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. For discussion and
analysis pertaining to 2024 overview and highlights as compared to 2023, please refer to the Company’s Annual Report on Form 10-K,
filed with the Securities and Exchange Commission (“SEC”) on December 23, 2024.
Financial Operations Overview
We are in
the pre-revenue 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.
66
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 fiscal year 2025 to fiscal years 2024
Operating Expenses
Our operating expenses for fiscal 2025 decreased to $51.4 million,
from $52.9 million in fiscal 2024. The decrease is attributable to research and development expenses, as more fully described below.
The following table summarizes our research and development expenses for
the years ended September 30, 2025, 2024, and 2023 (in thousands):
External service provider cost by product candidate
was as follows (in thousands):
All other product candidates 297 150 6
Other external service provider costs 351 504 372
During fiscal 2025, we experienced an overall decrease
in total research and development expenses over the comparable fiscal 2024 financial year. The main factors driving this decrease were
as follows:
67
The above decreases were partially offset by an increase
of approximately $3.0 million related to completion of Part B of the ANAVEX®3-71-SZ-001
trial during fiscal 2025, which was substantially larger in size than the preceding Part A during fiscal 2024.
General and administrative expenses were $13.8 million
for the fiscal 2025 financial year, as compared to $11.0 million in fiscal 2024. The primary reason for the increase in general and administrative
expenses was an increase in legal fees of $1.7 million, related to legal/regulatory matters, a new shelf registration statement, and various
class action lawsuits.
We expect to see our research and development expenditures increase
from current levels as we continue to advance our pipeline compounds.
Other income (net)
Net other income for the year ended September 30, 2025 was $5.0
million as compared to $9.9 million for fiscal 2024. The primary reason for the decrease in other income was due to a decrease of $2.6
million in interest income as a result of withdrawals in principal balance applied to excess funds invested in a money market as well
as a market wide decrease in interest rates.
During fiscal 2025, we recorded $0.6 million in research and development incentive
income, consisting of the Australian research and development incentive credit administered through the ATO, in connection with fiscal
2025 eligible expenditures. In comparison, research and development incentive income for fiscal 2024 was $2.3 million in connection with
fiscal 2024 eligible expenditures. This income is driven by the clinical trial expenditures incurred in Australia, and the decrease year
over year is a result of the completion of eligible R&D clinical trials in Australia. 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 2025 was $46.4 million, or $0.54
per share, compared to a net loss of approximately $43.0 million, or $0.52 per share for fiscal 2024.
Liquidity and Capital Resources
Working Capital (in thousands)
At September 30, 2025, we had $102.6 million in cash and cash
equivalents, a decrease from $132.2 million at September 30, 2024.
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.
68
Cash Flows
Following is a summary
of sources of cash flows for the years ended September 30, 2025, 2024 and 2023 (in thousands):
Cash flow used in operating activities
There was an increase in cash used in operating activities of
$8.2 million during fiscal 2025. The principal reason for this is due to a large decrease in accounts payable during the year, as compared
to a large increase in the comparable financial year, principally due to timing of payments for a large manufacturing campaign of ANAVEX®2-73.
Cash flow provided by financing activities
Cash provided by financing activities in fiscal 2025 was $9.4
million, comprised primarily of net cash received of $9.2 million related to the issuance of common shares pursuant to the at-the-market
offering and $2.9 million in cash from the exercise of stock options by our employees. We utilized $2.7 million to satisfy tax withholding
obligations associated with the net exercise of two expiring employee stock options to our CEO, in exchange for the withholding of shares.
Cash provided by financing activities in fiscal 2024 was $12.0
million, comprised of $11.3 million attributable to cash received from the issuance of common shares under the 2023 Purchase Agreement
and $0.7 million received pursuant to the exercise of stock options.
Other Financings
Sales Agreement
On July 25, 2025, we entered into a Sales Agreement
(the “Sales Agreement”) with TD Securities (USA) LLC (the “Sales Agent”). Pursuant to the Sales Agreement, the
Company may offer and sell up to an aggregate offering price of $150 million (the “Offering”) in shares of common stock from
time to time through the Sales Agent.
Upon delivery of a placement notice based on our instructions
and subject to the terms and conditions of the Sales Agreement, the Sales Agent 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 Agent may suspend or terminate the
Offering upon notice to the other party, subject to certain conditions. The Sales Agent will act as sales agent on a commercially reasonable
efforts basis consistent with its normal trading and sales practices, applicable state and federal law, rules and regulations and the
rules of Nasdaq.
We have agreed to pay the Sales Agent commissions
for its services of up to 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 Agent with customary indemnification and contribution rights.
During the year ended September 30, 2025, the Company
issued an aggregate of 927,910 shares of Common Stock under the Sales Agreement for net proceeds of $9.2 million, after deducting commissions
and offering expenses.
At September 30, 2025, there was an unused amount
of $140.4 million under the Sales Agreement.
69
2023 Purchase Agreement
On February 3, 2023, we entered into a $150,000,000
purchase agreement (the “2023 Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant
to which we have the right to sell and issue to Lincoln Park, and Lincoln Park is obligated to purchase, up to $150.0 million in value
of our shares of Common Stock from time to time over a three-year period until February 3, 2026.
On any business day and subject to having an effective
registration statement and subject to certain customary conditions, we 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 we have directed Lincoln Park to purchase the full
amount of Common Stock available as a Regular Purchase on a given day, we 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, 2025, the Company
did not issue any shares of common stock under the 2023 Purchase Agreement. 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.
On September 30, 2025, there was an unused amount
of $110.8 million under the 2023 Purchase Agreement. The Company will need to file a prospectus supplement in order to access funds under
the 2023 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.
70
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.
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.
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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 recognize 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,
2025 and 2024, 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, 2025 was $109.3 million (high: $127.0 million; low: $90.6 million) and the average
rate of return was 4.28%. 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, 2025 and 2024 and would impact our net loss
by approximately $1.1 million. To date, we have not experienced a loss of principal on any of our investments and as of September 30,
2025, 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 incentive tax 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, 2025, 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, 2025 would not have had a material impact on our consolidated financial statements.
At September 30, 2025, we held net assets of $1.9
million (AUD $2.9 million) denominated in Australian dollars. A hypothetical 10% change in foreign exchange rates at September 30, 2025
would result in a change in reported net assets of +/- $0.19 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.
72
ITEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
ANAVEX LIFE SCIENCES CORP.
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2025
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
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, 2025 and 2024, the related
consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for each of the three
years in the period ended September 30, 2025, and the related notes (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position
of the Company as of September 30, 2025 and 2024, and the results of its operations and its cash flows for each of the three years
in the period ended September 30, 2025, 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, 2025, 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 25, 2025 expressed an
unqualified opinion.
Basis for opinion
These consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 25, 2025
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
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, 2025, 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, 2025, 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, 2025, and our report dated November 25, 2025 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 25, 2025
248
F-3
Anavex
Life Sciences Corp.
Consolidated
Balance Sheets
(in
thousands, except share and per share amounts)
September 30,
Assets
Current
Incentive and tax receivables 809 2,449
Prepaid expenses and other current assets 429 931
Liabilities and Stockholders’ Equity
Current Liabilities
Deferred grant income - Note 4 805 842
Commitments and Contingencies - Note 6
Capital stock
Authorized:
Issued and outstanding:
Total Liabilities and Stockholders’ Equity $ 103,815 $ 135,567
See
Accompanying Notes to Consolidated Financial Statements
F-4
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 648 2,291 2,718
Other financing expense — — (964 )
Foreign exchange gain (loss) (332 ) 189 (40 )
Net Loss per share
Basic and diluted $ (0.54 ) $ (0.52 ) $ (0.60 )
Weighted average number of shares outstanding
See
Accompanying Notes to Consolidated Financial Statements
F-5
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:
Prepaid expenses and deposits 502 (278 ) (299 )
Deferred grant income (37 ) (75 ) 473
Cash Flows provided by Financing Activities
Issuance of common shares, net of share issue costs 9,198 11,284 27,875
Payment for taxes related to cashless exercise of options (2,707 ) — —
Supplemental Cash Flow Information
Cash paid for state and local franchise taxes $ 125 $ 300 $ 136
Common stock issued upon cashless exercise of stock options $ 1,493 $ — $ —
See
Accompanying Notes to Consolidated Financial Statements
F-6
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-7
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2025 – Page 1
Note 1 Business Description and Basis of Presentation
Business
Anavex Life Sciences Corp. (“Anavex” or
the “Company”) is a clinical stage biopharmaceutical company engaged in the development of differentiated therapeutics by
applying precision medicine to central nervous system (“CNS”) diseases with high unmet need. Anavex analyzes genomic data
from clinical 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”).
Certain immaterial amounts from prior periods have
been reclassified to conform to the current year’s presentation.
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, the Company has 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, its business might become profitable.
Management believes that the current working capital
position will be sufficient to meet the Company’s working capital requirements beyond the next 12 months after the date that these
consolidated financial statements are issued. The process of drug development can be costly, and the timing and outcomes of clinical trials
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 2025 Sales Agreement
and the 2023 Purchase Agreement (as defined below in Note 5), there can be no assurance that additional financing will be available when
needed or, if available, that it can be obtained on commercially reasonable terms. The Company will need to file a prospectus supplement
in order to access funds under the 2023 Purchase Agreement. 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.
F-8
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2025 – Page 2
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, share 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.
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 the majority of 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, 2025 and 2024, 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.
F-9
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2025 – Page 3
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.
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.
F-10
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2025 – Page 4
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.
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, 2025, diluted loss per share excludes
14,971,583 potentially dilutive common shares (2024 - 15,047,754; 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
The Company determines and presents operating segments
based on the information that is internally provided to the Company’s chief operating decision maker (“CODM”), its Chief
Executive Officer, in accordance with ASC 280, Segment Reporting. The Company has determined that it operates in a single business segment,
which is a clinical-stage biopharmaceutical company developing differentiated therapeutics by applying precision medicine to central nervous
system (“CNS”) diseases with high unmet need. Refer to Note 8 – Segmented Information for further information related