Notes
to the Consolidated Financial Statements
September
30, 2017 – Page 1
|
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
consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United
States of America and the instructions to Form 10-K.
|
Note
2
|
Summary
of Significant Accounting Policies
|
The
preparation of financial statements in accordance with United States generally accepted accounting principles 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 deferred income tax asset valuations, asset impairment, conversion features embedded in convertible notes payable,
derivative valuations, 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.
|
b)
|
Principles
of Consolidation
|
These
consolidated financial statements include the accounts of Anavex Life Sciences Corp. and its wholly-owned subsidiaries, Anavex
Australia Pty Limited, 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.
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2017 – Page 2
|
Note
2
|
Summary
of Significant Accounting Policies
– (continued)
|
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.
|
d)
|
Research
and Development Incentive Income
|
The
Company is eligible to obtain a research and development tax credit from the Australian Tax Authority (the “ATO”)
for certain research and development activities undertaken in Australia. The tax incentive is available on the basis of specific
criteria with which the Company must comply. Although the tax incentive is administered through the ATO, the Company has accounted
for the tax incentive outside of the scope of ASC Topic 740, Income Taxes since the incentive is not linked to the Company’s
income tax liability and can be realized regardless of whether the Company has generated taxable income in Australia. The Company
recognizes as other income the amount received for qualified expenses in the period they are received.
|
e)
|
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 September 30, 2017, loss per share excludes 6,711,339 (2016 – 6,008,309) potentially dilutive common shares related to
outstanding options and warrants, as their effect was anti-dilutive.
The
carrying value of the Company’s financial instruments, consisting of cash and equivalents and 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.
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2017 – Page 3
|
Note
2
|
Summary
of Significant Accounting Policies
– (continued)
|
|
g)
|
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 at 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 is the US dollar. The Company has determined
that the functional currency of Anavex Germany GmbH is the US dollar. The functional currency of Anavex Canada Ltd. is the Canadian
dollar.
|
h)
|
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 salaries, facilities costs, overhead costs and other related expenses, as well as costs incurred
in connection with third-party collaboration efforts. Milestone payments made by the Company to third parties are expensed when
the specific milestone has been achieved.
In
addition, the Company incurs expenses in respect of the acquisition of intellectual property relating to patents and trademarks.
The probability of success and length of time to develop commercial applications of the drugs subject to the acquired patents
and trademarks is difficult to determine and numerous risks and uncertainties exist with respect to the timely completion of the
development projects. There is no assurance the acquired patents and trademarks will ever be successfully commercialized. Due
to these risks and uncertainties, the acquisition of patents and trademarks does not meet the definition of an asset and thus
are expensed as incurred within general and administrative expenses.
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2017 – Page 4
|
Note
2
|
Summary
of Significant Accounting Policies
– (continued)
|
Research
and development incentive income is recognized when the research and development activities have been undertaken and the Company
has completed its assessment of whether such activities meet the relevant qualifying criteria. The Company recognizes such income
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 statement of operations in the period they are earned and when the related research and development costs
are incurred.
The
Company has adopted the provisions of FASB ASC 740 “Income Taxes” (“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.
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.
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2017 – Page 5
|
Note
2
|
Summary
of Significant Accounting Policies
– (continued)
|
|
k)
|
Stock-based
Compensation
|
The
Company accounts for all stock-based payments and awards under the fair value method.
Stock-based
payments to non-employees are measured at the fair value of the consideration received, or the fair value of the equity instruments
issued, or liabilities incurred, whichever is more reliably measurable. The fair value of stock-based payments to non-employees
is periodically re-measured until the counterparty performance is complete, and any change therein is recognized over the vesting
period of the award and in the same manner as if the Company had paid cash instead of paying with or using equity based instruments.
Compensation costs for stock-based payments with graded vesting are recognized on a straight-line basis. The cost of the stock-based
payments to non-employees that are fully vested and non-forfeitable at the grant date is measured and recognized at that date,
unless there is a contractual term for services in which case such compensation would be amortized over the contractual term.
The
Company accounts for the granting of share purchase options to employees using the fair value method whereby all awards to employees
will be recorded at fair value on the date of the grant. The fair value of all share purchase options are expensed over their
vesting period with a corresponding increase to additional paid-in capital.
The
Company uses the Black-Scholes option valuation model to calculate the fair value of share purchase options at the date of the
grant. Option pricing models require the input of highly subjective assumptions, including the expected price volatility. Changes
in these assumptions can materially affect the fair value estimates.
|
l)
|
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
|
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2017 – Page 6
|
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.
|
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2017 – Page 7
|
Note
2
|
Summary
of Significant Accounting Policies
– (continued)
|
|
l)
|
Fair
Value Measurements – (continued)
|
The
book value of cash and cash equivalents and accounts payable and accrued liabilities approximate their fair values due to the
short term maturity of those instruments.
At
September 30, 2017 and 2016, the Company did not have any Level 3 assets or liabilities.
|
m)
|
Derivative
Liabilities
|
The
Company evaluates its financial instruments and other contracts to determine if those contracts or embedded components of those
contracts qualify as derivatives to be separately accounted for in accordance with ASC 815. The result of this accounting treatment
is that the fair value of the embedded derivative is marked- to-market at each balance sheet date and recorded as a liability
and the change in fair value is recorded in the consolidated statements of operations as other income or expense. Upon conversion
or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value
is reclassified to equity.
The
classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is
re-assessed at the end of each reporting period. Derivative instruments that become subject to reclassification are reclassified
at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified in the
balance sheet as current or non-current based on whether or not settlement of the derivative instrument is expected within 12
months of the balance sheet date.
From
time to time, certain of the Company’s embedded conversion features on debt and outstanding warrants have been treated as
derivative liabilities for accounting purposes under ASC 815 due to insufficient authorized shares to fully settle conversion
features of the instruments if exercised. In this case, the Company utilized the latest inception date sequencing method to reclassify
outstanding instruments as derivative instruments. These contracts were recognized at fair value with changes in fair value recognized
in earnings until such time as the conditions giving rise to such derivative liability classification were settled.
These
derivative instruments did not trade in an active securities market. The Company used a binomial option pricing model to value
derivative liabilities. This model used Level 3 inputs in the fair value hierarchy established by ASC 820 Fair Value Measurement.
The
Company did not have any derivative instruments outstanding as at September 30, 2017 and 2016.
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2017 – Page 8
|
Note
2
|
Summary
of Significant Accounting Policies
– (Continued)
|
|
n)
|
Recent
Accounting Pronouncements
|
Recently
Adopted Accounting Pronouncements
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.
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 adoption of this standard is not expected to have a material impact for any period presented and the Company will apply this
standard to all future revenues.
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2017 – Page 9
|
Note
2
|
Summary
of Significant Accounting Policies
– (Continued)
|
Recent
Accounting Pronouncements Not Yet Adopted – (Continued)
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 the Company
on October 1, 2017. Early adoption is permitted. Entities have the option to apply the amendments on either a prospective basis
or a modified retrospective basis. The adoption of this standard is not expected to have a material impact for any period presented.
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. This amendment is effective for the Company beginning on October 1, 2018. 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
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2017 – Page 10
|
Note
2
|
Summary
of Significant Accounting Policies
– (Continued)
|
Recent
Accounting Pronouncements Not Yet Adopted – (Continued)
In
May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2017-09, “Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting,” clarifying when
a change to the terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance requires
modification accounting if the fair value, vesting condition or the classification of the award is not the same immediately before
and after a change to the terms and conditions of the award. The new guidance is effective for the Company on a prospective basis
beginning on October 1, 2018, with early adoption permitted. The Company is currently evaluating the impact this guidance will
have on its financial condition, results of operations and cash flows.
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.
Grant
Income
On
June 19, 2015, the Company was awarded grant funding in the amount of $286,455. The grant has been 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 was deferred and amortized to other income over the related commitment period as the related research and development
expenditures were incurred. During the year ended September 30, 2017, the Company recognized $140,942 (2016: $141,195; 2015: $Nil)
of this grant on its statement of operations within grant income.
Research
and development tax incentive
During
the year ended September 30, 2017, the Company received other income of $2,022,902 (2016: $571,093, 2015: $Nil) in respect of
a research and development incentive program offered by the Australian government.
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2017 – Page 11
|
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 registration statements 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 year ended September 30, 2017, the Company issued to Lincoln Park an aggregate of 7,109,956 (2016: 452,437; 2015: Nil) shares
of common stock under the Purchase Agreement, including 7,060,976 (2016: 450,000; 2015: Nil) shares of common stock for an aggregate
purchase price of $27,270,674 (2016: $1,357,800; 2015: $Nil) and 48,980 (2016: 2,437; 2015: Nil) commitment shares. At September
30, 2017, an amount of $21,371,526 remained available under the 2015 Purchase Agreement.
|
Note
5
|
Related
Party Transactions
|
As
at September 30, 2017, included in accounts payable and accrued liabilities was $34,144 (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.
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2017 – Page 12
The
Company is committed to lease payments as follows:
Fiscal
year ending September 30,
|
|
|
2018
|
|
|
$
|
115,189
|
|
2019
|
|
|
|
57,594
|
|
|
|
|
$
|
172,783
|
|
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
|
A
summary of the status of the Company’s outstanding share purchase warrants is presented below:
|
|
Number
of Shares
|
|
Weighted
Average Exercise Price
|
Balance,
October 1, 2015
|
|
|
|
4,272,890
|
|
|
$
|
2.11
|
|
Exercised
|
|
|
|
(2,463,581
|
)
|
|
$
|
1.67
|
|
Balance,
September 30, 2016
|
|
|
|
1,809,309
|
|
|
$
|
2.70
|
|
Exercised
|
|
|
|
(200,000
|
)
|
|
$
|
3.00
|
|
Balance,September
30, 2017
|
|
|
|
1,609,309
|
|
|
$
|
2.66
|
|
At
September 30, 2017, the Company had share purchase warrants outstanding of 1,609,309, with a weighted average exercise price of
$2.66 as follows:
Number
|
|
Exercise
Price
|
|
Expiry
Date
|
|
1,262,180
|
|
|
$
|
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
|
|
1,609,309
|
|
|
|
|
|
|
|
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2017 – Page 13
|
Note
6
|
Commitments
– (Continued)
|
|
c)
|
Share
Purchase Warrants – (Continued)
|
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.
During
the year ended September 30, 2017, 200,000 share purchase warrants were cashless exercised, resulting in the issuance of 52,562
shares of common stock.
During
the year ended September 30, 2016, the Company issued 1,979,246 shares of common stock pursuant to the exercise of 2,421,894 share
purchase warrants on a cashless basis, and 41,687 shares of common stock pursuant to the exercise of warrants for cash.
|
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.
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.
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2017 – Page 14
|
Note 6
|
Commitments
– (Continued)
|
|
d)
|
Stock-based
Compensation Plan – (Continued)
|
A
summary of the status of Company’s outstanding stock purchase options 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
|
|
|
|
1,107,500
|
|
|
|
5.51
|
|
|
$
|
5.44
|
|
Forfeited
|
|
|
|
(214,470
|
)
|
|
|
4.06
|
|
|
|
|
|
Outstanding
at September 30, 2017
|
|
|
|
5,092,030
|
|
|
$
|
4.13
|
|
|
|
|
|
Exercisable
at September 30, 2017
|
|
|
|
3,326,223
|
|
|
$
|
3.10
|
|
|
|
|
|
Exercisable
at September 30, 2016
|
|
|
|
2,290,716
|
|
|
$
|
2.42
|
|
|
|
|
|
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2017 – Page 15
|
Note 6
|
Commitments
– (Continued)
|
|
d)
|
Stock-based
Compensation Plan – (Continued)
|
At
September 30, 2017, 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
|
|
$
|
1,270,000
|
|
|
|
5.76
|
|
75,000
|
|
|
|
75,000
|
|
|
$
|
1.20
|
|
|
May
7, 2024
|
|
|
220,500
|
|
|
|
6.60
|
|
125,000
|
|
|
|
93,750
|
|
|
$
|
1.32
|
|
|
May
8, 2024
|
|
|
352,500
|
|
|
|
6.60
|
|
718,750
|
|
|
|
718,750
|
|
|
$
|
0.92
|
|
|
April
2, 2025
|
|
|
2,314,375
|
|
|
|
7.50
|
|
29,167
|
|
|
|
29,167
|
|
|
$
|
1.44
|
|
|
June
8, 2025
|
|
|
78,751
|
|
|
|
7.69
|
|
50,000
|
|
|
|
33,333
|
|
|
$
|
1.76
|
|
|
June
15, 2025
|
|
|
119,000
|
|
|
|
7.71
|
|
266,250
|
|
|
|
199,688
|
|
|
$
|
5.04
|
|
|
September
18, 2025
|
|
|
—
|
|
|
|
7.97
|
|
1,500
|
|
|
|
1,500
|
|
|
$
|
5.64
|
|
|
September
30, 2025
|
|
|
—
|
|
|
|
8.00
|
|
31,250
|
|
|
|
20,833
|
|
|
$
|
5.68
|
|
|
October
2, 2025
|
|
|
—
|
|
|
|
8.01
|
|
25,000
|
|
|
|
16,666
|
|
|
$
|
8.98
|
|
|
October
16, 2025
|
|
|
—
|
|
|
|
8.04
|
|
1,500
|
|
|
|
1,500
|
|
|
$
|
5.57
|
|
|
December
31, 2025
|
|
|
—
|
|
|
|
8.25
|
|
1,500
|
|
|
|
1,500
|
|
|
$
|
4.90
|
|
|
March
31, 2026
|
|
|
—
|
|
|
|
8.50
|
|
1,500
|
|
|
|
1,500
|
|
|
$
|
5.66
|
|
|
April
27, 2026
|
|
|
—
|
|
|
|
8.57
|
|
19,697
|
|
|
|
19,697
|
|
|
$
|
4.09
|
|
|
May
18, 2026
|
|
|
985
|
|
|
|
8.63
|
|
1,500
|
|
|
|
1,500
|
|
|
$
|
6.11
|
|
|
June
30, 2026
|
|
|
—
|
|
|
|
8.75
|
|
379,625
|
|
|
|
126,542
|
|
|
$
|
6.26
|
|
|
July
5, 2026
|
|
|
—
|
|
|
|
8.76
|
|
861,429
|
|
|
|
287,143
|
|
|
$
|
7.06
|
|
|
July
18, 2026
|
|
|
—
|
|
|
|
8.80
|
|
13,333
|
|
|
|
13,333
|
|
|
$
|
3.06
|
|
|
September
7, 2026
|
|
|
14,400
|
|
|
|
8.94
|
|
1,006,696
|
|
|
|
1,006,696
|
|
|
$
|
3.28
|
|
|
September
22, 2026
|
|
|
865,759
|
|
|
|
8.98
|
|
69,166
|
|
|
|
29,164
|
|
|
$
|
3.63
|
|
|
October
3, 2026
|
|
|
35,275
|
|
|
|
9.01
|
|
15,000
|
|
|
|
5,000
|
|
|
$
|
4.35
|
|
|
December
9, 2026
|
|
|
—
|
|
|
|
9.19
|
|
50,000
|
|
|
|
—
|
|
|
$
|
5.39
|
|
|
February
7, 2027
|
|
|
—
|
|
|
|
9.36
|
|
40,000
|
|
|
|
10,000
|
|
|
$
|
5.26
|
|
|
February
17, 2027
|
|
|
—
|
|
|
|
9.38
|
|
781,667
|
|
|
|
131,669
|
|
|
$
|
5.92
|
|
|
May
12, 2027
|
|
|
—
|
|
|
|
9.61
|
|
12,500
|
|
|
|
1,042
|
|
|
$
|
3.42
|
|
|
August
9, 2027
|
|
|
9,000
|
|
|
|
9.86
|
|
15,000
|
|
|
|
1,250
|
|
|
$
|
4.33
|
|
|
September
19, 2027
|
|
|
—
|
|
|
|
9.97
|
|
5,092,030
|
|
|
|
3,326,223
|
|
|
|
|
|
|
|
|
$
|
5,280,544
|
|
|
|
|
|
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, 2017.
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2017 – Page 16
|
Note
6
|
Commitments
– (Continued)
|
|
d)
|
Stock–based
Compensation Plan – (Continued)
|
The
Company recognized stock based compensation expense of $4,135,570 during the year ended September 30, 2017 (2016: $4,452,267;
2015: $413,979) in connection with the issuance and vesting of stock options in exchange for services, and $Nil (2016: $610,000;
2015 $1,220,000), in connection with the vesting of restricted stock 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:
|
|
2017
|
|
2016
|
|
2015
|
General
and administrative
|
|
$
|
2,017,199
|
|
|
$
|
3,208,220
|
|
|
$
|
1,633,979
|
|
Research
and development
|
|
|
2,118,371
|
|
|
|
1,854,047
|
|
|
|
—
|
|
Total
share based compensation
|
|
$
|
4,135,570
|
|
|
$
|
5,062,267
|
|
|
$
|
1,633,979
|
|
An
amount of approximately $7,964,225 in stock based compensation is expected to be recorded over the remaining term of such
options through June 30, 2020.
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:
|
|
2017
|
|
2016
|
|
2015
|
Risk-free
interest rate
|
|
|
2.11
|
%
|
|
|
1.28
|
%
|
|
|
1.63
|
%
|
Expected
life of options (years)
|
|
|
6.86
|
|
|
|
5.88
|
|
|
|
6.30
|
|
Annualized
volatility
|
|
|
111.58
|
%
|
|
|
114.75
|
%
|
|
|
98.41
|
|
Dividend
rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The
fair value of restricted stock compensation charges recognized during the years ended September 30, 2016 and 2015 was determined
with reference to the quoted market price of the Company’s shares on the commitment date.
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September 30, 2017 –
Page 17
The
tax effects of the temporary differences that give rise to the Company’s estimated deferred tax assets and liabilities are
as follows:
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Assumed
Tax rate
|
|
|
34
|
%
|
|
|
34
|
%
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$
|
14,240,000
|
|
|
$
|
11,223,000
|
|
|
$
|
9,177,000
|
|
Research
and development tax credits
|
|
|
1,344,000
|
|
|
|
1,036,000
|
|
|
|
794,000
|
|
Foreign
exchange
|
|
|
(25,000
|
)
|
|
|
(25,000
|
)
|
|
|
(10,000
|
)
|
Unpaid
charges
|
|
|
28,000
|
|
|
|
152,000
|
|
|
|
832,000
|
|
Intangible
asset costs
|
|
|
51,000
|
|
|
|
57,000
|
|
|
|
64,000
|
|
Stock-based
compensation
|
|
|
3,394,000
|
|
|
|
2,004,000
|
|
|
|
581,000
|
|
Valuation
allowance for deferred tax assets
|
|
|
(19,032,000
|
)
|
|
|
(14,447,000
|
)
|
|
|
(11,438,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The
provision for income taxes differ from the amount established using the statutory income tax rate as follows:
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Income
benefit at statutory rate of 34%
|
|
$
|
(4,577,000
|
)
|
|
$
|
(5,010,000
|
)
|
|
$
|
(4,117,000
|
)
|
Foreign
income taxed at other rates
|
|
|
68,000
|
|
|
|
132,000
|
|
|
|
80,000
|
|
Permanent
differences
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
extinguishment
|
|
|
—
|
|
|
|
—
|
|
|
|
(29,000
|
)
|
Mark-to-market
deriative liability adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
193,000
|
|
Non-deductible
finance and accretion expenses
|
|
|
—
|
|
|
|
5,000
|
|
|
|
1,511,000
|
|
Non-deductible
compensation costs
|
|
|
—
|
|
|
|
738,000
|
|
|
|
|
|
Other
permanent differences
|
|
|
2,000
|
|
|
|
—
|
|
|
|
(5,000
|
)
|
Research
and development tax credit
|
|
|
(23,000
|
)
|
|
|
628,000
|
|
|
|
502,000
|
|
Expiry
of foreign net operating loss carryforwards
|
|
|
—
|
|
|
|
333,000
|
|
|
|
—
|
|
Adjustment
and true up to prior years’ tax provision
|
|
|
(55,000
|
)
|
|
|
176,000
|
|
|
|
100,000
|
|
Effect
of foreign exchange and other
|
|
|
—
|
|
|
|
(11,000
|
)
|
|
|
—
|
|
Change
in valuation allowance related to current year provision
|
|
|
4,585,000
|
|
|
|
3,009,000
|
|
|
|
1,765,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Tax Recovery
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
As
of September 30, 2017, the Company had net operating loss carry-forwards of approximately $41,000,000 (2016: $33,000,000; 2015:
$25,000,000) in the United States, approximately $850,000 (2016: $250,000; 2015: $Nil) in Australia and approximately $13,000
(2016: $Nil) in Germany, available to offset future taxable income in those jurisdictions. The carry-forwards will begin to expire
in 2027.
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September 30, 2017 –
Page 18
|
Note 7
|
Income
Taxes
– (Continued)
|
The
Company evaluates its valuation allowance requirements based on projected future operations. 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 equal to the deferred tax asset
has been established at September 30, 2017, 2016 and 2015.
Uncertain
Tax Positions
The
Company files income tax returns in the U.S. federal jurisdiction and various state 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 2009.
Certain
of the Company’s net operating loss carryforwards
in the United States may be subject
to limitations by Section 382 of the Internal Revenue Code with respect to the amount utilizable each year. This limitation reduces
the Company’s ability to utilize net operating loss carry-forwards, under certain circumstances. The Company completed a
Section 382 analysis through the fiscal year ended September 30, 2017 and currently does not believe Section 382 will apply to
limit the utilization of these tax losses.
|
Note 8
|
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 year ended September 30, 2016;
|
i)
|
the
Company issued 6,162 shares of common stock upon conversion of $6,162 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;
|
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September 30, 2017 –
Page 19
|
Note 8
|
Supplemental
Cash Flow Information
– (Continued)
|
During
the year ended September 30, 2015;
|
i)
|
the
Company issued 7,272,487 shares of common stock and an additional 167,415 shares of common
stock became issuable upon conversion of $7,439,900 in principal amount of convertible
debentures at a conversion price of $1.00 per share;
|
|
ii)
|
the
Company reclassified an amount of $4,482,000 into equity upon modification of the terms
of certain derivative instruments.
|
|
iii)
|
the
Company adjusted the price of 658,612 shares of common stock from $2.00 to $1.00 per
share pursuant to an anti-dilution provision contained in private placement subscription
agreements dated May 31, 2012. Consequently, the Company issued 658,612 shares of common
stock for no consideration.
|