ANAVEX LIFE SCIENCES CORP. 10-Q

ITEM 1. FINANCIAL STATEMENTS Anavex Life Sciences Corp. Interim Condensed Consolidated Financial Statements December 31, 2022 (Unaudited) F- 1 Anavex Life Sciences Corp. Interim Condensed Consolidated Balance Sheets As at December 31, 2022 and September 30, 2022 (Unaudited) December 31, September 30, 2022 2022 (Unaudited) Assets Current Cash and cash equivalents $ 143,621,848 $ 149,157,861 Incentive and tax receivables 4,094,431 3,192,580 Prepaid expenses and other current assets 655,643 354,162 Total Assets $ 148,371,922 $ 152,704,603 Liabilities and Stockholders' Equity Current Liabilities Accounts payable $ 5,288,261 $ 3,824,777 Accrued liabilities - Note 4 7,042,822 5,944,953 Deferred grant income - Note 3 916,763 443,831 Total Liabilities 13,247,846 10,213,561 Commitments and Contingencies - Note 6 Capital stock Authorized: 10,000,000 preferred stock, par value $ 0.001 per share — — 200,000,000 common stock, par value $ 0.001 per share Issued and outstanding: 78,032,135 common shares (September 30, 2022 - 77,942,815 ) 78,033 77,944 Additional paid-in capital 393,581,544 387,976,881 Accumulated deficit ( 258,535,501 ) ( 245,563,783 ) Total Stockholders' Equity 135,124,076 142,491,042 Total Liabilities and Stockholders' Equity $ 148,371,922 $ 152,704,603 See Accompanying Notes to Condensed Consolidated Interim Financial Statements F- 2 Anavex Life Sciences Corp. Interim Condensed Consolidated Statement of Operations For the three months ended December 31, 2022 and 2021 (Unaudited) 2022 2021 Operating expenses General and administrative $ 3,317,036 $ 3,066,951 Research and development 12,066,919 8,656,439 Total operating expenses 15,383,955 11,723,390 Operating loss ( 15,383,955 ) ( 11,723,390 ) Other income Grant income 25,000 — Research and development incentive income 733,590 810,730 Interest income, net 1,267,618 4,910 Foreign exchange gain, net 365,983 55,363 Total other income, net 2,392,191 871,003 Net loss before provision for income taxes ( 12,991,764 ) ( 10,852,387 ) Income tax recovery (expense), current 20,046 ( 29,980 ) Net loss and comprehensive loss $ ( 12,971,718 ) $ ( 10,882,367 ) Net Loss per share Basic and diluted $ ( 0.17 ) $ ( 0.14 ) Weighted average number of shares outstanding Basic and diluted 77,977,112 75,997,738 See Accompanying Notes to Condensed Consolidated Interim Financial Statements F- 3 Anavex Life Sciences Corp. Interim Condensed Consolidated Statement of Changes in Stockholders' Equity For the three months ended December 31, 2022 and 2021 Common Stock Additional Paid-in Accumulated Shares Par Value Capital Deficit Total Balance, October 1, 2022 77,942,815 $ 77,944 $ 387,976,881 $ ( 245,563,783 ) $ 142,491,042 Shares issued pursuant to exercise of stock options 89,320 89 258,155 — 258,244 Share based compensation — — 5,346,508 — 5,346,508 Net loss — — — ( 12,971,718 ) ( 12,971,718 ) Balance, December 31, 2022 78,032,135 $ 78,033 $ 393,581,544 $ ( 258,535,501 ) $ 135,124,076 Balance, October 1, 2021 75,918,465 $ 75,920 $ 348,328,048 $ ( 197,585,864 ) $ 150,818,104 Shares issued pursuant to exercise of stock options 137,134 137 373,360 — 373,497 Shares issued under Sales Agreement, net of share issuance costs 99,588 99 2,149,602 — 2,149,701 Share based compensation — — 3,908,771 — 3,908,771 Net loss — — — ( 10,882,367 ) ( 10,882,367 ) Balance, December 31, 2021 76,155,187 $ 76,156 $ 354,759,781 $ ( 208,468,231 ) $ 146,367,706 See Accompanying Notes to Condensed Consolidated Interim Financial Statements F- 4 Anavex Life Sciences Corp. Interim Condensed Consolidated Statement of Cash Flows For the three months ended December 31, 2022 and 2021 (Unaudited) 2022 2021 Cash Flows used in Operating Activities Net loss $ ( 12,971,718 ) $ ( 10,882,367 ) Adjustments to reconcile net loss to net cash used in operations: Stock-based compensation 5,346,508 3,908,771 Changes in working capital balances related to operations: Incentive and tax receivables ( 901,851 ) 3,764,678 Prepaid expenses and deposits ( 301,481 ) ( 22,311 ) Accounts payable 1,463,484 ( 104,992 ) Accrued liabilities 1,097,869 ( 164,734 ) Deferred grant income 472,932 — Net cash used in operating activities ( 5,794,257 ) ( 3,500,955 ) Cash Flows provided by Financing Activities Issuance of common shares — 2,312,785 Share issue costs — ( 146,717 ) Proceeds from exercise of stock options 258,244 373,497 Net cash provided by financing activities 258,244 2,539,565 Decrease in cash and cash equivalents during the period ( 5,536,013 ) ( 961,390 ) Cash and cash equivalents, beginning of period 149,157,861 152,107,745 Cash and cash equivalents, end of period $ 143,621,848 $ 151,146,355 Supplemental Cash Flow Information Cash paid for state and local minimum income taxes $ 50,077 $ — See Accompanying Notes to Condensed Consolidated Interim Financial Statements F- 5 Anavex Life Sciences Corp. Notes to the Condensed Consolidated Interim Financial Statements December 31, 2022 (Unaudited) Note 1 Business Description Business Anavex Life Sciences Corp. (“Anavex” or the “Company”) is a clinical stage biopharmaceutical company engaged in the development of differentiated therapeutics by applying precision medicine to central nervous system (“CNS”) diseases with high unmet need. Anavex analyzes genomic data from clinical trials to identify biomarkers, which are used in the analysis of its clinical trials for the treatment of neurodegenerative and neurodevelopmental diseases. The Company’s lead compound ANAVEX ® 2-73 is being developed to treat Alzheimer’s disease, Parkinson’s disease and potentially other central nervous system diseases, including rare diseases, such as Rett syndrome, a rare severe neurological monogenic disorder caused by mutations in the X-linked gene, methyl-CpG-binding protein 2 (“MECP2”). Note 2 Basis of Presentation Basis of Presentation These accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim reporting. Accordingly, certain information and note disclosures normally included in the annual financial statements in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the disclosures are adequate to make the information presented not misleading. These accompanying unaudited interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information contained herein. The consolidated balance sheet as of September 30, 2022 was derived from the audited annual financial statements but does not include all disclosures required by U.S. GAAP. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended September 30, 2022 filed with the SEC on November 28, 2022. The Company follows the same accounting policies in the preparation of interim reports. Operating results for the three months ended December 31, 2022 are not necessarily indicative of the results that may be expected for the year ending September 30, 2023. Liquidity All of the Company’s potential drug compounds are in the clinical development stage and the Company cannot be certain that its research and development efforts will be successful or, if successful, that its potential drug compounds will ever be approved for sales to pharmaceutical companies or generate commercial revenues. To date, we have not generated any revenues from our operations. The Company expects the business to continue to experience negative cash flows from operations for the foreseeable future and cannot predict when, if ever, our business might become profitable. F- 6 Anavex Life Sciences Corp. Notes to the Interim Condensed Consolidated Financial Statements December 31, 2022 (Unaudited) 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 interim condensed 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 Sales Agreement (as defined below in Note 5), there can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If the Company is not able to obtain the additional financing on a timely basis, if and when it is needed, it will be forced to delay or scale down some or all of its research and development activities. Use of Estimates The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to accounting for research and development costs, incentive income receivable, valuation and recoverability of deferred tax assets, stock-based compensation, and loss contingencies. The Company bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. Coronavirus Disease 2019 (COVID-19) The global pandemic resulting from the disease known as COVID-19, caused by a novel strain of coronavirus, did not have a material impact on the Company’s result of operations or financial condition for the quarter ended December 31, 2022. However, the future course of the pandemic could have adverse effects in the U.S and global economies and thus negatively impact our business and financial results. 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. F- 7 Anavex Life Sciences Corp. Notes to the Interim Condensed Consolidated Financial Statements December 31, 2022 (Unaudited) Fair Value Measurements The fair value hierarchy under GAAP is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following: Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities; 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 value drivers are unobservable by little or no market activity and that are significant to the fair value of the assets or liabilities. At December 31, 2022 and September 30, 2022, the Company did not have any Level 3 assets or liabilities. 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 December 31, 2022 loss per share excludes 13,525,296 (December 31, 2021: 11,403,769 ) potentially dilutive common shares related to outstanding options and warrants, as their effect was anti-dilutive. Recently Adopted Accounting Pronouncements In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance” (“ASU 2021-10”). ASU 2021-10 increases the disclosure requirements for annual reporting periods relating to material government assistance transactions on the entity’s financial statements and any significant terms and conditions of the agreements including commitments and contingencies. The new standard was effective for the Company on October 1, 2022 but only impacts annual financial statement footnote disclosures. The adoption of ASU 2021-10 is expected to impact the disclosures related to the research and development incentive income that the Company receives from the Australian Tax Office (“ATO”) for its clinical trials in Australia. Note 3 Other Income Grant Income As of December 31, 2022, the Company had received $ 995,862 in a research grant awarded by the Michael J. Fox Foundation for Parkinson’s Research. The grant will be used to fund a clinical trial of the Company’s lead compound, ANAVEX ® 2-73 related to Parkinson’s disease. Of the total, $ 497,931 was received during the three months ended December 31, 2022 and $ 497,931 was received during the year ended September 30, 2021. F- 8 Anavex Life Sciences Corp. Notes to the Interim Condensed Consolidated Financial Statements December 31, 2022 (Unaudited) The grant income has been deferred when received and is being amortized to other income as the related research and development expenditures are incurred. During the three months ended December 31, 2022, the Company recognized $ 25,000 (2021: $ 0 ) of this grant on its statements of operations as grant income. At December 31, 2022, an amount of $ 916,763 (September 30, 2022: $ 443,831 ) of this grant is recorded as deferred grant income, representing the amount of this grant which has not yet been amortized to other income. The Company will recognize this income on its statement of operations as the relating expenditures are incurred to offset the income. Research and development incentive income Research and development incentive income represents the income earned by Anavex Australia, of the Australian research and development tax incentive credit (the “Tax Incentive Credit”). During the three months ended December 31, 2022 the Company recorded research and development incentive income of $ 733,590 (AUD 1,116,618 ) (2021: $ 810,730 (AUD 1,116,362 )) in respect of the Tax Incentive Credit for eligible research and development expenses incurred during the period. The Company evaluates its eligibility under the tax incentive program as of each balance sheet date based on the most current and relevant data available. Although the Company believes that it complies with all the relevant conditions of the program, the Company may be subject to pre-issue review or audit by the ATO and, the ATO may have different interpretations of certain eligibility requirements. Currently, the Company’s tax incentive claims from 2018 to 2022 are open to potential review or audit by the ATO. Note 4 Accrued Liabilities The principal components of accrued liabilities consists of: Schedule of Accrued Liabilities December 31, September 31, 2022 2022 Accrued clinical site and patient visits costs $ 2,212,464 $ 2,031,105 Accrued compensation and benefits 1,249,205 1,297,337 Fixed contract accruals 1,076,630 417,414 All other accrued liabilities 2,504,523 2,199,097 Total accrued liabilities $ 7,042,822 $ 5,944,953 Note 5 Equity Offerings Common Stock Common shares are voting and are entitled to dividends as declared at the discretion of the Board of Directors (the “Board”). Preferred Stock The Company’s Board has the authority to issue preferred stock in one or more series and to fix the rights, preferences, privileges, restrictions and the number of shares constituting any series of the designation of the series. F- 9 Anavex Life Sciences Corp. Notes to the Interim Condensed Consolidated Financial Statements December 31, 2022 (Unaudited) Sales Agreement The Company entered into a Controlled Equity Offering Sales Agreement on July 6, 2018, which was amended and restated on May 1, 2020 (the “Sales Agreement”) with Cantor Fitzgerald & Co. and SVB Leerink LLC (together the “Sales Agents”), pursuant to which the Company may offer and sell shares of common stock registered under an effective registration statement from time to time through the Sales Agents (the “Offering”). Upon delivery of a placement notice based on the Company’s instructions and subject to the terms and conditions of the Sales Agreement, the Sales Agents may sell the Shares by methods deemed to be an “at the market offering” 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 the prior written consent of the Company. The Company is not obligated to make any sales of Shares under the Sales Agreement. The Company or Sales Agents may suspend or terminate the offering of Shares upon notice to the other party, subject to certain conditions. The Sales Agents will act as agent 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. The Company has agreed to pay the Sales Agents commissions for their services of up to 3.0 % of the gross proceeds from the sale of the Shares pursuant to the Sales Agreement. The Company also agreed to provide the Sales Agents with customary indemnification and contribution rights. During the three months ended December 31, 2022, no shares were sold pursuant to the Offering. During the three months ended December 31, 2021, 99,588 shares were sold for gross proceeds of $ 2,312,785 (net proceeds of $ 2,149,701 ). At December 31, 2022, an amount of $ 142,407,882 (September 30, 2022: $ 142,407,882 ) was registered pursuant to an effective registration statement and remained available to be sold under the Sales Agreement. Note 6 Commitments and Contingencies Leases During the three months ended December 31, 2022, the Company incurred office lease expense of $ 30,070 (2021: $ 4,845 ). Employee 401(k) Benefit Plan The Company has a defined-contribution savings plan under Section 401(k) of the Internal Revenue Code. The plan covers all United States based employees. United States based employees eligible to participate in the plan may contribute up to the current statutory limits under the Internal Revenue Service regulations. The 401(k) plan permits the Company to make additional matching contributions on behalf of contributing employees. During the three months ended December 31, 2022, the Company made $ 43,646 (2021: $ 22,682 ) in matching contributions under the 401(k) plan. Litigation The Company is subject to claims and legal proceedings that arise in the ordinary course of business. Such matters are inherently uncertain, and there can be no guarantee that the outcome of any such matter will be decided favorably to the Company or that the resolution of any such matter will not have a material adverse effect upon the Company’s consolidated financial statements. The Company does not believe that any of such pending claims and legal proceedings will have a material adverse effect on its consolidated financial statements. F- 10 Anavex Life Sciences Corp. Notes to the Interim Condensed Consolidated Financial Statements December 31, 2022 (Unaudited) Share Purchase Warrants At December 31, 2022 and September 30, 2022, the Company had 160,000 warrants outstanding at a weighted average exercise price of $ 3.72 as follows: Schedule of share purchase warrants outstanding Number Exercise Price Expiry Date 150,000 $ 3.17 May 6, 2024 10,000 $ 12.00 April 21, 2026 160,000 Stock–based Compensation Plan 2015 Stock Option Plan On September 18, 2015, the Company’s Board approved a 2015 Omnibus Incentive Plan (the “2015 Plan”), which provided for the grant of stock options and restricted stock awards to directors, officers, employees and consultants of the Company. The maximum number of our common shares reserved for issue under the plan was 6,050,553 shares, subject to adjustment in the event of a change of the Company’s capitalization. 2019 Stock Option Plan On January 15, 2019, the Board approved the 2019 Omnibus Incentive Plan (the “2019 Plan”), which provides for the grant of stock options and restricted stock awards to directors, officers, employees, consultants and advisors of the Company. The maximum number of our common shares reserved for issue under the plan was 6,000,000 shares, subject to adjustment in the event of a change of the Company’s capitalization. During the year ended September 30, 2022, 406,453 options previously available under the 2019 Plan and the 2015 Plan became available under the 2022 Plan (as defined below). 2022 Stock Option Plan On March 25, 2022, the Board approved the 2022 Omnibus Incentive Plan (the “2022 Plan”). The 2022 Plan was approved by stockholders on May 24, 2022. Under the terms of the 2022 Plan, 10,000,000 additional shares of Common Stock will be available for issuance under the plan. Any awards outstanding under a previous stock option plan will remain subject to and be paid under such plan, and any shares subject to outstanding awards under a previous plan that subsequently cease to be subject to such awards (other than by reason of settlement of the awards in shares) will automatically become available for issuance under the 2022 Plan. The 2022 Plan provides that it may be administered by the Board, or the Board may delegate such responsibility to a committee. The exercise price will be determined by the Board at the time of grant and shall be at least equal to the fair market value on such date. If the grantee is a 10% stockholder on the grant date, then the exercise price shall not be less than 110% of fair market value of the Company’s shares of common stock on the grant date. Stock options may be granted under the 2022 Plan for an exercise period of up to ten years from the date of grant of the option or such lesser periods as may be determined by the Board, subject to earlier termination in accordance with the terms of the 2022 Plan. At December 31, 2022 2,378,000 options had been issued under the 2022 Plan and 8,078,453 options were available for issue under the 2022 Plan. F- 11 Anavex Life Sciences Corp. Notes to the Interim Condensed Consolidated Financial Statements December 31, 2022 (Unaudited) A summary of the status of Company’s outstanding stock options is presented below: Schedule of outstanding stock purchase options Weighted Weighted Average Average Aggregate Number of Exercise Grant Date intrinsic value Shares Price ($) Fair Value ($) ($) Outstanding, September 30, 2021 11,330,903 5.74 140,132,451 Granted 2,358,000 10.13 7.07 Forfeited ( 118,750 ) 6.86 5.23 Exercised ( 400,537 ) 2.52 1.88 4,201,015 Outstanding, September 30, 2022 13,169,616 6.61 62,267,309 Granted 325,000 12.43 8.17 Forfeited ( 40,000 ) 7.51 2.52 Exercised ( 89,320 ) 2.89 2.44 591,993 Outstanding, December 31, 2022 13,365,296 6.78 50,676,617 Exercisable, December 31, 2022 8,795,293 4.51 45,930,627 The following summarizes information about stock options at December 31, 2022 by a range of exercise prices: Schedule Of Share-based Payment Arrangement, Option, Activity Weighted Weighted average average exercise Number of remaining Weighted price Range of exercise prices outstanding contractual average Number of options From To options life (in years) exercise price vested options vested $ 0.92 2.96 3,850,742 4.86 2.29 3,844,908 2.29 $ 3.15 4.80 2,042,500 5.09 3.30 2,032,500 3.29 $ 5.04 8.98 3,927,054 5.80 6.29 2,374,554 6.31 $ 9.20 13.01 1,968,000 9.04 10.73 154,581 12.27 $ 13.22 24.58 1,577,000 8.24 18.51 388,750 18.80 13,365,296 8,795,293 The weighted average grant date fair value of options vested during the three months ended December 31, 2022 was $ 4.40 (2021: $ 2.85 ). At December 31, 2022, the weighted average contractual life of options outstanding was 6.18 years (September 30, 2022: 6.40 years) and for options exercisable was 4.83 years (September 30, 2022: 5.1 years). The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted market price of the Company’s stock for the options that were in-the-money at December 31, 2022. During the three months ended December 31, 2022, the Company recognized stock-based compensation expense of $ 5,346,508 (2021: $ 3,908,771 ) in connection with the issuance and vesting of stock options and warrants in exchange for services. These amounts have been included in general and administrative expenses and research and development expenses on the Company’s statement of operations as follows: Schedule of general and administrative expenses and research and development expenses 2022 2021 General and administrative $ 1,742,524 $ 1,671,725 Research and development 3,603,984 2,237,046 Total stock-based compensation $ 5,346,508 $ 3,908,771 F- 12 Anavex Life Sciences Corp. Notes to the Interim Condensed Consolidated Financial Statements December 31, 2022 (Unaudited) An amount of approximately $ 16,340,941 in stock-based compensation is expected to be recorded over the remaining term of such options through fiscal 2025. The fair value of each option award granted during the three months ended December 31, 2022 and 2021 is estimated on the date of grant using the Black Scholes option pricing model based on the following weighted average assumptions: Schedule of weighted average assumptions for fair value of each option award 2022 2021 Risk-free interest rate 4.07 % 1.37 % Expected life of options (years) 4.98 6.50 Annualized volatility 84.01 % 96.79 % Dividend rate 0.00 % 0.00 % The fair value of stock compensation charges recognized during the three months ended December 31, 2022 and 2021 was determined with reference to the quoted market price of the Company’s shares on the grant date. Note 7 Subsequent Events Subsequent to December 31, 2022, the Company entered into a Purchase Agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”), whereby the Company has the right, in its sole discretion, to sell to LPC up to $150,000,000 in value of shares of the Company’s common stock from time to time over a 36-month period pursuant to the terms of the Purchase Agreement. F- 13