Notes
to the Consolidated Financial Statements
September
30, 2018 – 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 by applying precision medicine to central nervous system (“CNS”) diseases with high unmet need. Anavex
analyzes genomic data from clinical studies to identify biomarkers, which select patients that will receive the therapeutic benefit
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”).
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 (“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 revenues from our operations.
The Company expects the business to continue to experience negative cash flows for the foreseeable future and cannot predict when,
if ever, our business might become profitable.
The
Company believes that its existing cash and cash equivalents, along with existing financial commitments from third parties, will
be sufficient to meet its cash commitments for at least the next two years 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 is 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.
The
Company will need to raise additional capital in order to continue to fund operations and fully fund later stage clinical development
programs. Such capital may not be available on commercially acceptable terms, if at all. The Company believes that it will be
able to obtain additional working capital to fund future operations through current financing commitments from third parties,
or through other arrangements; however, there can be no assurance that such additional financing, if available, can be obtained
on terms acceptable to the Company. If the Company is unable to obtain such additional financing, future operations would need
to be scaled back.
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2018 – Page 2
|
Note 2
|
Summary
of Significant Accounting Policies
|
The
preparation of financial statements in accordance with United States 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 deferred income
tax asset valuations, asset impairment, 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.
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 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. 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.
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, 2018 – Page 3
|
Note
2
|
Summary
of Significant Accounting Policies
– (continued)
|
|
e)
|
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.
|
f)
|
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, 2018, loss per share excludes 7,185,296 (2017 – 6,711,339) 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.
|
h)
|
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.
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2018 – 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 Financial Accounting Standards Board (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, 2018 – 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
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.
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, 2018 and 2017, the Company did not have any Level 3 assets or liabilities.
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2018 – Page 6
|
Note
2
|
Summary
of Significant Accounting Policies
– (continued)
|
|
m)
|
Recent
Accounting Pronouncements
|
Recently
Adopted Accounting Pronouncements
In
November 2015, the FASB issued Accounting Standards Update (“ASU”) 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 Company adopted this standard on October 1, 2017. The adoption of
this standard did not have any impact on the Company’s financial position, results of operations or cash flows for any period
presented.
In
March 2016, the FASB issued ASC 2016-09, “
Compensation – Stock Compensation (Topic 718) – Improvements to
Employee Share-Based Payment Accounting
”. 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. The Company adopted this standard on October 1, 2017. The adoption of this
standard did not have a material impact on the Company’s financial position, results of operations or cash flows for any
period presented.
In
November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”).
ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents,
and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted
cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period
and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for fiscal years beginning after
December 15, 2017. Early adoption is permitted. The Company early adopted this standard on October 1, 2017. The adoption of this
standard did not have any material affect on the Company’s consolidated financial statements.
The
SEC staff issued Staff Accounting Bulletin (“SAB”) 118, which provides guidance on accounting for the tax effects
of the U.S. tax reform announced on December 22, 2017 by the U.S. Government commonly referred to as the Tax Cuts and Jobs Act.
SAB 118 provides a measurement period that should not extend beyond one year from the U.S. tax reform enactment date for companies
to complete the accounting under Accounting Standards Codification (“ASC”) 740. In accordance with SAB 118, a company
must reflect the income tax effects of those aspects of the U.S. tax reform for which the accounting under ASC 740 is complete.
Specifically,
the Company was required to revalue its U.S. deferred tax assets and liabilities due to the federal income tax rate reduction
from 35 percent to 21 percent. Since the Company has provided a full valuation allowance against its deferred tax assets, the
revaluation of the deferred tax assets did not have a material impact on any period presented.
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2018 – Page 7
|
Note
2
|
Summary
of Significant Accounting Policies
– (Continued)
|
|
m)
|
Recent
Accounting Pronouncements – (Continued)
|
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 new guidance is effective for the Company on a prospective basis beginning on October 1, 2018. 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.
In
February 2016, the FASB issued Accounting Standards Update No. 2016-02,
Leases
. 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 new guidance is effective for the Company
on a prospective basis beginning on October 1, 2019. The Company is currently evaluating the impact this guidance will have on
its financial condition, results of operations and cash flows.
In
May 2017, the FASB issued 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.
In
June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718), Improvements to Nonemployee Share-based Payments
(“ASU 2018-07”). This ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring
goods and services from nonemployees. The effective date for the standard is for interim periods in fiscal years beginning after
December 15, 2018, with early adoption permitted, but no earlier than the Company’s adoption date of Topic 606. The new
guidance is effective for the Company beginning on October 1, 2019. The new guidance is required to be applied retrospectively
with the cumulative effect recognized at the date of initial application. The Company is currently evaluating the effect ASU 2018-07
will have on the 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.
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2018 – Page 8
Grant
Income
Clinical
Study Grant
During
the year ended September 30, 2017, the Company was awarded grant funding in the amount of $597,886. The grant is being received
in equal quarterly installments over a period of two years beginning during the year ended September 30, 2018 in exchange for
a commitment to complete clinical testing for a therapeutic drug candidate for the treatment of Rett syndrome.
The
grant income is deferred when received and amortized to other income as the related research and development expenditures are
incurred. During the year ended September 30, 2018, the Company recognized $149,055 (2017: $Nil; 2016$Nil) of this grant on its
statement of operations within grant income.
Preclinical
Study Grant
During
the year ended September 30, 2015, the Company was awarded grant funding in the amount of $286,455. 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 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, 2018, the Company recognized $Nil (2017: $140,942; 2016: $141,195)
of this grant on its statement of operations within grant income.
Research
and development tax incentive
During
the year ended September 30, 2018, the Company received other income of $1,629,513 (2017: $2,022,902; 2016: $571,093) 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, 2018 – Page 9
|
Note
4
|
Equity
Offering Agreements
|
Controlled
Equity Offering Sales Agreement
On
July 6, 2018, the Company entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with Cantor
Fitzgerald & Co., as agent (“Cantor Fitzgerald”), pursuant to which the Company may offer and sell shares of common
stock, for aggregate gross sale proceeds of up to $50,000,000 from time to time through Cantor Fitzgerald (the “Offering”).
Upon
delivery of a placement notice based on the Company’s instructions and subject to the terms and conditions of the Sales
Agreement, Cantor Fitzgerald may sell the Shares by methods deemed to be an “at the market offering” 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 is not obligated to make any sales of Shares under the Sales Agreement. The Company or Cantor Fitzgerald may suspend
or terminate the offering of Shares upon notice to the other party, subject to certain conditions. Cantor Fitzgerald will act
as sales agent on a commercially reasonable efforts basis consistent with its normal trading and sales practices and applicable
state and federal law, rules and regulations and the rules of Nasdaq.
The
Company has agreed to pay Cantor Fitzgerald commissions for its services of acting as agent of up to 3.0% of the gross proceeds
from the sale of the Shares pursuant to the Sales Agreement. The Company has also agreed to provide Cantor Fitzgerald with customary
indemnification and contribution rights. During the year ended September 30, 2018, the Company incurred $101,133 in legal and
accounting fees associated with the Sales Agreement. This amount is included in deferred costs at September 30, 2018
and is expected to be reclassified to share capital upon issuance of shares under the Sales Agreement.
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
starting from the effective date of the respective registration statement, to September 6, 2019.
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, 2018, the Company issued to Lincoln Park an aggregate of 2,398,261 (2017: 7,109,956; 2016: 452,437)
shares of common stock under the Purchase Agreement, including 2,383,580 (2017: 7,060,976; 2016: 450,000) shares of common stock
for an aggregate purchase price of $8,173,920 (2017 $27,270,674; 2016: $1,357,800) and 14,681 (2017: 48,980; 2016: 2,437) commitment
shares. At September 30, 2018, an amount of $13,197,607 remained available under the 2015 Purchase Agreement.
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2018 – Page 10
The
Company has entered into an office lease agreement expiring March 31, 2019. The Company is committed to lease commitments as follows:
Fiscal
year ending September 30, 2019
|
|
|
$
|
70,022
|
|
|
|
|
$
|
70,022
|
|
During
the year ended September 30, 2018 the Company recorded rent expense of $151,405 (2017: $127,993, 2016: $125,317) which is included
in general and administrative expenses on the consolidated statement of operations.
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
|
|
Issued
|
|
|
|
350,000
|
|
|
$
|
4.19
|
|
Exercised
|
|
|
|
(756,143
|
)
|
|
$
|
2.96
|
|
Expired
|
|
|
|
(524,787
|
)
|
|
$
|
3.00
|
|
Balance,
September 30, 2018
|
|
|
|
678,379
|
|
|
$
|
2.87
|
|
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2018 – Page 11
|
Note
5
|
Commitments
– (Continued)
|
|
c)
|
Share
Purchase Warrants – (Continued)
|
At
September 30, 2018, the Company had 678,379 share purchase warrants outstanding, with a weighted average exercise price of $2.87
as follows:
Number
|
|
|
Exercise
Price
|
|
|
Expiry
Date
|
30,000
|
|
|
$
|
4.00
|
|
|
February
24, 2019
|
277,127
|
|
|
$
|
1.20
|
|
|
March
13, 2019
|
1,252
|
|
|
$
|
1.68
|
|
|
March
13, 2019
|
12,500
|
|
|
$
|
1.24
|
|
|
May
31, 2019
|
7,500
|
|
|
$
|
1.04
|
|
|
May
31, 2019
|
350,000
|
|
|
$
|
4.19
|
|
|
June
30, 2021
|
678,379
|
|
|
|
|
|
|
|
During
the year ended September 30, 2018, 350,000 options granted to a consultant to the Company were converted to 350,000 warrants with
the same exercise price.
During
the year ended September 30, 2018, an aggregate of 737,393 share purchase warrants at $3.00 per share and 18,750 share purchase
warrants at $1.24 per share were exercised on a cashless basis, pursuant to which the Company issued 125,748 shares of common
stock and an additional 80,981 shares of common stock were to be issued. The remaining 524,787 share purchase warrants exercisable
at $3.00 per share until July 5, 2018 expired unexercised.
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 the previously existing
stock option plans remain outstanding in accordance with their terms.
The
2015 Plan provides that it may be administered by the board of directors, or the board of directors may delegate such responsibility
to a committee. 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, 2018 – Page 12
|
Note
5
|
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
|
)
|
|
|
4.09
|
|
|
|
|
|
Outstanding
at September 30, 2017
|
|
|
|
5,092,030
|
|
|
$
|
4.13
|
|
|
|
|
|
Granted
|
|
|
|
1,730,000
|
|
|
$
|
2.71
|
|
|
$
|
2.09
|
|
Forfeited
|
|
|
|
(164,280
|
)
|
|
$
|
3.66
|
|
|
|
|
|
Exercised
|
|
|
|
(150,833
|
)
|
|
$
|
1.18
|
|
|
|
|
|
Outstanding
at September 30, 2018
|
|
|
|
6,506,917
|
|
|
$
|
3.83
|
|
|
|
|
|
Exercisable
at September 30, 2018
|
|
|
|
4,108,028
|
|
|
$
|
3.75
|
|
|
|
|
|
Exercisable
at September 30, 2017
|
|
|
|
3,326,223
|
|
|
$
|
3.10
|
|
|
|
|
|
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2018 – Page 13
|
Note
5
|
Commitments
– (Continued)
|
|
d)
|
Stock-based
Compensation Plan – (Continued)
|
At
September 30, 2018, 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
|
|
$
|
565,000
|
|
|
|
4.76
|
|
|
37,500
|
|
|
|
37,500
|
|
|
$
|
1.20
|
|
|
May 7, 2024
|
|
|
57,375
|
|
|
|
5.60
|
|
|
125,000
|
|
|
|
125,000
|
|
|
$
|
1.32
|
|
|
May 8, 2024
|
|
|
176,250
|
|
|
|
5.60
|
|
|
618,750
|
|
|
|
618,750
|
|
|
$
|
0.92
|
|
|
April 2, 2025
|
|
|
1,119,938
|
|
|
|
6.51
|
|
|
29,167
|
|
|
|
29,167
|
|
|
$
|
1.44
|
|
|
June 8, 2025
|
|
|
37,625
|
|
|
|
6.69
|
|
|
50,000
|
|
|
|
50,000
|
|
|
$
|
1.76
|
|
|
June 15, 2025
|
|
|
48,500
|
|
|
|
6.71
|
|
|
253,750
|
|
|
|
253,750
|
|
|
$
|
5.04
|
|
|
September 18, 2025
|
|
|
—
|
|
|
|
6.97
|
|
|
1,500
|
|
|
|
1,500
|
|
|
$
|
5.64
|
|
|
September 30, 2025
|
|
|
—
|
|
|
|
7.00
|
|
|
31,250
|
|
|
|
31,250
|
|
|
$
|
5.68
|
|
|
October 2, 2025
|
|
|
—
|
|
|
|
7.01
|
|
|
25,000
|
|
|
|
25,000
|
|
|
$
|
8.98
|
|
|
October 16, 2025
|
|
|
—
|
|
|
|
7.04
|
|
|
1,500
|
|
|
|
1,500
|
|
|
$
|
5.57
|
|
|
December 31, 2025
|
|
|
—
|
|
|
|
7.25
|
|
|
1,500
|
|
|
|
1,500
|
|
|
$
|
4.90
|
|
|
March 31, 2026
|
|
|
—
|
|
|
|
7.50
|
|
|
1,500
|
|
|
|
1,500
|
|
|
$
|
5.66
|
|
|
April 27, 2026
|
|
|
—
|
|
|
|
7.57
|
|
|
1,500
|
|
|
|
1,500
|
|
|
$
|
6.11
|
|
|
June 30, 2026
|
|
|
—
|
|
|
|
7.75
|
|
|
379,625
|
|
|
|
253,083
|
|
|
$
|
6.26
|
|
|
July 5, 2026
|
|
|
—
|
|
|
|
7.76
|
|
|
861,429
|
|
|
|
574,286
|
|
|
$
|
7.06
|
|
|
July 18, 2026
|
|
|
—
|
|
|
|
7.80
|
|
|
906,696
|
|
|
|
906,696
|
|
|
$
|
3.28
|
|
|
September 22, 2026
|
|
|
—
|
|
|
|
7.98
|
|
|
60,000
|
|
|
|
39,999
|
|
|
$
|
3.63
|
|
|
October 3, 2026
|
|
|
—
|
|
|
|
8.01
|
|
|
8,750
|
|
|
|
8,750
|
|
|
$
|
4.35
|
|
|
December 9, 2026
|
|
|
—
|
|
|
|
8.19
|
|
|
50,000
|
|
|
|
16,667
|
|
|
$
|
5.39
|
|
|
February 7, 2027
|
|
|
—
|
|
|
|
8.36
|
|
|
40,000
|
|
|
|
23,333
|
|
|
$
|
5.26
|
|
|
February 17, 2027
|
|
|
—
|
|
|
|
8.38
|
|
|
774,166
|
|
|
|
389,170
|
|
|
$
|
5.92
|
|
|
May 12, 2027
|
|
|
—
|
|
|
|
8.61
|
|
|
12,500
|
|
|
|
5,209
|
|
|
$
|
3.42
|
|
|
August 9, 2027
|
|
|
—
|
|
|
|
8.86
|
|
|
15,000
|
|
|
|
6,250
|
|
|
$
|
4.33
|
|
|
September 19, 2027
|
|
|
—
|
|
|
|
8.97
|
|
|
540,834
|
|
|
|
135,834
|
|
|
$
|
3.30
|
|
|
December 13, 2027
|
|
|
—
|
|
|
|
9.20
|
|
|
50,000
|
|
|
|
—
|
|
|
$
|
2.60
|
|
|
March 2, 2028
|
|
|
6,500
|
|
|
|
9.42
|
|
|
200,000
|
|
|
|
33,334
|
|
|
$
|
2.72
|
|
|
March 19, 2028
|
|
|
2,000
|
|
|
|
9.47
|
|
|
780,000
|
|
|
|
25,000
|
|
|
$
|
2.30
|
|
|
May 15, 2028
|
|
|
335,400
|
|
|
|
9.62
|
|
|
150,000
|
|
|
|
12,500
|
|
|
$
|
2.70
|
|
|
August
6, 2028
|
|
|
4,500
|
|
|
|
9.85
|
|
|
6,506,917
|
|
|
|
4,108,028
|
|
|
|
|
|
|
|
|
$
|
2,353,088
|
|
|
|
|
|
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, 2018.
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2018 – Page 14
|
Note
5
|
Commitments
–
(Continued)
|
|
d)
|
Stock–based
Compensation Plan – (Continued)
|
The
Company recognized stock-based compensation expense of $5,517,004 during the year ended September 30, 2018 (2017: $4,135,570;
2016: $4,452,267) in connection with the issuance and vesting of stock options and warrants in exchange for services, and $Nil
(2017: $Nil 2016: $610,000), 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:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
General
and administrative
|
|
$
|
2,699,557
|
|
|
$
|
2,017,199
|
|
|
$
|
3,208,220
|
|
Research
and development
|
|
|
2,817,447
|
|
|
|
2,118,371
|
|
|
|
1,854,047
|
|
Total
share based compensation
|
|
$
|
5,517,004
|
|
|
$
|
4,135,570
|
|
|
$
|
5,062,267
|
|
An
amount of approximately $6,827,054 in stock-based compensation is expected to be recorded over the remaining term of such options
through June 30, 2021.
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:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Risk-free
interest rate
|
|
|
2.73
|
%
|
|
|
2.11
|
%
|
|
|
1.28
|
%
|
Expected
life of options (years)
|
|
|
5.60
|
|
|
|
6.86
|
|
|
|
5.88
|
|
Annualized
volatility
|
|
|
106.45
|
%
|
|
|
111.58
|
%
|
|
|
114.75
|
%
|
Dividend
rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The
fair value of restricted stock compensation charges recognized during the years ended September 30, 2018, 2017 and 2016 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, 2018 – Page 15
US
Tax Reform
On
December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“Tax Reform Act”).
The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates, implementing a
territorial tax system and imposing a transition tax on deemed repatriated earnings of foreign subsidiaries. The Tax Reform Act
permanently reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018.
The
Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis. 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 reverse.
As
a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Reform Act, the Company revalued
its ending net deferred tax assets at September 30, 2018. The Company did not need to recognize any provisional tax expense for
the year ended September 30, 2018 as it has recorded a full valuation allowance against its deferred tax assets.
The
Tax Reform Act also provided for a one-time deemed mandatory repatriation of post – 1986 undistributed foreign subsidiary
earnings and profits (“E&P”) as well as Global Intangible Low-Taxed Income (“GILTI”) and Base-Erosion
Anti-Abuse provisions. The Company had no adjustments related to these latter noted provisions at September 30, 2018.
The
tax effects of the temporary differences that give rise to the Company’s estimated deferred tax assets and liabilities are
as follows:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Assumed
Tax rate
|
|
|
21
|
%
|
|
|
34
|
%
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$
|
11,123,000
|
|
|
$
|
14,240,000
|
|
|
$
|
11,223,000
|
|
Research
and development tax credits
|
|
|
1,605,000
|
|
|
|
1,344,000
|
|
|
|
1,036,000
|
|
Foreign
exchange and other
|
|
|
13,000
|
|
|
|
(25,000
|
)
|
|
|
(25,000
|
)
|
Unpaid
charges
|
|
|
72,000
|
|
|
|
28,000
|
|
|
|
152,000
|
|
Intangible
asset costs
|
|
|
28,000
|
|
|
|
51,000
|
|
|
|
57,000
|
|
Stock-based
compensation
|
|
|
3,152,000
|
|
|
|
3,394,000
|
|
|
|
2,004,000
|
|
Valuation
allowance for deferred tax assets
|
|
|
(15,993,000
|
)
|
|
|
(19,032,000
|
)
|
|
|
(14,447,000
|
)
|
Net
deferred tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2018 – Page 16
|
Note
6
|
Income
Taxes
– (Continued)
|
The
provision for income taxes differ from the amount established using the statutory income tax rate as follows:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Income
benefit at statutory rate
|
|
$
|
(4,215,000
|
)
|
|
$
|
(4,577,000
|
)
|
|
$
|
(5,010,000
|
)
|
Foreign
income taxed at other rates
|
|
|
(173,000
|
)
|
|
|
68,000
|
|
|
|
132,000
|
|
Permanent
differences
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-deductible
finance and accretion expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
5,000
|
|
Non-deductible
compensation costs
|
|
|
—
|
|
|
|
—
|
|
|
|
738,000
|
|
Other
permanent differences
|
|
|
1,000
|
|
|
|
2,000
|
|
|
|
—
|
|
Research
and development tax credit
|
|
|
(77,000
|
)
|
|
|
(23,000
|
)
|
|
|
628,000
|
|
Expiry
of foreign net operating loss carryforwards
|
|
|
—
|
|
|
|
—
|
|
|
|
333,000
|
|
Adjustment
and true up to prior years’ tax provision
|
|
|
336,000
|
|
|
|
(55,000
|
)
|
|
|
176,000
|
|
Effect
of changes in tax rates
|
|
|
7,166,000
|
|
|
|
—
|
|
|
|
(11,000
|
)
|
Change
in valuation allowance related to current
year
provision
|
|
|
(3,038,000
|
)
|
|
|
4,585,000
|
|
|
|
3,009,000
|
|
Income
Tax Recovery
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
As
of September 30, 2018, the Company had net operating loss carry-forwards of approximately $50,557,000 (2017: $41,000,000; 2016:
$33,000,000) in the United States, approximately $986,000 (Approximately AUD$1,365,000) (2017: $850,000; 2016: $250,000) in Australia
and approximately $638,000 (Approximately €549,000) (2017: $13,000; 2016: $Nil) in Germany, available to offset future taxable
income in those jurisdictions. The carry-forwards will begin to expire in 2027.
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, 2018, 2017 and 2016.
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, 2018 and currently does not believe Section 382 will apply to
limit the utilization of these tax losses.
Anavex
Life Sciences Corp.
Notes
to the Consolidated Financial Statements
September
30, 2018 – Page 17
|
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 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.
|