provision for income taxes (43,002 ) (47,498 )
Income tax expense, current — (7 )
Net loss and comprehensive loss $ (43,002 ) $ (47,505 )
Net Loss per share
Basic and diluted $ (0.52 ) $ (0.60 )
Weighted average number of shares outstanding
See
Accompanying Notes to Consolidated Financial Statements
F-4
Anavex Life Sciences Corp.
Consolidated Statements of Cash Flows
(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:
Incentive and tax receivables 260 484
Prepaid expenses and deposits (278 ) (299 )
Deferred grant income (75 ) 473
Net cash used in operating activities (30,812 ) (27,785 )
Cash Flows provided by Financing Activities
Proceeds from exercise of stock options 691 1,776
Net cash provided by financing activities 11,975 29,651
(Decrease) Increase in cash and cash equivalents during the year (18,837 ) 1,866
Supplemental Cash Flow Information
Cash paid for state and local franchise taxes $ 300 $ 136
See
Accompanying Notes to Consolidated Financial Statements
F-5
Anavex Life Sciences Corp.
Consolidated Statements of Changes in Stockholders’ Equity
(in thousands, except share and per share amounts)
Common Stock Additional Paid-in Accumulated
Shares Par Value Capital Deficit Total
Shares issued under 2023 Purchase Agreement
Commitment shares 13,943 — — — —
Shares issued under 2023 Purchase Agreement
Commitment shares 5,646 — — — —
Shares issued pursuant to exercise of stock options 273,360 — 691 — 691
Share based compensation — — 9,438 — 9,438
See
Accompanying Notes to Consolidated Financial Statements
F-6
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2024 – Page 7
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 focus is on developing innovative
treatments for Alzheimer’s disease, Parkinson’s disease, schizophrenia, neurodevelopmental, neurodegenerative, and rare diseases,
including Rett syndrome, and other central nervous system (CNS) disorders.
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 revenue 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 2023 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 and tax receivables, 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-7
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2024 – Page 8
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, 2024 and 2023, 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 share-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.
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.
F-8
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2024 – Page 9
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, through its wholly owned subsidiary Anavex Australia, 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”).
The Australia R&D credit program provides for a cash refund based on a percentage of eligible research and development activities
undertaken in Australia by 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 at a rate
of 18.5% above the claimant’s company tax rate in Australia.
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.
License Fees
The
Company expenses amounts paid to acquire licenses associated with products under development when the ultimate recovery of the amounts
paid is uncertain and the technology has no alternative future use when acquired. Acquisitions of technology licenses are charged to expense
or capitalized based on management’s assessment regarding the ultimate recoverability of the amounts paid and the potential for
alternative future use. The Company has determined that the technological feasibility for its product candidates is reached when the requisite
regulatory approvals are obtained to make the product available for sale.
F-9
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2024 – Page 10
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.
As of September 30, 2024, diluted loss per share excludes
15,047,754 potentially dilutive common shares (2023 – 14,271,780) 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 statements of operations
and comprehensive loss in the period they are earned, typically 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.
F-10
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2024 – Page 11
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 information is obtained, there may be a need to periodically
adjust the recognized tax positions and tax benefits. These periodic adjustments may have a material impact on the consolidated statements
of operations and comprehensive loss.
The Company recognizes interest and penalties related
to current income tax expense on the interest income, net line, in the accompanying consolidated statements of operations and comprehensive
loss. Accrued interest and penalties, if any, are included in accrued liabilities on the consolidated balance sheets.
Share-based Compensation
The Company accounts for all share-based payments
and awards under the fair value method.
The fair value of all share-based payments 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 share-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.
The Company has granted share purchase option awards
that vest upon achievement of certain performance criteria, or milestone-based awards. The Company estimates 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 it concludes that achieving the performance criteria is probable. The Company periodically reviews and updates as appropriate its
estimates of implicit service periods and conclusions on achieving the performance criteria. Performance awards vest upon achievement
of the performance criteria.
The Company uses the Black-Scholes option valuation
model to calculate the fair value of share-based awards 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. The Company uses the U.S. Treasury daily treasury yield
curve rates for the expected term of the option as the risk-free rate. The expected term represents the period that options granted are
expected to be outstanding using the simplified method. The Company’s historical share option exercise experience does not provide
sufficient basis for estimating the expected term. Expected volatility is based on the average of the daily share price changes over the
expected term. The Company does not estimate forfeitures and elects to record actual forfeitures as they occur. The Company has not paid
any dividends on its common stock historically, therefore no assumption of dividend payments is made in the model. 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.
The purchase price of share-based compensation awards
may be paid in cash or, if approved by the Company’s compensation committee (or in the case of warrants by the Board of Directors)
in advance, “net settled” in shares of the Company’s common stock. In a net settlement of an share-based award, the
Company does not receive payment of the exercise price from the holder but reduces the number of shares of common stock issued upon the
exercise of the award by the smallest number of whole shares that have an aggregate fair market value equal to or over the aggregate exercise
price for the option shares covered by the instrument exercised. Shares issued pursuant to the exercise of options and warrants are issued
from the Company’s treasury.
F-11
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2024 – Page 12
Fair Value Measurements
Fair value is defined as the exchange price that would
be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants at the measurement date. Assets and liabilities that are measured at fair
value are reported using a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes
the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as
follows:
Level 1 - quoted prices (unadjusted) in active
markets for identical assets or liabilities that the Company has the ability to access at the measurement date;
Level 2 - observable inputs other than Level 1, quoted
prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets
that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and
Level 3 - assets and liabilities whose significant