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Item 7. Management’s Discussion and Analysis

2022-11-28 compared with 2021-11-24 · 162 added, 142 removed, 105 unchanged (74% of the section changed)

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DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following discussion should be read in conjunction with

our audited consolidated financial statements and notes thereto for the fiscal year ended September 30, 2021, included elsewhere

in this Annual Report on Form 10-K.

Financial Overview

The following discussion should be read

in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this report.

Past operating

results are not necessarily indicative of results that may occur in future periods.

This discussion contains forward-looking statements,

which involve a number of risks and uncertainties.

See Forward Looking Statements included elsewhere in this report.

This section discusses year over year comparisons

for the fiscal years ended September 30, 2022 and 2021.

Discussion of year over year comparisons between the fiscal years ended September

30, 2021 and 2020 have been excluded from this Form 10-K and can be found in “ Management’s Discussion and Analysis of Financial

Condition and Results of Operations ” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended September

are in the development stage and have not earned any revenues since our inception in 2004.

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until we can establish an alliance with other companies to develop, co-develop, license, acquire or market our products.

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.

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.

costs include salaries and wages, benefits, and non-cash stock-based compensation charges associated with options and other equity

awards granted to employees and consultants who are directly engaged in support of our research and development activities.

General and administrative expenses consist of personnel

costs, expenses for outside professional services and expenses for associated with operating as a public company.

Personnel costs

consist of salaries and wages, benefits and stock-based compensation for general and administrative personnel.

Outside professional

services and public company expenses, include expenses related to compliance and reporting, additional insurance expenses, audit

and SOX compliance, expenses associated with patent research, applications and filings, investor and shareholder relations activities

and other administrative expenses and professional services

Our operating costs consist primarily

of research and development activities including the cost of clinical trials and clinical supplies as well as clinical drug manufacturing

and formulation.

Research and development expenses also include personnel related costs such as salaries and wages, and third-party

contract research organization (CRO) expenses in support of these clinical trials.

Personnel costs include salaries and wages,

benefits, and non-cash stock-based compensation charges associated with options and other equity awards granted to employees and

consultants who are directly engaged in support of our research and development activities.

General and administrative expenses

consist of personnel costs, expenses for outside professional services and expenses associated with operating as a public company.

Personnel costs consist of salaries and wages, benefits and stock-based compensation for general and administrative personnel.

Outside professional services and public company expenses, include expenses related to compliance and reporting, additional

insurance expenses, audit and SOX compliance, expenses associated with patent research, applications and filings, investor and

stockholder relations activities and other administrative expenses and professional services.

Year ended September 30, 2022

fiscal 2021, we made significant progress in the advancement of clinical studies for ANAVEX ® 2-73, including completing

enrollment of our international Phase 2b/3 Alzheimer ’ s disease

trial, completion of our proof-of-concept Phase 2 Parkinson ’ s disease

dementia trial, continued advancement of a multi-regional Phase 2/3 clinical program for the treatment of Rett syndrome, including completion

of the Phase 2 U.S.

trial, expansion of the AVATAR Phase 2 study internationally into the United Kingdom and the commencement of the

EXCELLENCE Phase 2/3 pediatric Rett syndrome study and expansion of this trial into Canada and the United Kingdom.

Additionally, we advanced

the first in human Phase 1 clinical trial of ANAVEX ® 3-71 with focus on the treatment of Frontotemporal Dementia (FTD).

During fiscal 2022, we advanced our business and clinical trials

through the following events:

January 2022, we reported positive top-line results from the placebo-controlled Phase 1 clinical trial (ANAVEX®3-71-001) in

development for the treatment of neurodegenerative diseases including Frontotemporal Dementia (FTD), for which ANAVEX®3-71 has

been granted Orphan Drug Designation by the FDA.

The trial achieved primary and secondary safety endpoints.

February 2022, we reported positive top-line results from the second randomized, placebo-controlled AVATAR Phase 3 clinical trial

(ANAVEX®2-73-RS-002) for the treatment of adult patients with Rett syndrome.

The trial met its primary and secondary efficacy

and safety endpoints, with consistent and clinically meaningful improvements in all efficacy measures.

April 2022, we completed the last patient visit in the 48-week open label extension of the Parkinson’s Disease Dementia Phase

2 clinical trial.

June 2022, the last patient last visit in the randomized, placebo-controlled Phase 2b/3 clinical trial ANAVEX®2-73-AD-004 for

the treatment of early Alzheimer’s disease occurred.

We expect to present top line data at the upcoming Clinical Trial on Alzheimer’s

Disease (CTAD) Congress 2022 in San Francisco, CA.

fiscal 2022, we made significant progress in the randomized, placebo-controlled EXCELLENCE Phase 2/3 clinical trial ANAVEX®2-73-RS-003

for the treatment of pediatric patients with Rett syndrome with expansion of enrollment into clinical sites across Canada and the

United Kingdom.

Operating Expenses

Our operating expenses for fiscal 2021 increased to $42.0

million, from $31.1 million in fiscal 2020.

The increase is attributable to an increase in research and development expenses of

$7.8 million in 2021 to $33.0 million, primarily due to the advancement of our clinical programs, as described above.

General and administrative expenses for fiscal 2021 increased

to $9.0 million, from $5.9 million in fiscal 2020, most significantly related to an increase in personnel and an increase in associated

non-cash stock option compensation charges.

fiscal 2021, we utilized $30.4 million to fund our operations, compared to $21.3 million during fiscal 2020.

Our cash position

increased to $152.1 million at September 30, 2021, an increase of $122.9 million over the prior year.

for operations was generated through the issuance of shares of common stock under financing arrangements described below, and through

the completion of a registered direct offering.

We will continue to see an increase in our research and

development expenditures as we advance our ANAVEX ® 2-73 clinical studies, including adding extension studies to allow

us to continue to gather longer term data, continuing to advance our other pipeline compounds such as ANAVEX ® 3-71,

and as we continue to add additional staffing to manage and support these clinical studies.

Our operating expenses for fiscal 2022 increased to $51.0 million, from $42.0

million in fiscal 2021.

The increase is attributable to an increase in research and development expenses of $4.9 million in 2022 to $37.9

million, as described below.

The following table summarizes our research and development

expenses for the years ended September 30, 2022, and 2021 (in thousands):

Costs of external service providers

Personnel costs

Stock-based compensation

Other common costs

Total research and development costs

During fiscal 2022, external service

providers costs by product candidate were as follows (in thousands):

ANAVEX ® 2-73

ANAVEX ® 3-71

All other product candidates

Other external service provider costs

Total external service provider costs

decrease in external service provider costs from fiscal 2021 to fiscal 2022 is related to a decrease in clinical trial expenditures over

the comparable period, associated with the completion of the enrollment and recruitment activities for our Phase 2b/3 trial in Alzheimer ’ s

disease, and manufacturing activities in the comparable period associated with the Rett syndrome program.

This decrease was offset by

an increase in personnel costs and non-cash stock-based compensation associated with an expanding team directly engaged in support of

ongoing research and development activities.

General and administrative expenses for

fiscal 2022 increased to $13.1 million, from $9.0 million in fiscal 2021, most significantly related to an increase in personnel and

an increase in associated non-cash stock option compensation charges.

fiscal 2022, we utilized cash and cash equivalents of $24.2 million to fund our operations, compared to $30.4 million during fiscal 2021.

Our cash position decreased to $149.2 million at September 30, 2022, a decrease of $2.9 million over the prior year.

Cash for operations

was generated through the issuance of shares of common stock under the financing arrangements described below.

We will continue to see an increase in our research and development expenditures as we advance our ANAVEX ® 2-73

clinical trials, including planned advancement of ANAVEX ® 2-73 for Parkinson’s disease program, planned initiation

of a Fragile X clinical program, ongoing extension studies of our current clinical programs, continued advancement of our other

pipeline compounds such as ANAVEX ® 3-71, and as we continue to add additional staffing to manage and support these

clinical initiatives.

Net other income for the year ended September

30, 2022 was $3.4 million as compared to $4.4 million for fiscal 2021.

The primary reason for the decrease in other income was due to an

increased foreign exchange loss associated with Incentive and other receivables denominated in Australian dollars, and related

impact from the fluctuation of the Australian dollar against the US dollar during the year.

During fiscal 2021, we recorded $4.5 million in research

and development incentive income, consisting of the Australian research and development incentive credit administered through the

Australian Tax Office, in connection with fiscal 2021 eligible expenditures and fiscal 2020 expenditures for which an overseas

finding ruling was obtained during the current year.

In comparison, research and development incentive income for fiscal 2020 was

$4.4 million in connection with fiscal 2020 eligible expenditures.

We expect to continue to receive support from the Australian

government for various clinical trials being conducted within Australia.

The primary reason for the decrease in other income was due to

a decrease in research and development incentive income and an increased foreign exchange loss associated with incentive and other receivables

denominated in Australian dollars, and related impact from the fluctuation of the Australian dollar against the US dollar during the

The decrease was offset by an increase in interest income.

During fiscal 2022, we recorded $3.3 million

in research and development incentive income, consisting of the Australian research and development incentive credit administered through

the Australian Tax Office, in connection with fiscal 2022 eligible expenditures.

In comparison, research and development incentive income

for fiscal 2021 was $4.5 million in connection with fiscal 2021 eligible expenditures and fiscal 2020 expenditures for which an overseas

finding ruling was obtained during fiscal 2021.

We expect to continue to receive support from the Australian government for various clinical

trials being conducted within Australia.

Net loss for fiscal 2022 was $48.0 million,

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Current Assets

$ 161,616,490

Current Liabilities

Working Capital

$ 150,818,104

September 30, 2021, we had $152.1 million in cash and cash equivalents, an increase of $122.9 million, from $29.2 million at September

T he principal reason for

this increase is due to cash received from financing activities of $153.2 million from the issuance of common shares, offset by

cash utilized in operations of $30.4 million.

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 .

At September 30, 2022, we had $149.2 million

in cash and cash equivalents, a decrease of $2.9 million, from $152.1 million at September 30, 2021.

The decrease in cash and cash equivalents

during the year is a result of cash utilized in operations, partially offset by cash provided by financing activities, as described below.

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 used in operating activities

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Cash flows provided by financing activities

Increase in cash

Increase (decrease) in cash

$ (2,949,884 )

$ 122,858,727

Cash flow used in operating activities

There was an increase in cash used in operating activities

of $9.1 million during fiscal 2021 due to an increase in clinical trial activities, as more fully described above.

There was a decrease in cash used in operating

activities of $6.1 million during fiscal 2022 primarily due to the collection of incentive and tax receivables.

Cash flow provided by financing activities

Cash provided by financing activities in

fiscal 2021 was $153.2 million, net of financing costs, primarily attributable to cash received from the issuance of common

shares at various market prices under the 2019 Purchase Agreement, the Sales Agreement and a direct registered offering we completed

for net proceeds of $46.9 million, after deducting expenses associated with the offering.

Cash provided by financing activities

in fiscal 2022 was $21.3 million, net of financing costs, primarily attributable to cash received from

the issuance of common shares at various market prices under the Sales Agreement.

Cash provided by financing activities in

fiscal 2020 were $28.4 million, attributable to cash received from the issuance of common shares at various market prices

under the 2019 Purchase Agreement and under the Sales Agreement .

fiscal 2021 was $153.2 million, net of financing costs, primarily attributable to cash received from the issuance of common shares

at various market prices under the 2019 Purchase Agreement, the Sales Agreement and a direct registered offering.

Other Financings

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shares of common stock for an aggregate purchase price of $24.1 million and 78,213 commitment shares.

September 30, 2021, no shares of our common stock remain available for purchase by Lincoln Park under the 2019 Purchase Agreement.

September 30, 2022 and 2021, no shares of our common stock remain available for purchase by Lincoln Park under the 2019 Purchase

Controlled Equity Offering Sales

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The Sales Agents will act as agents on a commercially reasonable efforts basis consistent with their normal trading and sales practices,

and applicable state and federal law, rules and regulations and the rules of Nasdaq.

applicable state and federal law, and rules and regulations and the rules of Nasdaq.

We have agreed to pay the Sales Agents’ commissions

for their services of 3.0% of the gross proceeds from the sale of the Shares pursuant to the Sales Agreement.

We have also agreed

to provide the Sales Agents with customary indemnification and contribution rights.

for their services of 3.0% of the gross proceeds from the sale of shares of common stock pursuant to the Sales Agreement.

also agreed to provide the Sales Agents with customary indemnification and contribution rights.

During fiscal 2022, 1,623,813 shares were sold

pursuant to the At-the-Market Offering for gross proceeds of $21.0 million (net proceeds of $20.3 million after deducting offering

During fiscal 2021, 5,634,576 shares were sold

pursuant to the At-the-Market Offering for gross proceeds of $79.1 million (net proceeds of $76.7 million after deducting commissions

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of Critical Accounting Policies

financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United

Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of

assets, liabilities, revenue and expenses.

financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States.

Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities,

revenue and expenses.

These estimates and assumptions are affected by management ’ s

application of accounting policies.

We believe that understanding the basis and nature of the estimates and assumptions involved

with the following aspects of our financial statements is critical to an understanding of our financial statements.

We base our assumptions and estimates on historical experience

and other sources that we believe to be reasonable at the time.

Actual results may vary from our estimates due to changes in circumstances,

politics, global economics, general business conditions and other factors.

Our significant estimates are related to the valuation

of warrants and options.

There are accounting policies that we believe are significant

to the presentation of our financial statements.

The most significant of these accounting policies relates to the accounting for

our research and development expenses and stock-based compensation expense.

We believe that understanding the basis and nature of the estimates and assumptions involved with

the following aspects of our financial statements is critical to an understanding of our financial statements.

We base our assumptions and estimates

on historical experience and other sources that we believe to be reasonable at the time.

Actual results may vary from our estimates due

to changes in circumstances, politics, global economics, general business conditions and other factors.

Our significant estimates are

related to the valuation of warrants and options.

There are accounting policies that we

believe are significant to the presentation of our financial statements.

The most significant of these accounting policies relates to

the accounting for our research and development expenses and stock-based compensation expense.

Research and Development Expenses

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expensed and the related prepaid asset and accrued liability.

Judgments and estimates must be made and used in determining

Significant judgments and estimates must be made and used in determining

the accrued balance and expense in any accounting period.

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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 study or 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.

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

Stock-based Compensation

We account for all stock-based payments and awards under

the fair value-based method.

The fair value of all share purchase options and warrants

are expensed over their contractual vesting period, or over the expected performance period for only the portion of awards expected

to vest, in the case of milestone-based vesting, with a corresponding increase to additional paid-in capital.

Compensation costs for stock-based payments with graded

vesting are recognized on a straight-line basis.

We account for all stock-based payments and awards under the

fair value-based method.

The fair value of all share purchase options

and warrants are expensed over their contractual vesting period, or over the expected performance period for only the portion of awards

expected to vest, in the case of milestone-based vesting, with a corresponding increase to additional paid-in capital.

Compensation costs for stock-based payments

with graded vesting are recognized on a straight-line basis.

Stock based compensation expense is adjusted for actual forfeitures of unvested

awards as they occur.

We have granted share purchase

option awards that vest upon achievement of certain performance criteria, or milestone-based awards.

We estimate an implicit service

period for achieving performance criteria for each award and recognizes the resulting fair value as expense over the implicit service

period when we conclude that achieving the performance criteria is probable.

We 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

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Performance awards vest upon achievement of the performance

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, expected life and estimated forfeitures of each award.

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.

Our historical share option exercise experience

does not provide a reasonable basis for estimating the expected term.

Expected volatility is based on the average of the daily share price

changes over the expected term.

We do not estimate forfeitures and elect to record actual forfeitures as they occur.

We have not paid

any dividends on our 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.

in these assumptions can materially affect the fair value estimates.

The purchase price of options or warrants may

be paid in cash or, if approved by our compensation committee in advance, “net settled” in shares of our common stock.

a net settlement of an option or warrant, we do not receive payment of the exercise price from the holder but reduce the number of shares

of common stock issued upon the exercise of the stock option or warrant 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 option or warrant being exercised.

Shares issued pursuant to the exercise of options and warrants are issued from our treasury.

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(n) to our Consolidated Financial Statements found elsewhere in this Annual Report.

ITEM 7A QUANTITATIVE

AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis