What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-11-27 compared with 2022-11-28 · 217 added, 199 removed, 68 unchanged (86% of the section changed)

8 unchanged sentences

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

Financial Operations Overview

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.

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.

operating costs consist primarily of research and development activities including the cost of clinical studies and clinical supplies

as well as clinical drug manufacturing and formulation.

Research and development expenses also include personnel related costs such as

salaries and wages, and third-party contract research organization (CRO) expenses in support of these clinical studies.

Personnel costs

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

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

General and administrative expenses

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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

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.

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

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

relations activities and other administrative expenses and professional services.

Comparison of year ended September 30, 2023 to year

ended September 30, 2022

Operating Expenses

Our operating expenses for fiscal 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.

Our operating expenses for fiscal 2023 increased to

$55.8 million, from $51.0 million in fiscal 2022.

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

of $5.7 million in 2023 to $43.7 million.

The following table summarizes our research and development

expenses for the years ended September 30, 2023, and 2022 (in thousands):

Costs of external service providers

Costs of external service

Personnel costs

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Other common costs

Total research and development costs

During fiscal 2022, external service

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

Total research

and development costs

External service providers cost by product

candidate was as follows (in thousands):

ANAVEX ® 2-73

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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.

Other external service

provider costs

Total external

service provider costs

increase in external service provider costs from fiscal 2022 to fiscal 2023 is primarily due to (1) an increase in manufacturing

costs for both ANAVEX ® 2-73 and ANAVEX ® 3-71, in preparation for planned clinical trials or studies

and (2) an increase in clinical trial expenditures related to our Rett program in connection with the completed enrollment and

dosing of our Phase 2/3 Excellence pediatric clinical trial.

fiscal 2023, our personnel costs increased to $10.3 million from $8.0 million as a result of our expanded team.

this was offset by a decrease in stock-based compensation expense as a result of the vesting of previously awarded milestone-based

option awards.

General and administrative expenses

for fiscal 2023 decreased to $12.0 million, from $13.1 million in fiscal 2022, most significantly related to a decrease in non-cash

stock option compensation charges as a result of the vesting of previously awarded milestone-based option awards.

fiscal 2023, we utilized cash and cash equivalents of $27.8 million to fund our operations, compared to $24.2 million during fiscal

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

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.

Our cash position increased slightly to $151.0 million at September 30, 2023, an increase of $1.9 million over the prior

Cash for operations was generated through the issuance of

shares of common stock under the financing arrangements described below.

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

clinical studies, including planned advancement of ANAVEX ® 2-73 for Parkinson ’ s

disease program, ongoing extension studies of our current clinical programs, continued advancement of our other pipeline compounds

such as ANAVEX ® 3-71, and as we continue to add additional staffing to manage and support these clinical initiatives.

Other income (net)

Net other income for the year ended

September 30, 2023 was $8.3 million as compared to $3.4 million for fiscal 2022.

The primary reason for the increase in other

income was due to an increase in interest income earned on cash and cash equivalents, due to an increase in market wide interest

rates year over year.

During fiscal 2023, we recorded

$2.7 million in research and development incentive income, consisting of the Australian research and development incentive credit

administered through the Australian Tax Office, in connection with fiscal 2023 eligible expenditures.

In comparison, research

and development incentive income for fiscal 2022 was $3.3 million in connection with fiscal 2022 eligible expenditures.

to continue to receive support from the Australian government for various clinical trials being conducted within Australia.

Net loss for fiscal 2023 was $47.5 million,

1 unchanged sentence

Liquidity and Capital Resources

Working Capital

Working Capital (in thousands)

Current Assets

1 unchanged sentence

Working Capital

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 .

At September 30, 2023, we had $151.0

million in cash and cash equivalents, an increase from $149.2 million at September 30, 2022.

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 .

is a summary of sources of cash flows for the years ended September 30, 2023 and 2022 (in thousands)

Cash flows used in operating activities

$ (24,237,864 )

$ (30,383,674 )

Cash flows provided by financing activities

Increase (decrease) in cash

$ (2,949,884 )

$ 122,858,727

Cash flow used in operating activities

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.

There was an increase in cash used in operating activities

of $1.9 million during fiscal 2023 primarily due to the collection of incentive and tax receivables in the comparable period.

Cash flow provided by financing activities

Cash provided by financing activities

in fiscal 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 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.

fiscal 2023 was $29.7 million, primarily attributable to cash received from the issuance of common shares at various market

prices under the 2023 Purchase Agreement (as defined below).

Cash provided by financing activities

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

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

Other Financings

2023 Purchase Agreement

On June 7, 2019, we

entered into a Purchase Agreement (the “2019 Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln

Park”), as amended on July 1, 2020, pursuant to which Lincoln Park committed to purchase up to $50.0 million of our common

Concurrently with the execution of the 2019 Purchase Agreement in 2019, we issued 324,383 shares of our common stock to

Lincoln Park as a fee for its commitment to purchase shares of our common stock under the 2019 Purchase Agreement and became obligated

to issue up to 162,191 shares pro rata, when and if Lincoln Park purchased, at our discretion, the $50.0 million aggregate commitment.

During fiscal year 2021, the Company

issued to Lincoln Park an aggregate of 4,086,209 shares of common stock under the 2019 Purchase Agreement, including 4,007,996

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

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

On February 3, 2023, the Company entered into

a $150,000,000 purchase agreement (the “2023 Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln

Park”), pursuant to which the Company has the right to sell and issue to Lincoln Park, and Lincoln Park is obligated to purchase,

up to $150.0 million in value of its shares of Common Stock from time to time over a three-year period until February 3, 2026.

On any business day and subject to certain

customary conditions, the Company may direct Lincoln Park to purchase up to 200,000 shares of Common Stock (such purchases, “ Regular

Purchases ”).

The amount of a Regular Purchase may increase under certain circumstances based on the market price of the

Common Stock;

provided, however, that Lincoln Park’s committed obligation under any Regular Purchase shall not exceed $4.0

The purchase price of shares of Common Stock will be based on the then prevailing market prices of such shares at the

time of sales as described in the Purchase Agreement.

There are no limits on the price per share that Lincoln Park may pay to purchase

Common Stock under the Purchase Agreement.

In addition, if the Company has directed Lincoln Park to purchase the full amount of

Common Stock available as a Regular Purchase on a given day, it may direct Lincoln Park to purchase additional amounts as “accelerated

purchases” and “additional accelerated purchases,” each as set forth in the Purchase Agreement.

The Purchase Agreement limits the Company’s

sale of shares of Common Stock to Lincoln Park to 15,606,426 shares of Common Stock, representing 19.99% of the shares of the Common

Stock outstanding on the date of the Purchase Agreement unless (i) stockholder approval is obtained to issue more than such

amount or (ii) the average price of all applicable sales of Common Stock to Lincoln Park under the Purchase Agreement equals

or exceeds the lower of (A) the closing price of the Common Stock on the Nasdaq Capital Market immediately preceding the Execution

Date or (B) the average of the closing price of the Common Stock on the Nasdaq Capital Market for the five Business Days immediately

preceding the Execution Date.

The Purchase Agreement also prohibits the Company

from directing Lincoln Park to purchase any shares of Common Stock if those shares, when aggregated with all other shares of Common

Stock then beneficially owned by Lincoln Park and its affiliates, would result in Lincoln Park and its affiliates having beneficial

ownership, at any single point in time, of more than 4.99% of the then total outstanding shares of Common Stock, as calculated

pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended, and Rule 13d-3 thereunder.

In consideration for entering into the 2023

Purchase Agreement, the Company issued to Lincoln Park 75,000 shares of Common Stock as a commitment fee (the “initial commitment

shares”) during the year ended September 30, 2023 and agreed to issue up to 75,000 shares pro rata (collectively with the

initial commitment shares, the “commitment shares”), when and if, Lincoln Park purchased, at the Company’s discretion,

the $150.0 million aggregate commitment.

During the year ended September 30, 2023, the

Company issued to Lincoln Park an aggregate of 3,288,943 (2022:

0) shares of Common Stock under the 2023 Purchase Agreement, including

3,275,000 (2022:

0) shares of Common Stock for aggregate proceeds of $27.9 million (2022:

$0) and 88,943 (2022:

0) commitment shares

(inclusive of the 75,000 initial commitment shares).

As of September 30, 2023, an amount of

$122.1 million in shares of our common stock remain available for purchase by Lincoln Park under the 2023 Purchase Agreement.

Controlled Equity Offering Sales

13 unchanged sentences

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

We have agreed to pay the Sales Agents’ commissions

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

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

We have agreed to pay the Sales Agents’

commissions for their services of 3.0% of the gross proceeds from the sale of shares of Common Stock pursuant to the Sales Agreement.

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

No shares were sold during the year ended September

30, 2023 under the Sales Agreement.

The Company currently does not have access to sell shares of common stock with the Sales Agents.

During the year ended September 30, 2022, 1,623,813

shares were sold under the Sales Agreement for gross proceeds of $21.0 million (net proceeds of $20.3 million after deducting commissions

and offering expenses).

Registered Direct Offering

On June 24, 2021, the Company completed a registered

direct offering off of the Company’s shelf registration statement on Form S-3 filed with the SEC on July 3, 2019.

issued 2,380,953 common shares at $21.00 per share for gross proceeds of $50.0 million (net proceeds of $46.9 million after deducting

offering fees and expenses).

2019 Purchase Agreement

On June 7, 2019, we

entered into a Purchase Agreement (the “2019 Purchase Agreement”) with Lincoln Park, as amended on July 1, 2020, pursuant

to which Lincoln Park committed to purchase up to $50.0 million of our common stock.

Concurrently with the execution of the 2019

Purchase Agreement in 2019, we issued 324,383 shares of our common stock to Lincoln Park as a fee for its commitment to purchase

shares of our common stock under the 2019 Purchase Agreement and became obligated to issue up to 162,191 shares pro rata, when

and if Lincoln Park purchased, at our discretion, the $50.0 million aggregate commitment.

During fiscal year 2021, the Company

issued to Lincoln Park an aggregate of 4,086,209 shares of common stock under the 2019 Purchase Agreement, including 4,007,996

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

September 30, 2023 and 2022, no shares of our common stock remained available for purchase by Lincoln Park under the 2019 Purchase

Off-Balance Sheet Arrangements

3 unchanged sentences

of Critical Accounting Policies

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.

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.

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 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.

Actual results may vary from our estimates

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

Our significant estimates

are related to the valuation of warrants and options.

There are accounting policies that

we believe are significant to the presentation of our financial statements.

The most significant of these accounting policies

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

Research and Development Expenses

Research and development costs are expensed

These expenses are comprised of the costs of the Company’s proprietary research and development efforts, including

preclinical studies, clinical trials, manufacturing costs, employee salaries and benefits and stock based compensation expense,

contract services including external research and development expenses incurred under arrangements with third parties such as contract

research organizations (“CROs”), facilities costs, overhead costs and other related expenses.

Milestone payments made

by the Company to third parties are expensed when the specific milestone has been achieved.

Manufacturing costs are expensed as

incurred in accordance with Accounting Standard Codification (“ASC”) 730, Research and Development, as these materials

have no alternative future use outside of their intended use.

Nonrefundable advance payments for goods or

services that will be used or rendered for future research and development activities are deferred and amortized over the period

that the goods are delivered, or the related services are performed, subject to an assessment of recoverability.

The Company makes

estimates of costs incurred in relation to external CROs, and clinical site costs.

The Company analyzes the progress of clinical

trials, including levels of patient enrollment, invoices received and contracted costs when evaluating the adequacy of the amount

expensed and the related prepaid asset and accrued liability.

Significant judgments and estimates must be made and used in determining

the accrued balance and expense in any accounting period.

The Company reviews and accrues CRO expenses and clinical trial study

expenses based on work performed and relies upon estimates of those costs applicable to the stage of completion of a study.

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

and development costs are expensed as incurred.

These expenses are comprised of the costs of the Company ’ s

proprietary research and development efforts, including preclinical studies, clinical trials, manufacturing costs, employee salaries

and benefits and stock-based compensation expense, contract services including external research and development expenses incurred

under arrangements with third parties such as contract research organizations ( “ CROs ” ),

facilities costs, overhead costs and other related expenses.

Milestone payments made by the Company to third parties are expensed

when the specific milestone has been achieved.

Manufacturing costs are expensed as incurred in accordance with Accounting Standard

Codification ( “ ASC ” )

730, Research and Development, as these materials have no alternative future use outside of their intended use.

Nonrefundable advance payments

for goods or services that will be used or rendered for future research and development activities are deferred and amortized

over the period that the goods are delivered, or the related services are performed, subject to an assessment of recoverability.

The Company makes estimates of costs incurred in relation to external CROs, and clinical site costs.

The Company analyzes the

progress of clinical trials, including levels of patient enrollment, invoices received and contracted costs when evaluating the

adequacy of the amount expensed and the related prepaid asset and accrued liability.

Significant judgments and estimates must

be made and used in determining the accrued balance and expense in any accounting period.

The Company reviews and accrues CRO

expenses and clinical trial study expenses based on work performed and relies upon estimates of those costs applicable to the

stage of completion of a study.

Accrued CRO costs are subject to revisions as such trials progress to completion.

Revisions are

charged to expense in the period in which the facts that give rise to the revision become known.

With respect to clinical site

costs, the financial terms of these agreements are subject to negotiation and vary from contract to contract.

Payments under these

contracts may be uneven and depend on factors such as the achievement of certain events, the successful recruitment of patients,

the completion of portions of the clinical trial or similar conditions.

The objective of our policy is to record expenses in our

financial statements based on actual services received and efforts expended.

As such, expense accruals related to clinical site

costs are recognized based on our estimate of the degree of completion of the event or events specified in the specific clinical

trial contract.

In addition, we incur expenses

in respect of the acquisition of intellectual property relating to patents and trademarks.

The probability of success and length

of time to develop commercial applications of the drugs subject to the acquired patents and trademarks is difficult to determine

and numerous risks and uncertainties exist with respect to the timely completion of the development projects.

There is no assurance

the acquired patents and trademarks will ever be successfully commercialized.

Due to these risks and uncertainties, we expense

the acquisition of patents and trademarks

Stock-based Compensation

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

fair value-based method.

The fair value of all share purchase options

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

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

Compensation costs for stock-based payments

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

Stock based compensation expense is adjusted for actual forfeitures of unvested

awards as they occur.

We have granted share purchase option

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

We estimate an implicit service period

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

when we conclude that achieving the performance criteria is probable.

We periodically review and update as appropriate our estimates

of implicit service periods and conclusions on achieving the performance criteria.

Performance awards vest upon achievement of the performance

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.

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

Compensation costs for stock-based

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

Stock-based compensation expense is adjusted for actual

forfeitures of unvested awards as they occur.

We have granted share purchase

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

We estimate an implicit service

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

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

We periodically review and update as appropriate

our estimates of implicit service periods and conclusions on achieving the performance criteria.

Performance awards vest upon

achievement of the performance criteria.

use the Black-Scholes option valuation model to calculate the fair value of share purchase options and warrants at the date of

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.

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