ANAVEX LIFE SCIENCES CORP. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ANAVEX LIFE SCIENCES CORP. CONSOLIDATED FINANCIAL STATEMENTS September 30, 2024 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders Anavex Life Sciences Corp. Opinion on the financial statements We have audited the accompanying consolidated balance sheets of Anavex Life Sciences Corp. (a Nevada corporation) and subsidiaries (the “Company”) as of September 30, 2024 and 2023, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for each of the two years in the period ended September 30, 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended September 30, 2024, in conformity with accounting principles generally accepted in the United States of America. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2022. Melville, New York December 23, 2024 248 F- 2 Anavex Life Sciences Corp. Consolidated Balance Sheets (in thousands, except share and per share amounts) September 30, 2024 2023 Assets Current Cash and cash equivalents $ 132,187 $ 151,024 Incentive and tax receivables 2,449 2,709 Prepaid expenses and other current assets 931 653 Total Assets $ 135,567 $ 154,386 Liabilities and Stockholders’ Equity Current Liabilities Accounts payable $ 9,627 $ 4,322 Accrued liabilities - Note 3 4,835 7,295 Deferred grant income - Note 4 842 917 Total Liabilities $ 15,304 $ 12,534 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: 84,795,517 common shares (2023 - 82,066,511 ) 85 82 Additional paid-in capital 456,249 434,839 Accumulated deficit ( 336,071 ) ( 293,069 ) Total Stockholders’ Equity $ 120,263 $ 141,852 Total Liabilities and Stockholders’ Equity $ 135,567 $ 154,386 See Accompanying Notes to Consolidated Financial Statements F- 3 Anavex Life Sciences Corp. Consolidated Statements of Operations and Comprehensive Loss (in thousands, except share and per share amounts) Years Ended September 30, 2024 2023 Operating expenses General and administrative $ 11,039 $ 12,039 Research and development 41,838 43,717 Total operating expenses 52,877 55,756 Operating loss ( 52,877 ) ( 55,756 ) Other income (expense) Grant income 75 25 Research and development incentive income 2,291 2,718 Interest income, net 7,320 6,519 Other financing expense — ( 964 ) Foreign exchange gain (loss) 189 ( 40 ) Total other income, net 9,875 8,258 Net loss before provision for income taxes ( 43,002 ) ( 47,498 ) Income tax expense, current — ( 7 ) Net loss and comprehensive loss $ ( 43,002 ) $ ( 47,505 ) Net Loss per share Basic and diluted $ ( 0.52 ) $ ( 0.60 ) Weighted average number of shares outstanding Basic and diluted 83,468,049 79,787,596 See Accompanying Notes to Consolidated Financial Statements F- 4 Anavex Life Sciences Corp. Consolidated Statements of Cash Flows (in thousands, except share and per share amounts) Years ended September 30, 2024 2023 Cash Flows used in Operating Activities Net loss $ ( 43,002 ) $ ( 47,505 ) Adjustments to reconcile net loss to net cash used in operations: Non-cash financing related charges — 845 Share-based compensation 9,438 16,370 Changes in working capital balances related to operations: Incentive and tax receivables 260 484 Prepaid expenses and deposits ( 278 ) ( 299 ) Accounts payable 5,305 497 Accrued liabilities ( 2,460 ) 1,350 Deferred grant income ( 75 ) 473 Net cash used in operating activities ( 30,812 ) ( 27,785 ) Cash Flows provided by Financing Activities Issuance of common shares 11,284 27,875 Proceeds from exercise of stock options 691 1,776 Net cash provided by financing activities 11,975 29,651 (Decrease) Increase in cash and cash equivalents during the year ( 18,837 ) 1,866 Cash and cash equivalents, beginning of year 151,024 149,158 Cash and cash equivalents, end of year $ 132,187 $ 151,024 Supplemental Cash Flow Information Cash paid for state and local franchise taxes $ 300 $ 136 See Accompanying Notes to Consolidated Financial Statements F- 5 Anavex Life Sciences Corp. Consolidated Statements of Changes in Stockholders’ Equity (in thousands, except share and per share amounts) Common Stock Additional Paid-in Accumulated Shares Par Value Capital Deficit Total Balance, October 1, 2022 77,942,815 $ 78 $ 387,977 $ ( 245,564 ) $ 142,491 Shares issued under 2023 Purchase Agreement Initial Commitment shares 75,000 — 845 — 845 Purchase shares 3,275,000 3 27,872 — 27,875 Commitment shares 13,943 — — — — Shares issued pursuant to exercise of stock options 759,753 1 1,775 — 1,776 Share based compensation — — 16,370 — 16,370 Net loss — — — ( 47,505 ) ( 47,505 ) Balance, September 30, 2023 82,066,511 82 434,839 ( 293,069 ) 141,852 Shares issued under 2023 Purchase Agreement Purchase shares 2,450,000 3 11,281 — 11,284 Commitment shares 5,646 — — — — Shares issued pursuant to exercise of stock options 273,360 — 691 — 691 Share based compensation — — 9,438 — 9,438 Net loss — — — ( 43,002 ) ( 43,002 ) Balance, September 30, 2024 84,795,517 $ 85 $ 456,249 $ ( 336,071 ) $ 120,263 See Accompanying Notes to Consolidated Financial Statements F- 6 Anavex Life Sciences Corp. Notes to the Consolidated Financial Statements September 30, 2024 – Page 7 Note 1 Business Description and Basis of Presentation Business Anavex Life Sciences Corp. (“Anavex” or the “Company”) is a clinical stage biopharmaceutical company engaged in the development of differentiated therapeutics by applying precision medicine to central nervous system (“CNS”) diseases with high unmet need. Anavex analyzes genomic data from clinical trials to identify biomarkers, which are used in the analysis of its clinical trials for the treatment of neurodegenerative and neurodevelopmental diseases. The Company’s focus is on developing innovative treatments for Alzheimer’s disease, Parkinson’s disease, schizophrenia, neurodevelopmental, neurodegenerative, and rare diseases, including Rett syndrome, and other central nervous system (CNS) disorders. Basis of Presentation These consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and the instructions to Form 10-K and have been prepared under the accounting principles generally accepted in the United States of America (“U.S. GAAP”). Liquidity All of the Company’s potential drug compounds are in the clinical development stage and the Company cannot be certain that its research and development efforts will be successful or, if successful, that its potential drug compounds will ever be approved for sales to pharmaceutical companies or generate commercial revenues. To date, we have not generated any revenue from our operations. The Company expects the business to continue to experience negative cash flows from operations for the foreseeable future and cannot predict when, if ever, our business might become profitable. Management believes that the current working capital position will be sufficient to meet the Company’s working capital requirements beyond the next 12 months after the date that these consolidated financial statements are issued. The process of drug development can be costly, and the timing and outcomes of clinical trials are uncertain. The assumptions upon which the Company has based its estimates are routinely evaluated and may be subject to change. The actual amount of the Company’s expenditures will vary depending upon a number of factors including but not limited to the design, timing and duration of future clinical trials, the progress of the Company’s research and development programs and the level of financial resources available. The Company has the ability to adjust its operating plan spending levels based on the timing of future clinical trials. Other than our rights related to the 2023 Purchase Agreement (as defined below in Note 5), there can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If the Company is not able to obtain the additional financing on a timely basis, if and when it is needed, it will be forced to delay or scale down some or all of its research and development activities. Note 2 Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to accounting for research and development costs, incentive and tax receivables, valuation and recoverability of deferred tax assets, stock based compensation, and loss contingencies. The Company bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. F- 7 Anavex Life Sciences Corp. Notes to the Consolidated Financial Statements September 30, 2024 – Page 8 Principles of Consolidation These consolidated financial statements include the accounts of Anavex Life Sciences Corp. and its wholly-owned subsidiaries, Anavex Australia Pty Limited (“Anavex Australia”), a company incorporated under the laws of Australia, Anavex Germany GmbH, a company incorporated under the laws of Germany, and Anavex Canada Ltd., a company incorporated under the laws of the Province of Ontario, Canada. All inter-company transactions and balances have been eliminated. Cash and equivalents The Company considers only those investments which are highly liquid, readily convertible to cash and that mature within three months from the date of purchase to be cash equivalents . Highly liquid investments that are considered cash equivalents include money market accounts, money market funds and certificates of deposit. The carrying value of cash equivalents approximates fair value due to the short-term maturity of these securities. The Company’s investment policy allows for investments in domestic money market certificates, certificates of deposit, money market funds, bonds or commercial papers, and establishes diversification and credit quality requirements and limits investments by maturity and issuer. The Company currently maintains its investments at one large well known financial institution. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $ 250,000 , under current regulations. At September 30, 2024 and 2023, substantially all of the Company’s cash balances were in excess of these federally insured limits. The Company mitigates this risk by maintaining the majority of its cash balances in a large well-known financial institution. The Company has not experienced any losses in such accounts. Research and Development Expenses Research and development costs are expensed as incurred. These expenses are comprised of the costs of the Company’s proprietary research and development efforts, including preclinical studies, clinical trials, manufacturing costs, employee salaries and benefits and share-based compensation expense, contract services including external research and development expenses incurred under arrangements with third parties such as contract research organizations (“CROs”), facilities costs, overhead costs and other related expenses. Milestone payments made by the Company to third parties are expensed when the specific milestone has been achieved. Manufacturing costs are expensed as incurred in accordance with Accounting Standard Codification (“ASC”) 730, Research and Development , as these materials have no alternative future use outside of their intended use. Nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities are deferred and amortized over the period that the goods are delivered, or the related services are performed, subject to an assessment of recoverability. The Company makes estimates of costs incurred in relation to external CROs, and clinical site costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the trials and studies including the phase or completion of events, invoices received and contracted costs. Judgments and estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates. The Company’s historical accrual estimates have not been materially different from actual costs. In addition, the Company incurs expenses in respect of intellectual property costs relating to patents and trademarks. The probability of success and length of time to develop commercial applications of the drugs subject to the underlying patent and trademark costs is difficult to determine and numerous risks and uncertainties exist with respect to the timely completion of the development projects. There is no assurance the drugs subject to the underlying patents and trademarks will ever be successfully commercialized. F- 8 Anavex Life Sciences Corp. Notes to the Consolidated Financial Statements September 30, 2024 – Page 9 Due to these risks and uncertainties, the patent and trademark costs do not meet the definition of an asset and thus are expensed as incurred within general and administrative expenses. Research and Development Incentive Income The Company is eligible to obtain certain research and development tax credits, including, through its wholly owned subsidiary Anavex Australia, the Australian research and development tax incentive credit (the “Australia R&D credit”) through a program administered through the Australian Tax Office (the “ATO”) and AusIndustry, a division of the Australian Government’s Department of Industry, Innovation and Science (“AusIndustry”). The Australia R&D credit program provides for a cash refund based on a percentage of eligible research and development activities undertaken in Australia by Anavex Australia. Anavex Australia is also eligible under the Australia R&D credit program to receive the cash refund for certain research and development expenses incurred by Anavex Australia outside of Australia, to the extent such expenses are pre-approved by AusIndustry pursuant to an advanced overseas finding application. The Australia R&D credit program is available to eligible companies with an annual aggregate revenue of less than $20.0 million Australian during the reimbursable period at a rate of 18.5% above the claimant’s company tax rate in Australia. The tax incentives are available on the basis of specific criteria with which the Company must comply. Although the tax incentive may be administered through the local tax authority, the Company has accounted for the incentives outside of the scope of ASC Topic 740, Income Taxes (“ASC 740”), since the incentives are not linked to the Company’s taxable income and can be realized regardless of whether the Company has generated taxable income in the respective jurisdictions. With respect to the Australia R&D credit, as there is no authoritative guidance under GAAP for accounting for grants to for-profit business entities, the Company accounts for the grant by analogy to IAS20 Accounting for Government Grants and Disclosure of Government Assistance (“IAS 20”). The Company recognizes the research and development incentive income as it incurs costs eligible for reimbursement under the Australia R&D credit program when it is reasonably assured that the cash incentive will be received, as evidenced through enrollment in the program and when the applicable conditions under the program have been met. The Company accrues for the amount of cash refund it expects to receive in relation to research and development expenses outside of Australia only to the extent it has received advanced approval from AusIndustry, pursuant to an approved advanced overseas finding application. In addition, Anavex Australia and Anavex Canada incur Goods and Services Tax (GST) on certain services provided by local vendors. As a domestic entity in those jurisdictions, Anavex Australia and Anavex Canada are entitled to a refund of the GST paid. Similarly, Anavex Germany incurs Value Added Tax (VAT) on certain services provided by local vendors, to which it is entitled to a refund of such VAT paid. The Company’s estimate of the amount of cash refund it expects to receive related to GST and VAT incurred is included in Incentive and tax receivables in the accompanying consolidated balance sheets. License Fees The Company expenses amounts paid to acquire licenses associated with products under development when the ultimate recovery of the amounts paid is uncertain and the technology has no alternative future use when acquired. Acquisitions of technology licenses are charged to expense or capitalized based on management’s assessment regarding the ultimate recoverability of the amounts paid and the potential for alternative future use. The Company has determined that the technological feasibility for its product candidates is reached when the requisite regulatory approvals are obtained to make the product available for sale. F- 9 Anavex Life Sciences Corp. Notes to the Consolidated Financial Statements September 30, 2024 – Page 10 Basic and Diluted Loss per Share Basic income/(loss) per common share is computed by dividing net income/(loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted income/(loss) per common share is computed by dividing net income/(loss) available to common stockholders by the sum of (1) the weighted-average number of common shares outstanding during the period, (2) the dilutive effect of the assumed exercise of options and warrants using the treasury stock method and (3) the dilutive effect of other potentially dilutive securities. For purposes of the diluted net loss per share calculation, options and warrants are potentially dilutive securities and are excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive. As of September 30, 2024, diluted loss per share excludes 15,047,754 potentially dilutive common shares (2023 – 14,271,780 ) related to outstanding options and warrants, as their effect was anti-dilutive. Financial Instruments The book value of the Company’s financial instruments, consisting of cash and equivalents, incentive and tax receivables, accounts payable and accrued liabilities approximate their fair value due to the short-term maturity of such instruments. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments. Foreign Currency Translation The functional currency of the Company is the US dollar. Monetary items denominated in a foreign currency are translated into US dollars at exchange rates prevailing at the balance sheet date and non-monetary items are translated at exchange rates prevailing when the assets were acquired, or obligations incurred. Foreign currency denominated expense items are translated at exchange rates prevailing on the transaction date. Unrealized gains or losses arising from the translations are credited or charged to income in the period in which they occur. The Company has determined that the functional currency of Anavex Australia Pty Limited, Anavex Germany GmbH, and Anavex Canada Ltd. is also the US dollar. Segment and Geographic Reporting Operating segments are defined as components of an enterprise for which separate discrete information is available for evaluation by the chief operating decision maker or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business as one operating segment, which is the business of developing novel therapies for the management of CNS diseases. Grant Income Grant income is recognized at the fair value of the grant when it is received, and all substantive conditions have been satisfied. Grants received from government and other agencies in advance of the specific research and development costs to which they relate are deferred and recognized in the consolidated statements of operations and comprehensive loss in the period they are earned, typically when the related research and development costs are incurred. Income Taxes The Company follows the provisions of ASC 740, which requires the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. F- 10 Anavex Life Sciences Corp. Notes to the Consolidated Financial Statements September 30, 2024 – Page 11 The Company follows the provisions of ASC 740 regarding accounting for uncertainty in income taxes. The Company initially recognizes tax positions in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and all relevant facts. Application requires numerous estimates based on available information. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, and its recognized tax positions and tax benefits may not accurately anticipate actual outcomes. As additional information is obtained, there may be a need to periodically adjust the recognized tax positions and tax benefits. These periodic adjustments may have a material impact on the consolidated statements of operations and comprehensive loss. The Company recognizes interest and penalties related to current income tax expense on the interest income, net line, in the accompanying consolidated statements of operations and comprehensive loss. Accrued interest and penalties, if any, are included in accrued liabilities on the consolidated balance sheets. Share-based Compensation The Company accounts for all share-based payments and awards under the fair value method. The fair value of all share-based payments are expensed over their contractual vesting period, or over the expected performance period for only the portion of awards expected to vest, in the case of milestone-based vesting, with a corresponding increase to additional paid-in capital. Compensation costs for share-based payments with graded vesting are recognized on a straight-line basis. Stock based compensation expense is adjusted for actual forfeitures of unvested awards as they occur. The Company has granted share purchase option awards that vest upon achievement of certain performance criteria, or milestone-based awards. The Company estimates an implicit service period for achieving performance criteria for each award and recognizes the resulting fair value as expense over the implicit service period when it concludes that achieving the performance criteria is probable. The Company periodically reviews and updates as appropriate its estimates of implicit service periods and conclusions on achieving the performance criteria. Performance awards vest upon achievement of the performance criteria. The Company uses the Black-Scholes option valuation model to calculate the fair value of share-based awards at the date of the grant. This model requires the input of subjective assumptions, including the expected price volatility and expected life of each award. The Company uses the U.S. Treasury daily treasury yield curve rates for the expected term of the option as the risk-free rate. The expected term represents the period that options granted are expected to be outstanding using the simplified method. The Company’s historical share option exercise experience does not provide sufficient basis for estimating the expected term. Expected volatility is based on the average of the daily share price changes over the expected term. The Company does not estimate forfeitures and elects to record actual forfeitures as they occur. The Company has not paid any dividends on its common stock historically, therefore no assumption of dividend payments is made in the model. These assumptions consist of estimates of future market conditions, which are inherently uncertain, and therefore, are subject to management’s judgment. Changes in these assumptions can materially affect the fair value estimates. The purchase price of share-based compensation awards may be paid in cash or, if approved by the Company’s compensation committee (or in the case of warrants by the Board of Directors) in advance, “net settled” in shares of the Company’s common stock. In a net settlement of an share-based award, the Company does not receive payment of the exercise price from the holder but reduces the number of shares of common stock issued upon the exercise of the award by the smallest number of whole shares that have an aggregate fair market value equal to or over the aggregate exercise price for the option shares covered by the instrument exercised. Shares issued pursuant to the exercise of options and warrants are issued from the Company’s treasury. F- 11 Anavex Life Sciences Corp. Notes to the Consolidated Financial Statements September 30, 2024 – Page 12 Fair Value Measurements Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Assets and liabilities that are measured at fair value are reported using a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows: Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date; Level 2 - observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and Level 3 - assets and liabilities whose significant value drivers are unobservable by little or no market activity and that are significant to the fair value of the assets or liabilities. At September 30, 2024 and 2023, the Company did not have any Level 2 or Level 3 assets or liabilities. Recently Adopted Accounting Pronouncements On October 1, 2022, the Company adopted Accounting Standards Update (ASU) 2021-10, Government Assistance (Topic 832) – Disclosures by Business Entities about Government Assistance, which requires business entities to disclose information about transactions with a government that are accounted for by applying a grant or contribution model by analogy. For transactions within scope, the new standard requires the disclosure of information about the nature of the transaction, including significant terms and conditions, as well as the amounts and specific financial statement line items affected by the transaction. The disclosure of the Company’s research and development tax incentive income and receivable is detailed in Note 4. Recent Accounting Pronouncements In November 2023, the Financial Accounting Standards Board (FASB) issued ASU No. 2023-07, “Segment Reporting: Improvements to Reportable Segment Disclosures.” This guidance requires disclosure of incremental segment information on an annual and interim basis. This amendment is effective for our fiscal year ending September 30, 2025 and our interim periods within the fiscal year ending September 30, 2026. The Company is currently assessing the impact of this guidance on its disclosures. In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes: Improvements to Income Tax Disclosures.” This guidance requires consistent categories and greater disaggregation of information in the rate reconciliation and disclosures of income taxes paid by jurisdiction. This amendment is effective for our fiscal year ending September 30, 2026. The Company is currently assessing the impact of this guidance on its disclosures. Note 3 Accrued Liabilities The principal components of accrued liabilities consist of (in thousands): F- 12 Anavex Life Sciences Corp. Notes to the Consolidated Financial Statements September 30, 2024 – Page 13 Schedule of principal components of accrued liabilities September 30, 2024 2023 Accrued investigator payments $ 860 $ 2,006 Accrued compensation and benefits 1,527 1,360 Fixed contract accruals — 38 Milestone-based contract accruals 557 1,267 All other accrued liabilities 1,891 2,624 Total accrued liabilities $ 4,835 $ 7,295 Note 4 Other Income Grant income As of September 30, 2024, the Company had received a $ 1 .0 million 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 (blarcamesine) related to Parkinson’s disease. Of the total, $ 0.5 million was received during the year ended September 30, 2023 and $ 0.5 million was received during the year ended September 30, 2021. 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 year ended September 30, 2024, the Company recognized $ 75,000 (2023: $ 25,000 ) of this grant on its statements of operations within grant income. At September 30, 2024 an amount of $ 0.8 million (2023: $ 0.9 million) 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 statements of operations as the related 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 Australia R&D credit. This cash incentive is received by Anavex Australia, upon filing of a claim in connection with Anavex Australia’s annual income tax return. During the year ended September 30, 2024, the Company recorded research and development incentive income of $ 2.3 million (AUD 3.5 million) (2023: $ 2.7 million (AUD 4.1 million)) in respect of the Australia R&D credit for eligible research and development expenses incurred during the year. This amount is included within Other income (expense) on the consolidated statements of operations and comprehensive loss. At September 30, 2024, Incentive and tax receivables includes $ 2.3 million (AUD 3.3 million) (2023: $ 2.5 million (AUD 3.9 million)) relating to Australia R&D credits earned during the year that are expected to be reimbursed upon filing of the Company’s annual claim under this program. The Australia R&D credit program is a self-assess program whereby the Company must assess its eligibility each year to determine (i) if the entity is eligible (ii) if the specific R&D activities are eligible and (iii) if the individual R&D expenditures have nexus to such R&D activities. 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. Anavex Australia is able to continue to claim the R&D tax incentive for as long as it remains eligible and continues to incur eligible research and development expenditures. F- 13 Anavex Life Sciences Corp. Notes to the Consolidated Financial Statements September 30, 2024 – Page 14 Although the Company believes that it has complied with all the relevant conditions of eligibility under the program for all periods claimed, the ATO has the right to review the Company’s qualifying programs and related expenditures for a period of four years. If such a review were to occur, the ATO may have different interpretations of certain eligibility requirements. If the ATO disagreed with the Company’s assessments and any related subsequent appeals, it could require adjustment to and repayment of current or previous years’ claims already received. Additionally, if the Company was unable to demonstrate a reasonably arguable position taken on such claims, the ATO could also assess penalties and interest on any such adjustments. Currently, the Company’s tax incentive claims from 2020 to 2024 are open to potential review by the ATO. Additionally, the period open for review is indefinite if the ATO suspects fraud. The Company has not provided any allowance for any such potential adjustments, should they occur in the future. 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. Preferred Stock The Company’s Board of Directors (the “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 or the designation of the series. 2023 Purchase Agreement On February 3, 2023, the Company entered into a $150.0 million 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. 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”) and agreed to issue up to an additional 75,000 shares pro rata, when and if, Lincoln Park purchased, at the Company’s discretion, the $ 150 .0 million aggregate commitment. The Company determined the fair value of the initial commitment shares was $ 0.8 million with reference to the closing price of the Company’s shares on the Purchase Agreement date. In addition, the Company incurred third party expenses of $ 0.1 million in connection with entering into the Purchase Agreement. These amounts were expensed to other financing expense on the statements of operations during the year ended September 30, 2023. 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 $ 11,283,200 and 5,646 commitment shares. During the year ended September 30, 2023, the Company issued to Lincoln Park an aggregate of 3,288,943 shares of common stock under the 2023 Purchase Agreement, including 3,275,000 shares of common stock for aggregate proceeds of $ 27.9 million and 13,943 commitment shares. At September 30, 2024, an amount of $ 110.8 million remained available under the 2023 Purchase Agreement. 2020 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 “2020 Sales Agreement”) with Cantor Fitzgerald & Co. and SVB Leerink LLC (together the “Sales Agents”), pursuant to which the Company could offer and sell shares of common stock registered under an effective registration statement from time to time through the Sales Agents (the “Offering”). F- 14 Anavex Life Sciences Corp. Notes to the Consolidated Financial Statements September 30, 2024 – Page 15 During the years ended September 30, 2024 and 2023, no shares were sold pursuant to the Offering. At September 30, 2023, an amount of $ 142.4 million was registered pursuant to an effective registration statement. On July 24, 2024, the Company terminated the 2020 Sales Agreement. Note 6 Commitments and Contingencies Lease The Company leases office space under an operating lease with an initial term of 12 months or less. Under the terms of the office lease, the Company is required to pay its proportionate share of operating costs. The operating lease costs were as follows (in thousands): Schedule of operating lease costs Years ended September 30, 2024 2023 Operating lease costs $ 125 $ 118 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. The Company made matching contributions under the 401(k) plan as follows (in thousands): Schedule of contributions under the plan Years ended September 30, 2024 2023 Contributions to 401(k) plan $ 279 $ 232 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. On March 13, 2024, a shareholder class action complaint was filed in the United States District Court for the Southern District of New York and it named the Company and an officer of the Company as Defendants. The complaint was amended on July 12, 2024. The complaint alleges violations of the Securities and Exchange Act of 1934 associated with disclosures and statements made with respect to certain clinical trials for ANAVEX ® 2-73 related to Rett syndrome. The complaint seeks unspecified damages, as well as costs, including counsel and expert witness fees, on behalf of a class of investors. The Company believes the lawsuit is without merit and the Company denies any liability or wrongdoing and has filed motions to dismiss the complaints, which is awaiting a decision by the Court. No amount has been recorded in these consolidated financial statements for any loss contingencies associated with this lawsuit as the Company believes that it is not probable that any loss will occur. F- 15 Anavex Life Sciences Corp. Notes to the Consolidated Financial Statements September 30, 2024 – Page 16 On May 8, 2024, a similar complaint was filed in the same court by Kenneth Downing, a purported shareholder of the Company, against the same defendants. The Company believed that this lawsuit was also without merit and filed a motion to dismiss the complaint. Plaintiff Downing voluntarily dismissed this complaint subsequent to the filing of the motion to dismiss. On or about May 13, 2024, a derivative lawsuit was filed against the Company (as nominal defendant), an officer of the Company, and members of the Company’s Board of Directors in the U.S. District Court for the District of Nevada by another purported shareholder. The complaint asserts various common law claims (including breach of fiduciary duty) and violation of Section 14(a)of the Securities Exchange Act regarding the same or similar allegations at issue in the purported class action lawsuit related to disclosures and statements made about certain clinical trials related to Rett Syndrome. The Company believes this lawsuit is without merit and the Company denies any liability or wrongdoing. The parties are currently due to file a proposed schedule for the anticipated motion to dismiss by the Company and the officer of the Company (the other named defendants have not been served with the complaint) on or before January 15, 2025. No amount has been recorded in these consolidated financial statements for any loss contingencies associated with this lawsuit as the Company believes that it is not probable that any loss will occur. We know of no other material pending legal or governmental proceedings, other than ordinary routine litigation incidental to our business, to which our Company or our subsidiaries are a party or of which any of their property is subject. There are no other proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder holding more than 5% of our shares, or any associate of such persons, is an adverse party or has a material interest adverse to our or our subsidiaries’ interest. Share Purchase Warrants A summary of the status of the Company’s outstanding share purchase warrants is presented below: Schedule of share purchase warrants outstanding Number of Warrants Weighted Average Exercise Price ($) Balance, September 30, 2023 160,000 3.72 Expired ( 150,000 ) 3.17 Balance, September 30, 2024 10,000 12.00 At September 30, 2024, the Company had 10,000 share purchase warrants outstanding exercisable at $ 12.00 per share until April 21, 2026 . 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. F- 16 Anavex Life Sciences Corp. Notes to the Consolidated Financial Statements September 30, 2024 – Page 17 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, in addition to the shares available under the 2019 Plan and the 2015 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 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 September 30, 2024, 5,267,500 options had been issued under the 2022 Plan and 5,462,202 options were available for issue under the 2022 Plan. The following summarizes information about stock option activity during the years ended September 30, 2024 and 2023: Schedule of stock option activity Number of Options Weighted Average Exercise Price ($) Weighted Average Grant Date Fair Value ($) Aggregate intrinsic value ($) Outstanding, October 1, 2022 13,169,616 6.61 4.96 62,267,309 Granted 1,959,000 9.30 6.60 — Exercised ( 759,753 ) 2.34 0.95 4,629,026 Forfeited ( 257,083 ) 12.00 6.74 — Outstanding, September 30, 2023 14,111,780 7.12 5.27 22,290,069 Granted 1,860,500 5.47 3.95 — Exercised ( 273,360 ) 2.53 1.11 601,407 Forfeited ( 661,166 ) 11.67 5.00 — Outstanding, September 30, 2024 15,037,754 6.80 15,825,791 Exercisable, September 30, 2024 9,910,590 5.52 15,176,855 The following summarizes information about stock options at September 30, 2024 by a range of exercise prices: F- 17 Anavex Life Sciences Corp. Notes to the Consolidated Financial Statements September 30, 2024 – Page 18 Schedule of summarizes information about stock options Weighted average Weighted Weighted Number of remaining average Number of average Range of exercises prices outstanding contractual life exercise vested exercise From To options (in years) price options price $ 0.92 $ 3.00 3,015,700 3.79 $ 2.39 3,015,700 $ 2.39 $ 3.01 $ 5.00 2,267,500 4.01 $ 3.42 2,056,250 $ 3.31 $ 5.01 $ 9.00 6,640,554 6.07 $ 6.58 3,473,639 $ 6.21 $ 9.01 $ 13.00 1,649,000 7.33 $ 10.26 760,000 $ 10.50 $ 13.01 $ 25.00 1,465,000 6.45 $ 18.18 605,001 $ 18.47 15,037,754 5.48 $ 6.80 9,910,590 $ 5.52 The weighted average per share fair value of options vested at September 30, 2024 was $ 4.34 (2023: $ 3.94 ). At September 30, 2024, the weighted average contractual life of options outstanding was 5.48 years (2023: 6.0 years) and for options exercisable was 4.03 years (2023: 4.75 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 September 30, 2024. The Company recognized share-based compensation expense of $ 9.4 million during the year ended September 30, 2024 (2023: $ 16.4 million) in connection with the issuance and vesting of stock options in exchange for services. These amounts have been included in general and administrative expenses and research and development expenses on the Company’s consolidated statements of operations as follows (in thousands): Schedule of general and administrative expenses and research and development expenses Years ended September 30, 2024 2023 General and administrative $ 3,625 $ 5,558 Research and development 5,813 10,812 Total share-based compensation $ 9,438 $ 16,370 An amount of approximately $ 8.4 million in share-based compensation is expected to be recorded over the remaining term of such options and warrants through fiscal 2027. The fair value of each option and warrant award 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 2024 2023 Risk-free interest rate 4.28 % 3.70 % Expected life of options (years) 5.78 5.64 Annualized volatility 84.81 % 85.13 % Dividend rate 0.00 % 0.00 % The fair value of stock compensation charges recognized during the years ended September 30, 2024 and 2023 was determined with reference to the quoted market price of the Company’s shares on the grant date. F- 18 Anavex Life Sciences Corp. Notes to the Consolidated Financial Statements September 30, 2024 – Page 19 Note 7 Income Taxes The Company’s U.S. and foreign loss before income taxes are set forth below (in thousands): Schedule of loss before income taxes 2024 2023 United States $ ( 39,195 ) $ ( 41,198 ) Foreign ( 3,807 ) ( 6,300 ) Total $ ( 43,002 ) $ ( 47,498 ) The components of net deferred income tax assets as of September 30, 2024 and 2023 are as follows (in thousands): Schedule of components of net deferred income tax assets 2024 2023 Net operating loss carryforwards $ 48,134 $ 46,462 Research and development tax credit carryforwards 4,203 2,713 Share-based compensation 21,091 18,593 Research and development capitalization 15,104 7,219 Unpaid charges 3,197 1,559 Intangible asset costs 758 593 Foreign exchange and other ( 254 ) 49 Valuation allowance of deferred tax assets ( 92,233 ) ( 77,188 ) Net deferred tax assets $ — $ — A reconciliation of income tax expense at the statutory federal income tax rate and income taxes as reflected in the consolidated financial statements for the years ended September 30, 2024 and 2023 is as follows (in thousands): Schedule of reconciliation of income tax expense 2024 2023 Income tax benefit at statutory federal rate $ ( 9,030 ) $ ( 9,975 ) Foreign income taxed at other rates ( 61 ) — Permanent differences relating to share-based compensation ( 10 ) ( 601 ) Permanent differences relating to GILTI inclusion — 165 Other permanent differences ( 276 ) 273 Research and development credits, net ( 860 ) ( 37 ) State and local taxes ( 3,821 ) ( 4,122 ) Adjustment to true up to prior years’ tax provision ( 1,128 ) 206 Change in valuation allowances 15,186 14,098 Income tax expense $ — $ 7 As of September 30, 2024, the Company had U.S. federal net operating loss carryforwards of approximately $ 128.5 million (2023: $ 126.3 million) of which $37.7 million will begin to expire in 2025 and $90.8 million can be carried forward indefinitely , state and local net operating loss carryforwards of approximately $ 16.9 million (2023: $ 16.6 million) which will begin to expire in 2036 , and Research and Development tax credits of approximately $ 4.3 million (2023: $ 2.7 million) which will begin to expire in 2029 . The calculation of the Research and Development tax credits, by their nature, involve estimates and subjectivity. If examined by the U.S. federal and state tax authorities, it is possible that some portion of these credit carryforwards would be disputed by the tax authorities. The Company had approximately $ 16.6 million (approximately AU$ 23.9 million) (2023: $ 12.9 million (approximately AU$ 20.1 million)) of net operating loss carryforwards in Australia, which have an indefinite life, available to offset future taxable income in those jurisdictions. F- 19 Anavex Life Sciences Corp. Notes to the Consolidated Financial Statements September 30, 2024 – Page 20 The Company evaluates its valuation allowance requirements based on available evidence. When circumstances change, and this causes a change in management’s judgment about the recoverability of deferred tax assets, the impact of the change on the valuation allowance is reflected in current income. Because management of the Company does not currently believe that it is more likely than not that the Company will receive the benefit of these assets, a valuation allowance has been established at September 30, 2024 and 2023. The Tax Cuts and Jobs Act of 2017 (TCJA) has modified the IRC 174 expenses related to research and development for tax years beginning after December 31, 2021. Under the TCJA, the Company must now capitalize the expenditures related to research and development activities and amortize over five years for U.S. activities and 15 years for non-U.S. activities using a mid-year convention. Therefore, the capitalization of research and development costs in accordance with IRC 174 has resulted in a gross deferred tax assets at September 30, 2024 of $ 15.1 million (2023: $ 7.2 million). Uncertain Tax Positions The Company files income tax returns in the U.S. federal jurisdiction and various state and local and foreign jurisdictions. The Company’s tax returns are subject to tax examinations by U.S. federal and state tax authorities, or examinations by foreign tax authorities until the respective statutes of limitation expire. The Company is subject to tax examinations by tax authorities for all taxation years commencing on or after 2005. Under the provisions of the Internal Revenue Code, the net operating loss (“NOL”) carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Under Section 382 of the Internal Revenue Code, NOL and tax credit carryforwards may become subject to an annual limitation in the event of an over 50% cumulative change in the ownership interest of significant stockholders over a three-year period, as well as similar state tax provisions. The Company conducted a Section 382 study during the year ended September 30, 2021 and determined that, during the year ended September 30, 2015, there was a change in ownership which resulted in $ 25.8 million of federal NOLs being subject to an annual limitation. During the year ended September 30, 2021, the Company reduced its federal NOLs by $ 12.1 million and its Research and Development tax credit carryforwards by $ 0.8 million, which are the amount of tax assets that will expire unutilized pursuant to the Section 382 study. This resulted in a reduction of $ 2.5 million of NOLs and $ 0.8 million of research and development credits and a corresponding reduction in the valuation allowance of $ 3.3 million, which was recorded in the 2021 fiscal year. Subsequent ownership changes in future years could trigger additional limitations of the Company’s NOLs . During the year ended September 30, 2024 and 2023 the Company determined that there were no changes in ownership pursuant to Section 382. As of September 30, 2024, the Company did not provide any foreign withholding taxes related to its foreign subsidiaries’ undistributed earnings, as such earnings have been retained and are intended to be indefinitely reinvested to fund ongoing operations of the foreign subsidiaries. It is not practicable to estimate the amount of taxes that would be payable upon remittance of these earnings, because such tax, if any, is dependent upon circumstances existing if and when remittance occur. Note 8 Subsequent Events The Company evaluates subsequent events occurring between the most recent balance sheet date and the date the financial statements are available to be issued in order to determine whether the subsequent events are to be recorded and/or disclosed in the Company’s financial statements and footnotes. The financial statements are considered to be available to be issued at the time they are filed with the Securities and Exchange Commission (SEC). There were no subsequent events or transactions that required recognition or disclosure in the consolidated financial statements. F- 20 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL MATTERS Not Applicable