ANAVEX LIFE SCIENCES CORP

Condensed Consolidated Interim Financial Statements

Condensed Consolidated Interim Balance Sheets

Condensed Consolidated Interim Statements of Operations and Comprehensive Loss

Condensed Consolidated Interim Statements of Changes in Stockholders' Equity

For the three months ended June 30, 2024 and 2023

Condensed Consolidated Interim Statements of Changes in Stockholders' Equity

For the nine months ended June 30, 2024 and 2023

Condensed Consolidated Interim Statements of Cash Flows

**Note 1 Business Description **

Business

Anavex Life Sciences Corp. (“Anavex” or the “Company”) is a clinical stage biopharmaceutical company engaged in the development of differentiated therapeutics by applying precision medicine to central nervous system (“CNS”) diseases with high unmet need. Anavex analyzes genomic data from clinical trials to identify biomarkers, which are used in the analysis of its clinical trials for the treatment of neurodegenerative and neurodevelopmental diseases.

The Company’s lead compound ANAVEX®2-73 is being developed to treat Alzheimer’s disease, Parkinson’s disease and potentially other central nervous system diseases, including rare diseases, such as Rett syndrome, a rare severe neurological monogenic disorder caused by mutations in the X-linked gene, methyl-CpG-binding protein 2 (“MECP2”).

Note 2 Basis of Presentation

***Basis of Presentation ***

These accompanying unaudited condensed consolidated interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim reporting. Accordingly, certain information and note disclosures normally included in the annual financial statements in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the disclosures are adequate to make the information presented not misleading.

These accompanying unaudited condensed consolidated interim financial statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information contained herein. The consolidated balance sheet as of September 30, 2023 was derived from the audited annual financial statements but does not include all disclosures required by U.S. GAAP. The accompanying unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended September 30, 2023 filed with the SEC on November 27, 2023. The Company follows the same accounting policies in the preparation of interim reports.

Operating results for the nine months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending September 30, 2024.

Liquidity

All of the Company’s potential drug compounds are in the clinical development stage and the Company cannot be certain that its research and development efforts will be successful or, if successful, that its potential drug compounds will ever be approved for sales to pharmaceutical companies or generate commercial revenues. To date, we have not generated any revenues from our operations. The Company expects the business to continue to experience negative cash flows from operations for the foreseeable future and cannot predict when, if ever, our business might become profitable.

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 condensed consolidated interim 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.

Use of Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to accounting for research and development costs, incentive income receivable, valuation and recoverability of deferred tax assets, share based compensation, and loss contingencies. The Company bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Principles of Consolidation

These consolidated financial statements include the accounts of Anavex Life Sciences Corp. and its wholly-owned subsidiaries, Anavex Australia Pty Limited (“Anavex Australia”), a company incorporated under the laws of Australia, Anavex Germany GmbH, a company incorporated under the laws of Germany, and Anavex Canada Ltd., a company incorporated under the laws of the Province of Ontario, Canada. All inter-company transactions and balances have been eliminated.

Fair Value Measurements

The fair value hierarchy under GAAP is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 - observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and

Level 3 - assets and liabilities whose significant value drivers are unobservable by little or no market activity and that are significant to the fair value of the assets or liabilities.

At June 30, 2024 and September 30, 2023, the Company did not have any Level 3 assets or liabilities.

Basic and Diluted Loss per Share

Basic income/(loss) per common share is computed by dividing net income/(loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted income/(loss) per common share is computed by dividing net income/(loss) available to common stockholders by the sum of (1) the weighted-average number of common shares outstanding during the period, (2) the dilutive effect of the assumed exercise of options and warrants using the treasury stock method and (3) the dilutive effect of other potentially dilutive securities. For purposes of the diluted net loss per share calculation, options and warrants are potentially dilutive securities and are excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive.

As of June 30, 2024 loss per share excludes 15,190,254 (June 30, 2023:14,858,863) potentially dilutive common shares related to outstanding options and warrants, as their effect was anti-dilutive.

***Recently Adopted Accounting Pronouncements ***

In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 Other Income ***

Grant Income

As of June 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 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 three and nine months ended June 30, 2024, the Company recognized $0 and $0, respectively (2023: $0 and $25,000, respectively) of this grant on its statements of operations as grant income. At June 30, 2024, an amount of $0.9 million (September 30, 2023: $0.9 million) of this grant is recorded as deferred grant income, representing the amount of this grant which has not yet been recognized to other income. The Company will recognize this income on its statement of operations as the relating expenditures are incurred to offset the income.

Research and development incentive income

Research and development incentive income represents the income earned by Anavex Australia of the 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 three and nine months ended June 30, 2024 the Company recorded research and development incentive income of $0.5 million (AUD 0.8 million) and $1.6 million (AUD 2.4 million), respectively (2023: $0.6 million (AUD 0.9 million) and $2.0 million (AUD 3.1 million), respectively) in respect of the Australia R&D credit for eligible research and development expenses incurred during the period. This amount is included within Other income on the consolidated statements of operations.

At June 30, 2024, Incentive and tax receivables includes $1.5 million (AUD 2.3 million) (September 30, 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.

Although the Company believes that it has complied with all the relevant conditions of eligibility under the program for all periods claimed, the Australian Tax Office (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 such adjustment.

Currently, the Company’s tax incentive claims from 2020 to 2023 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 4 Accrued Liabilities

The principal components of accrued liabilities consist of (in thousands):

Note 5 Equity Offerings

Common Stock

Common shares are voting and are entitled to dividends as declared at the discretion of the Board of Directors (the “Board”).

Preferred Stock

The Company’s Board has the authority to issue preferred stock in one or more series and to fix the rights, preferences, privileges, restrictions and the number of shares constituting any series or the designation of the series.

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 (“Shares”) registered under an effective registration statement from time to time through the Sales Agents (the “Offering”).

Upon delivery of a placement notice based on the Company’s instructions and subject to the terms and conditions of the 2020 Sales Agreement, the Sales Agents could sell the Shares by methods deemed to be an “at the market” offering, in negotiated transactions at market prices prevailing at the time of sale or at prices related to such prevailing market prices, or by any other method permitted by law, including negotiated transactions, subject to the prior written consent of the Company. The Company was not obligated to make any sales of Shares under the 2020 Sales Agreement. The Company or Sales Agents could suspend or terminate the offering of Shares upon notice to the other party, subject to certain conditions. The Sales Agents would act as agents on a commercially reasonable efforts basis consistent with their normal trading and sales practices and applicable state and federal law, rules and regulations and the rules of Nasdaq.

The Company agreed to pay the Sales Agents commissions for their services of up to 3.0% of the gross proceeds from the sale of the Shares pursuant to the 2020 Sales Agreement. The Company also agreed to provide the Sales Agents with customary indemnification and contribution rights. During the nine months ended June 30, 2024 and 2023, no shares were sold pursuant to the Offering. At June 30, 2024, an amount of $142.4 million (September 30, 2023: $142.4 million) was registered pursuant to an effective registration statement. The Company terminated the 2020 Sales Agreement on July 24, 2024.

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 nine months ended June 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 nine months ended June 30, 2023, the Company issued to Lincoln Park an aggregate of 3,138,348 shares of common stock under the 2023 Purchase Agreement, including 3,125,000 shares of common stock for an aggregate purchase price of $26,687,017,13,348 commitment shares and the 75,000 initial commitment shares.

At June 30, 2024, an amount of $110.8 million remained available under the 2023 Purchase Agreement.

***Note 6 Commitments and Contingencies ***

Leases

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.

During the three and nine months ended June 30, 2024 and 2023, operating lease costs were as follows (in thousands):

Employee 401(k) Benefit Plan

The Company has a defined-contribution savings plan under Section 401(k) of the Internal Revenue Code. The plan covers all United States based employees. United States based employees eligible to participate in the plan may contribute up to the current statutory limits under the Internal Revenue Service regulations. The 401(k) plan permits the Company to make additional matching contributions on behalf of contributing employees.

During the three and nine months ended June 30, 2024 and 2023, the Company made matching contributions under the 401(k) plan as follows (in thousands):

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. The complaint is captioned Blum v. Anavex Life Sciences, Corp. et al., case number 1:24-cv-01910, and names the Company and Christopher Missling as Defendants. The complaint alleges violations of the Securities and Exchange Act of 1934 resulting from disclosures and statements made about certain clinical trials for ANAVEX®2-73. On July 12, 2024, the lead plaintiff filed an amended complaint. The Company believes the complaint is without merit. The Company is vigorously pursuing its defenses and a potential dismissal of all claims asserted in the lawsuit.

On May 8, 2024, another purported shareholder of the Company filed a similar lawsuit against the same defendants that raised similar allegations and in addition, raised allegations related to disclosures and statements made about the AVATAR trial. The shareholder sought to consolidate the cases and be appointed lead plaintiff of the consolidated action. The court denied the consolidation motion and lead plaintiff motion on June 13, 2024. The Company plans to vigorously defend the lawsuit.

On May 13, 2024, a purported shareholder filed a derivative lawsuit on behalf of the Company against the board of directors. The complaint asserts various common law claims (including breach of fiduciary duty) and violation of Section 14(a) regarding the same allegations at issue in the two purported class action lawsuits related to disclosures and statements made about certain clinical trials. The Company is named as a Nominal Defendant. The defendants plan to vigorously defend the lawsuit.

Share Purchase Warrants

A summary of the status of the Company’s outstanding share purchase warrants is presented below:

At June 30, 2024, the Company had share purchase warrants outstanding as follows:

Stock–based Compensation Plan

2015 Stock Option Plan

On September 18, 2015, the Company’s Board approved a 2015 Omnibus Incentive Plan (the “2015 Plan”), which provided for the grant of stock options and restricted stock awards to directors, officers, employees and consultants of the Company.

The maximum number of our common shares reserved for issue under the plan was 6,050,553 shares, subject to adjustment in the event of a change of the Company’s capitalization.

2019 Stock Option Plan

On January 15, 2019, the Board approved the 2019 Omnibus Incentive Plan (the “2019 Plan”), which provides for the grant of stock options and restricted stock awards to directors, officers, employees, consultants and advisors of the Company.

The maximum number of our common shares reserved for issue under the plan was 6,000,000 shares, subject to adjustment in the event of a change of the Company’s capitalization.

During the year ended September 30, 2022,406,453 options previously available under the 2019 Plan and the 2015 Plan became available under the 2022 Plan (as defined below).

2022 Stock Option Plan

On March 25, 2022, the Board approved the 2022 Omnibus Incentive Plan (the “2022 Plan”). The 2022 Plan was approved by stockholders on May 24, 2022. Under the terms of the 2022 Plan,10,000,000 additional shares of Common Stock will be available for issuance under the plan, 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 June 30, 2024,5,300,000 options had been issued under the 2022 Plan and 5,319,702 options were available for issue under the 2022 Plan.

The following summarizes information about stock option activity during the year ended September 30, 2023 and nine months ended June 30, 2024:

The following summarizes information about stock options at June 30, 2024 by a range of exercise prices:

The weighted average grant date fair value of options vested at June 30, 2024 was $4.34 (September 30, 2023: $3.94). At June 30, 2024, the weighted average contractual life of options outstanding was 5.7 years (September 30, 2023:6.0 years) and for options exercisable was 4.2 years (September 30, 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 June 30, 2024.

During the three and nine months ended June 30, 2024, the Company recognized stock-based compensation expense of $2.5 million and $7.4 million, respectively (2023: $3.9 million and $13.2 million, respectively) in connection with the issuance and vesting of stock options and warrants in exchange for services. These amounts have been included in general and administrative expenses and research and development expenses on the Company’s condensed consolidated interim statement of operations as follows (in thousands):

An amount of approximately $10.6 million in stock-based compensation is expected to be recorded over the remaining term of such options through fiscal 2026.

The fair value of each option award granted during the three and nine months ended June 30, 2024 and 2023 is estimated on the date of grant using the Black Scholes option pricing model based on the following weighted average assumptions:

The fair value of stock compensation charges recognized during the three and nine months ended June 30, 2024 and 2023 was determined with reference to the quoted market price of the Company’s shares on the grant date.

Note 7 Subsequent Events

On July 24, 2024, the Company terminated the 2020 Sales Agreement.