Notes to the Interim Condensed Consolidated
Financial Statements
December 31, 2016
(
Unaudited
)
Note 1
|
|
Business
Description and Basis of Presentation
|
Business
Anavex
Life Sciences Corp. (the “Company”) is a clinical stage biopharmaceutical company engaged in the development of differentiated
therapeutics for the treatment of neurodegenerative and neurodevelopmental diseases including drug candidates to treat Alzheimer’s
disease, other central nervous system (CNS) diseases, pain and various types of cancer. The Company’s lead compound ANAVEX
2-73 is being developed to treat Alzheimer’s disease, Parkinson’s disease and potentially other CNS diseases, including
rare diseases, such as Rett syndrome.
Basis
of Presentation
These
interim condensed consolidated financial statements have been prepared, without audit pursuant to the rules and regulations of
the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in the annual
financial statements in accordance with generally accepted accounting principles 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
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. These interim condensed financial statements should be read in conjunction
with the audited financial statements included in its annual report on Form 10-K for the year ended September 30, 2016. The Company
follows the same accounting policies in the preparation of interim reports.
Operating
results for the three months ended December 31, 2016 are not necessarily indicative of the results that may be expected for the
year ending September 30, 2017.
Basic
and Diluted Loss per Share
Basic
loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted loss per common share is computed similar to basic loss per common share except
that the denominator is increased to include the weighted average number of all potentially dilutive securities convertible into
shares of common stock that were outstanding during the period.
As
of December 31, 2016, loss per share excludes 6,163,309 (September 30, 2016 – 6,008,309) potentially dilutive common shares
related to outstanding options and warrants, as their effect was anti-dilutive.
Anavex Life Sciences Corp.
Notes to the Interim Condensed Consolidated
Financial Statements
December 31, 2016
(
Unaudited
)
Note 2
|
|
Recent
Accounting Pronouncements
|
Recent
Accounting Pronouncements Adopted During the Period
In
June 2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance
Target Could Be Achieved after the Requisite Service Period ("ASU 2014-12"). ASU 2014-12 requires that a performance
target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition.
As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further
clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will
be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already
been rendered. The Company adopted this standard on October 1, 2016. The adoption of this standard did not have any effect on
its financial condition, results of operations and cash flows.
In
August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going
Concern (“ASU 2014-15”). ASU 2014-15 explicitly requires management to assess an entity’s ability to continue
as a going concern, and to provide related footnote disclosure in certain circumstances. The Company adopted this standard on
October 1, 2016. The adoption of this standard did not have any effect on its financial condition, results of operations and cash
flows.
In
April 2015, the Financial Accounting Standards Board (FASB), issued the Accounting Standards Update 2015-03, Interest - Imputation
of Interest (Subtopic 835-30) - Simplifying the Presentation of Debt Issuance Costs, that requires debt issuance costs related
to a recognized debt liability to be presented in the balance sheet as a direct deduction from the debt liability rather than
as an asset. Upon adoption, an entity must apply the new guidance retrospectively to all prior periods presented in the financial
statements. The Company adopted this standard on October 1, 2016. The adoption of this standard did not have any effect on its
financial condition, results of operations and cash flows.
Anavex Life Sciences Corp.
Notes to the Interim Condensed Consolidated
Financial Statements
December 31, 2016
(
Unaudited
)
Note 2
|
|
Recent
Accounting Pronouncements
– (cont’d)
|
Recent
Accounting Pronouncements Not Yet Adopted
In
May, 2014, the FASB and the International Accounting Standards Board (IASB) issued a converged standard on revenue recognition
from contracts with customers, ASU 2014-09 (Topic 606 and IFRS 15). This standard will supersede nearly all existing revenue recognition
guidance. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017.
The Company is currently evaluating the impact this guidance will have on its financial condition, results of operations and cash
flows.
In
November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2015-17
“Income Taxes: Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”). ASU 2015-17 eliminates the requirement
to bifurcate deferred taxes between current and non-current on the balance sheet and requires that deferred tax liabilities and
assets be classified as noncurrent on the balance sheet. ASU 2015-17 is effective for public entities in fiscal years beginning
after December 15, 2016, and for interim periods within those fiscal years. The amendments for ASU-2015-17 can be applied
retrospectively or prospectively and early adoption is permitted. The adoption of this standard is not expected to have a material
impact for any period presented.
In
February 2016, the FASB issued Accounting Standards Update No. 2016-02,
Leases
(“ASU 2016-02”). The guidance
would require lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right –of
use assets. The guidance is effective for annual and interim reporting periods beginning on or after December 15, 2018. The Company
is currently evaluating the impact this guidance will have on its financial condition, results of operations and cash flows.
In
March 2016, the FASB issued ASC 2016-09, “
Compensation – Stock Compensation (Topic 718) – Improvements to
Employee Share-Based Payment Accounting
” (“ASU 2016-09”). These amendments are intended to simplify several
aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards
as either equity or liabilities, and classification on the statement of cash flows. These amendments are effective for annual
and interim reporting periods beginning on or after December 15, 2016. Early adoption is permitted. Entities have the option to
apply the amendments on either a prospective basis or a modified retrospective basis. The Company is currently evaluating the
impact this guidance will have on its financial condition, results of operations and cash flows.
Anavex Life Sciences Corp.
Notes to the Interim Condensed Consolidated
Financial Statements
December 31, 2016
(
Unaudited
)
Note 2
|
|
Recent
Accounting Pronouncements
– (cont’d)
|
In
August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and
Cash Payments ("ASU 2016-15"). ASU 2016-15 reduces the existing diversity in practice in financial reporting across
all industries by clarifying certain existing principles in ASC 230, Statement of Cash Flows, ("ASC 230") including
providing additional guidance on how and what an entity should consider in determining the classification of certain cash flows.
In addition, in November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash ("ASU
2016-18"). ASU 2016-18 clarifies certain existing principles in ASC 230, including providing additional guidance related
to transfers between cash and restricted cash and how entities present, in their statement of cash flows, the cash receipts and
cash payments that directly affect the restricted cash accounts. These amendments are effective for annual and interim reporting
periods beginning on or after December 15, 2017. Early adoption is permitted. The adoption of ASU 2016-15 and ASU 2016-18 will
modify the Company's current disclosures and reclassifications within the consolidated statement of cash flows but they are not
expected to have a material effect on the Company’s consolidated financial statements.
Other
than noted above, the Company does not expect the adoption of recently issued accounting pronouncements to have a significant
impact on its results of operations, financial position or cash flow.
Note 3
|
|
Deferred Grant Income
|
On June
19, 2015, the Company was awarded grant funding in the amount of $286,455, of which the Company has received $214,836 and the
remainder will be received in instalments over the remainder of the commitment. The grant was received in exchange for a commitment
to provide research and development for preclinical validation of Sigma-1 receptor agonism as potential treatment for Parkinson’s
disease.
The grant
income has been deferred and is being amortized to other income over the related commitment period as the related research and
development expenditures are incurred. During the three months ended December 31, 2016, the Company recognized $35,286 (2015:
$39,055) of this grant on its statement of operations within grant income.
During
the three months ended December 31, 2015, the Company recognized other grant income of $571,093 in respect of a research and development
incentive program offered by the Australian government.
Anavex Life Sciences Corp.
Notes to the Interim Condensed Consolidated
Financial Statements
December 31, 2016
(
Unaudited
)
Note 4
|
|
Lincoln
Park Purchase Agreement
|
On
October 21, 2015, the Company entered into a $50,000,000 purchase agreement (the “2015 Purchase Agreement”) with Lincoln
Park Capital Fund, LLC (“Lincoln Park”), pursuant to which the Company may sell and issue to Lincoln Park, and Lincoln
Park is obligated to purchase, up to $50,000,000 in value of its shares of common stock from time to time over a 36-month period.
In connection with the Purchase Agreement, the Company also entered into a registration rights agreement with Lincoln Park whereby
the Company agreed to file a registration statement with the Securities and Exchange Commission covering the shares of the Company’s
common stock that may be issued to Lincoln Park under the Purchase Agreement.
The
Company may direct Lincoln Park, at its sole discretion, and subject to certain conditions, to purchase up to 50,000 shares of
common stock on any business day, provided that at least one business day has passed since the most recent purchase. The amount
of a purchase may be increased under certain circumstances provided, however that Lincoln Park’s committed obligation under
any single purchase shall not exceed $2,000,000. The purchase price of shares of common stock related to the future funding will
be based on the then prevailing market prices of such shares at the time of sales as described in the 2015 Purchase Agreement.
In
consideration for entering into the 2015 Purchase Agreement, the Company issued to Lincoln Park 179,598 shares of common stock
as a commitment fee and agreed to issue up to 89,799 shares pro rata, when and if, Lincoln Park purchases at the Company’s
discretion the $50,000,000 aggregate commitment.
During
the three months ended December 31, 2016, the Company issued to Lincoln Park an aggregate of 4,500,012 shares of common stock
under the Purchase Agreement, including 4,472,841 shares of common stock for an aggregate purchase price of $15,128,272 and 27,171
commitment shares. At December 31, 2016, an amount of $33,513,928 in value of its shares remained available under
the 2015 Purchase Agreement.
Note 5
|
|
Related
Party Transactions
|
As
at December 31, 2016, included in accounts payable and accrued liabilities was $36,816 (September 30, 2016: $59,264) owing to
directors and officers of the Company for director fees and reimbursable expenses, and a former director and officer of the Company
for unpaid fees.
The
Company is committed to lease payments as follows:
Fiscal
year ending September 30,
|
|
|
|
|
2017
|
|
$
|
84,142
|
|
2018
|
|
|
112,189
|
|
2019
|
|
|
56,094
|
|
|
|
$
|
252,425
|
|
Anavex Life Sciences Corp.
Notes to the Interim Condensed Consolidated Financial Statements
December 31, 2016
(
Unaudited
)
Note 6
|
|
Commitments
– (cont’d)
|
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.
|
c)
|
Share
Purchase Warrants
|
|
|
At December
31, 2016 and September 30, 2016, the Company had 1,809,309 share purchase warrants outstanding
with a weighted average exercise price of $2.70 as follows:
|
Number
|
|
|
Exercise Price
|
|
|
Expiry Date
|
|
1,462,180
|
|
|
$
|
3.00
|
|
|
July 5, 2018
|
|
30,000
|
|
|
$
|
4.00
|
|
|
February 24, 2019
|
|
277,127
|
|
|
$
|
1.20
|
|
|
March 13, 2019
|
|
1,252
|
|
|
$
|
1.68
|
|
|
March 13, 2019
|
|
31,250
|
|
|
$
|
1.24
|
|
|
May 31, 2019
|
|
7,500
|
|
|
$
|
1.04
|
|
|
May 31, 2019
|
|
1,809,309
|
|
|
|
|
|
|
|
All
of the warrants expiring on July 5, 2018 contain a contingent call provision whereby the Company may have the option to call for
cancellation of all or any portion of the warrants for consideration equal to $0.001 per share, provided the quoted market price
of the Company’s common stock exceeds $6.00 for a period of twenty consecutive trading days, subject to certain minimum
volume restrictions and other restrictions as provided in the warrant agreements.
Subsequent
to December 31, 2016, 200,000 share purchase warrants were cashless exercised, resulting in the issuance of 52,562 shares of common
stock.
|
d)
|
Stock–based
Compensation Plan
|
2015
Stock Option Plan
On September
18, 2015, the Company’s board of directors approved a 2015 Omnibus Incentive Plan (the “2015 Plan”), which provides
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 is 6,050,553 shares subject to adjustment in the event of
a change of the Company’s capitalization. As a result of the adoption of the 2015 Plan, no further option awards will be
granted under any previously existing stock option plan. Stock option awards previously granted under previously existing stock
option plans remain outstanding in accordance with their terms.
Anavex Life Sciences Corp.
Notes to the Interim Condensed Consolidated Financial Statements
December 31, 2016
(
Unaudited
)
Note 6
|
|
Commitments
– (cont’d)
|
|
d)
|
Stock–based
Compensation Plan – (cont’d)
|
The
2015 Plan is administered by the board of directors, except that it may, in its discretion, delegate such responsibility to a
committee of such board. The exercise price will be determined by the board of directors 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 2015 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 2015 Plan.
A summary
of the status of Company’s outstanding stock purchase options for the three months ended December 31, 2016 and for the year
ended September 30, 2016 is presented below:
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average Grant
Date fair value
|
|
Outstanding at October 1, 2015
|
|
|
1,822,500
|
|
|
$
|
2.00
|
|
|
|
|
|
Granted
|
|
|
2,401,500
|
|
|
$
|
5.22
|
|
|
$
|
4.38
|
|
Expired
|
|
|
(25,000
|
)
|
|
$
|
14.68
|
|
|
|
|
|
Outstanding at September 30, 2016
|
|
|
4,199,000
|
|
|
$
|
3.76
|
|
|
|
|
|
Granted
|
|
|
155,000
|
|
|
$
|
3.70
|
|
|
$
|
3.16
|
|
Outstanding at December 31, 2016
|
|
|
4,354,000
|
|
|
$
|
3.76
|
|
|
|
|
|
Exercisable at December 31, 2016
|
|
|
2,449,638
|
|
|
$
|
2.65
|
|
|
|
|
|
Exercisable at September 30, 2016
|
|
|
2,290,716
|
|
|
$
|
2.41
|
|
|
|
|
|
Anavex Life Sciences Corp.
Notes to the Interim Condensed Consolidated Financial Statements
December 31, 2016
(
Unaudited
)
Note 6
|
|
Commitments
– (cont’d)
|
|
d)
|
Stock-based
Compensation Plan – (cont’d)
|
At December
31, 2016, the following stock options were outstanding:
Number of Shares
|
|
|
|
|
|
|
|
Aggregate
|
|
|
Remaining
|
|
|
|
|
Number
|
|
|
Exercise
|
|
|
|
|
Intrinsic
|
|
|
Contractual
|
|
Total
|
|
|
Vested
|
|
|
Price
|
|
|
Expiry Date
|
|
Value
|
|
|
Life (yrs)
|
|
|
500,000
|
|
|
|
500,000
|
|
|
$
|
1.60
|
|
|
July 5, 2023
|
|
|
1,180,000
|
|
|
|
6.51
|
|
|
75,000
|
|
|
|
50,000
|
|
|
$
|
1.20
|
|
|
May 7, 2024
|
|
|
207,000
|
|
|
|
7.35
|
|
|
125,000
|
|
|
|
62,500
|
|
|
$
|
1.32
|
|
|
May 8, 2024
|
|
|
330,000
|
|
|
|
7.35
|
|
|
718,750
|
|
|
|
479,170
|
|
|
$
|
0.92
|
|
|
April 2, 2025
|
|
|
2,185,000
|
|
|
|
8.25
|
|
|
50,000
|
|
|
|
25,001
|
|
|
$
|
1.44
|
|
|
June 8, 2025
|
|
|
126,000
|
|
|
|
8.44
|
|
|
50,000
|
|
|
|
16,667
|
|
|
$
|
1.76
|
|
|
June 15, 2025
|
|
|
110,000
|
|
|
|
8.45
|
|
|
278,750
|
|
|
|
139,375
|
|
|
$
|
5.04
|
|
|
September 18, 2025
|
|
|
-
|
|
|
|
8.71
|
|
|
1,500
|
|
|
|
1,500
|
|
|
$
|
5.64
|
|
|
September 30, 2025
|
|
|
-
|
|
|
|
8.75
|
|
|
31,250
|
|
|
|
13,020
|
|
|
$
|
5.68
|
|
|
October 2, 2025
|
|
|
-
|
|
|
|
8.75
|
|
|
25,000
|
|
|
|
10,416
|
|
|
$
|
8.98
|
|
|
October 16, 2025
|
|
|
-
|
|
|
|
8.79
|
|
|
1,500
|
|
|
|
1,500
|
|
|
$
|
5.57
|
|
|
December 31, 2025
|
|
|
-
|
|
|
|
9.00
|
|
|
1,500
|
|
|
|
1,500
|
|
|
$
|
4.90
|
|
|
March 31, 2026
|
|
|
-
|
|
|
|
9.25
|
|
|
1,500
|
|
|
|
1,500
|
|
|
$
|
5.66
|
|
|
April 27, 2026
|
|
|
-
|
|
|
|
9.32
|
|
|
50,000
|
|
|
|
16,288
|
|
|
$
|
4.09
|
|
|
May 18, 2026
|
|
|
-
|
|
|
|
9.38
|
|
|
1,500
|
|
|
|
1,500
|
|
|
$
|
6.11
|
|
|
June 30, 2026
|
|
|
-
|
|
|
|
9.49
|
|
|
379,625
|
|
|
|
31,635
|
|
|
$
|
6.26
|
|
|
July 5, 2026
|
|
|
-
|
|
|
|
9.51
|
|
|
861,429
|
|
|
|
71,785
|
|
|
$
|
7.06
|
|
|
July 18, 2026
|
|
|
-
|
|
|
|
9.54
|
|
|
40,000
|
|
|
|
6,667
|
|
|
$
|
3.06
|
|
|
September 7, 2026
|
|
|
36,000
|
|
|
|
9.68
|
|
|
1,006,696
|
|
|
|
1,006,696
|
|
|
$
|
3.28
|
|
|
September 22, 2026
|
|
|
684,553
|
|
|
|
9.72
|
|
|
140,000
|
|
|
|
11,668
|
|
|
$
|
3.63
|
|
|
October 3, 2026
|
|
|
46,200
|
|
|
|
9.75
|
|
|
15,000
|
|
|
|
1,250
|
|
|
$
|
4.35
|
|
|
December 9, 2026
|
|
|
-
|
|
|
|
9.94
|
|
|
4,354,000
|
|
|
|
2,449,638
|
|
|
|
|
|
|
|
|
$
|
4,904,753
|
|
|
|
|
|
The
aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted market
price of the Company’s stock for the options that were in-the-money at December 31, 2016.
Anavex
Life Sciences Corp.
Notes to the Interim Condensed Consolidated Financial Statements
December 31, 2016
(
Unaudited
)
Note 6
|
|
Commitments
– (cont’d)
|
|
d
)
|
Stock–based
Compensation Plan – (cont’d)
|
The
Company recognized stock based compensation expense of $889,267 during the three months ended December 31, 2016 (2015: $216,020)
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 statement of operations
as follows:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
General and administrative
|
|
$
|
427,583
|
|
|
$
|
141,829
|
|
Research and development
|
|
|
461,684
|
|
|
|
74,192
|
|
Total share based compensation
|
|
$
|
889,267
|
|
|
$
|
216,020
|
|
An amount
of approximately $7,341,855 in stock based compensation is expected to be recorded over the remaining term of such options
through September 30, 2019.
The
fair value of each option award is estimated on the date of grant using the Black Scholes option pricing model based on the following
weighted average assumptions:
|
|
2016
|
|
|
2015
|
|
Risk-free interest rate
|
|
|
1.52
|
%
|
|
|
1.66
|
%
|
Expected life of options (years)
|
|
|
6.95
|
|
|
|
7.01
|
|
Annualized volatility
|
|
|
111.45
|
%
|
|
|
101.50
|
%
|
Dividend rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Note 7
|
|
Supplemental Cash Flow Information
|
Investing
and financing activities that do not have a direct impact on current cash flows are excluded from the statement of cash flows.
During
the three months ended December 31, 2015; the Company issued 1,162 shares of common stock upon conversion of $1,162 in principal
amount of convertible debentures at a conversion price of $1.00 per share and 167,415 shares of common stock pursuant to the application
of an incorrect conversion price for conversion notices received during the year ended September 30, 2015.
This
transaction has been excluded from the statement of cash flows.
Note 8
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Comparative Figures
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Certain comparative
figures have been reclassified to conform to the current year’s presentation.