Washington, D.C. 20549
Indicate by checkmark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
Indicate by checkmark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Act.
Indicate by checkmark whether the registrant has (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Indicate by checkmark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.
Indicate by checkmark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act).
State the aggregate market value of the voting
and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold,
or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed
second fiscal quarter: $163,478,217 based on a price of $4.90 per share, being the closing price of the registrant’s common
stock on March 31, 2016.
Indicate the number of shares outstanding of
each of the registrant’s classes of common stock, as of the latest practicable date 39,610,967 issued and outstanding as
of December 12, 2016.
This Annual Report on Form 10-K includes forward-looking
statements. All statements other than statements of historical facts contained in this Annual Report on Form 10-K, including statements
regarding our anticipated future clinical and regulatory milestone events, future financial position, business strategy and plans
and objectives of management for future operations, are forward-looking statements. The words “believe,” “may,”
“estimate,” “continue,” “anticipate,” “intend,” “expect” and similar
expressions, as they relate to us, are intended to identify forward-looking statements. Such forward-looking statements include,
without limitation, statements regarding the anticipated start dates, durations and completion dates of our ongoing and future
clinical studies, statements regarding the anticipated designs of our future clinical studies, statements regarding our anticipated
future regulatory submissions and statements regarding our anticipated future cash position. We have based these forward-looking
statements largely on our current expectations and projections about future events, including the responses we expect from the
U.S. Food and Drug Administration, or FDA, and other regulatory authorities and financial trends that we believe may affect our
financial condition, results of operations, business strategy, preclinical and clinical trials and financial needs. These forward-looking
statements are subject to a number of risks, uncertainties and assumptions including without limitation the risks described in
“Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K. These risks are not exhaustive. Other sections
of this Annual Report on Form 10-K include additional factors which could adversely impact our business and financial performance.
Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is
not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the
extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any
forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We cannot assure
you that the events and circumstances reflected in the forward-looking statements will be achieved or occur and actual results
could differ materially from those projected in the forward-looking statements. Except as required by applicable laws including
the securities laws of the United States, we assume no obligation to update or supplement forward-looking statements.
As used in this Annual Report on Form 10-K,
the terms “we,” “us,” “our,” and “Anavex” mean Anavex Life Sciences Corp., unless
the context clearly requires otherwise.
PART I
ITEM 1. 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
TM
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.
In November 2016, a Phase 2a clinical trial going over 52 weeks was completed for ANAVEX
TM
2-73 in mild-to-moderate Alzheimer’s patients. This open-label randomized trial met both primary and secondary endpoints,
and was designed to assess the safety and exploratory efficacy of ANAVEX
TM
2-73 in 32 patients. ANAVEX
TM
2-73 targets sigma-1 and muscarinic receptors, which have been shown in preclinical studies to reduce stress levels in the brain
believed to restore cellular homeostasis and to reverse the pathological hallmarks observed in Alzheimer’s disease. ANAVEX
TM
2-73 showed no serious adverse events in a previously performed Phase 1 study. In pre-clinical studies, ANAVEX
TM
2-73
demonstrated anti-amnesic and neuroprotective properties in various animal models including the transgenic mouse model Tg2576.
In March 2016, we received approval from the Ethics Committee in Australia to extend the ongoing Phase 2a clinical trial, which
had been requested by patients and their caregivers. The trial extension allows participants who complete 52 weeks in PART
B to roll-over into a new trial and continue taking ANAVEX
TM
2-73 for an additional 104 weeks, providing an opportunity
to gather extended safety data. The trial is independent of the Company’s planned larger Phase 2/3 double-blind, placebo-controlled
study of ANAVEX
TM
2-73 in Alzheimer’s disease.
In February 2016, the Company presented
positive preclinical data for ANAVEX
TM
2-73 in Rett syndrome, a rare neurodevelopmental disease indication. The study
was funded by the Rettsyndrome.org foundation.
In September 2016, the Company presented positive preclinical data for ANAVEX
TM
2-73 in Parkinson’s
disease, which demonstrated significant improvements on all measures: behavioral, histopathological, and neuroinflammatory endpoints.
The study was funded by the Michael J Fox Foundation (“MJFF”).
We intend to identify and initiate discussions
with potential commercial partners within the next 12 months. Further, we may acquire or develop new intellectual property and
assign, license, or otherwise transfer our intellectual property to further our goals.
Effective October 7, 2015, the Company effected
a reverse stock split on the basis of 1:4. As such, the Company’s authorized capital was decreased from 400,000,000 shares
of common stock, par value $0.001 to 100,000,000 shares of common stock, par value $0.001 and all shares of common stock issued
and outstanding were decreased on the basis of one new share for each four old shares.
Our Pipeline
Our research and development pipeline includes
one clinical drug candidate and several compounds in different stages of pre-clinical study.
Our proprietary SIGMACEPTOR™ Discovery
Platform produced small molecule drug candidates with unique modes of action, based on our understanding of sigma receptors. Sigma
receptors may be targets for therapeutics to combat many human diseases, both of neurodegenerative nature, including Alzheimer’s
disease, as well as of neurodevelopmental nature, like Rett syndrome, a rare disease. When bound by the appropriate ligands, sigma
receptors influence the functioning of multiple biochemical signals that are involved in the pathogenesis (origin or development)
of disease.
Compounds that have been subjects of our research
include the following:
ANAVEX
TM
2-73
ANAVEX
TM
2-73 may offer a disease-modifying
approach in Alzheimer’s disease (AD) by using ligands that activate sigma-1 receptors.
In AD animal models, ANAVEX
TM
2-73
has shown pharmacological, histological and behavioral evidence as a potential neuroprotective, anti-amnesic, anti-convulsive and
anti-depressive therapeutic agent, due to its potent affinity to sigma-1 receptors and moderate affinities to M1-4 type muscarinic
receptors. In addition, ANAVEX
TM
2-73 has shown a potential dual mechanism which may impact both amyloid and tau pathology.
In a transgenic AD animal model Tg2576 ANAVEX
TM
2-73 induced a statistically significant neuroprotective effect against
the development of oxidative stress in the mouse brain, as well as significantly increased the expression of functional and synaptic
plasticity markers that is apparently amyloid-beta independent. It also statistically alleviated the learning and memory deficits
developed over time in the animals, regardless of sex, both in terms of spatial working memory and long-term spatial reference
memory.
Based on the results of pre-clinical testing,
we initiated and completed a Phase 1 single ascending dose (SAD) clinical trial of ANAVEX
TM
2-73 in 2011. In this Phase
1 SAD trial, the maximum tolerated single dose was defined per protocol as 55-60 mg. This dose is above the equivalent dose shown
to have positive effects in mouse models of AD. There were no significant changes in laboratory or electrocardiogram (ECG) parameters.
ANAVEX
TM
2-73 was well tolerated below the 55-60 mg dose with only mild adverse events in some subjects. Observed adverse
events at doses above the maximum tolerated single dose included headache and dizziness, which were moderate in severity and reversible.
These side effects are often seen with drugs that target CNS conditions, including AD.
The ANAVEX
TM
2-73 Phase 1 SAD trial
was conducted as a randomized, placebo-controlled study. Healthy male volunteers between the ages of 18 and 55 received single,
ascending oral doses over the course of the trial. Study endpoints included safety and tolerability together with pharmacokinetic
parameters. Pharmacokinetics includes the absorption and distribution of a drug, the rate at which a drug enters the blood and
the duration of its effect, as well as chemical changes of the substance in the body. This study was conducted in Germany in collaboration
with ABX-CRO, a clinical research organization that has conducted several Alzheimer’s disease studies, and the Technical
University of Dresden.
In
December 2014, a Phase 2a clinical trial was initiated for ANAVEX 2-73
TM
, which is being evaluated for the treatment
of Alzheimer’s disease. The open-label randomized trial is designed to assess the safety and exploratory efficacy of ANAVEX
TM
2-73 in 32 patients with mild to moderate Alzheimer’s disease. ANAVEX
TM
2-73 targets sigma-1 and muscarinic receptors,
which have been shown in preclinical studies to reduce stress levels in the brain
believed
to restore cellular homeostasis and to reverse the pathological hallmarks observed in Alzheimer’s disease. ANAVEX
TM
2-73 showed no serious adverse events in a previously performed Phase 1 study. In pre-clinical studies ANAVEX
TM
2-73
demonstrated anti-amnesic and neuroprotective properties in various animal models including the transgenic mouse model Tg2576.
The Phase 2a study met both primary and secondary
objectives of the study. The 31-week preliminary exploratory safety and efficacy data from the ongoing Phase
2a study of ANAVEX
TM
2-73 in Alzheimer’s patients, with most receiving also donepezil, the current standard
of care, demonstrated favorable safety, maximum tolerated dose, positive dose response, sustained efficacy response
through 31 weeks for both cognitive and functional measures, as well as positive unexpected therapeutic response events. ANAVEX
TM
2-73 continues to demonstrate a favorable adverse event (AE) profile through 31 weeks in a patient population of elderly Alzheimer’s
patients with varying degrees of physical fragility. The most common side effects across all AE categories tended to be of
mild severity grade 1, and were resolved with dose reductions that were anticipated within the adaptive design of the study
protocol.
At 41 weeks, Alzheimer’s
patients taking a daily oral dose of ANAVEX
TM
2-73 in the exploratory, not yet dose optimized Phase 2a clinical trial,
showed a stabilization of cognitive and functional measures. This data of stabilization is promising since Alzheimer’s disease
is a progressive disease where current therapeutics are only able to temporarily slow the worsening of dementia symptoms and not
stop the disease from progressing. At 41 weeks, oral daily dosing between 10mg and 50mg, ANAVEX
TM
2-73 was well tolerated,
and no patients discontinued treatment due to adverse events. There were no clinically significant treatment-related adverse events,
and no serious adverse events.
Pre-specified exploratory
analyses included the cognitive (MMSE) and the functional (ADCS-ADL) changes from baseline. A continued stabilization of both cognitive
(MMSE) and functional (ADCS-ADL) measures in patients treated with ANAVEX
TM
2-73 was observed. This correlation was
positive with all measured scores (MMSE, ADCS-ADL, Cogstate, HAM-D and EEG/ERP).
ANAVEX
TM
2-73 data presented meets
prerequisite information in order to progress into Phase 2/3 placebo controlled studies, which is currently in the planning
phase.
Recent preclinical data validates ANAVEX
TM
2-73 as a prospective platform drug for other neurodegenerative diseases beyond Alzheimer’s as well as neurodevelopmental
diseases, more specifically, Parkinson’s disease, epilepsy and Rett syndrome. For Parkinson’s disease, data demonstrates
significant improvements and restoration of function in a classic animal model of Parkinson’s disease. Significant improvements
were seen on all measures tested: behavioral, histopathological, and neuroinflammatory endpoints. For epilepsy, data demonstrates
both significant and dose related improvement in the reduction of seizures, as well as significant synergy with each of three generations
of epilepsy drugs currently on the market. In Rett syndrome, a rare neurodevelopmental disease indication, administration of ANAVEX
TM
2-73 resulted in both significant and dose related improvements in an array of behavioral paradigms in the MECP2 HET Rett syndrome
disease model.
ANAVEX 3-71
ANAVEX 3-71, previously named AF710B is a preclinical
drug candidate with a novel mechanism of action via sigma-1 receptor activation and M1 muscarinic allosteric modulation, which
has shown to enhance neuroprotection and cognition in Alzheimer's disease. ANAVEX 3-71 is a CNS-penetrable mono-therapy that bridges
treatment of both cognitive impairments with disease modifications. It is highly effective in very small doses against the major
Alzheimer's hallmarks in transgenic (3xTg-AD) mice, including cognitive deficits, amyloid and tau pathologies, and also has beneficial
effects on inflammation and mitochondrial dysfunctions. ANAVEX 3-71 indicates extensive therapeutic advantages in Alzheimer's and
other protein-aggregation-related diseases given its ability to enhance neuroprotection and cognition via sigma-1 receptor activation
and M1 muscarinic allosteric modulation.
A recent preclinical study examined the response
of ANAVEX 3-71 in aged transgenic animal models, and showed a significant reduction in rate of cognitive deficit, amyloid
beta pathology and inflammation with the administration of ANAVEX 3-71. In April 2016, the U.S. Food and Drug Administration (“FDA”)
granted Orphan Drug Designation (“ODD”) to ANAVEX 3-71 for the treatment of Frontotemporal dementia (“FTD”).
ANAVEX 1-41
ANAVEX 1-41 is a sigma-1 agonist. Pre-clinical
tests revealed significant neuroprotective benefits (i.e., protects nerve cells from degeneration or death) through the modulation
of endoplasmic reticulum, mitochondrial and oxidative stress, which damages and destroys cells and is believed by some scientists
to be a primary cause of AD. In addition, in animal models, ANAVEX 1-41 prevented the expression of caspase-3, an enzyme that plays
a key role in apoptosis (programmed cell death) and loss of cells in the hippocampus, the part of the brain that regulates learning,
emotion and memory. These activities involve both muscarinic and sigma-1 receptor systems through a novel mechanism of action.
ANAVEX 1037
ANAVEX 1037 is designed for the treatment of
prostate cancer. It is a low molecular weight, synthetic compound exhibiting high affinity for sigma-1 receptors at nanomolar levels
and moderate affinity for sigma-2 receptors and sodium channels at micromolar levels. In advanced pre-clinical studies, this compound
revealed antitumor potential with no toxic side effects. It has also been shown to selectively kill human cancer cells without
affecting normal/healthy cells and also to significantly suppress tumor growth in immune-deficient mice models. Scientific publications
describe sigma receptor ligands positively, highlighting the possibility that these ligands may stop tumor growth and induce selective
cell death in various tumor cell lines. Sigma receptors are highly expressed in different tumor cell types. Binding by appropriate
sigma-1 and/or sigma-2 ligands can induce selective apoptosis. In addition, through tumor cell membrane reorganization and interactions
with ion channels, our drug candidates may play an important role in inhibiting the processes of metastasis (spreading of cancer
cells from the original site to other parts of the body), angiogenesis (the formation of new blood vessels) and tumor cell proliferation.
ANAVEX 1066
ANAVEX 1066, a mixed sigma-1/sigma-2 ligand
is designed for the potential treatment of neuropathic pain and visceral pain. ANAVEX 1066 was tested in two preclinical models
of neuropathic and visceral pain that have been extensively validated in rats. In the chronic constriction injury (CCI) model of
neuropathic pain, a single oral administration of ANAVEX 1066 dose-dependently restored the nociceptive threshold in the affected
paw to normal levels while leaving the contralateral healthy paw unchanged. Efficacy was rapid and remained significant for two
hours. In a model of visceral pain, chronic colonic hypersensitivity was induced by injection of an inflammatory agent directly
into the colon and a single oral administration of ANAVEX 1066 returned the nociceptive threshold to control levels in a dose-dependent
manner. Companion studies in rats demonstrated the lack of any effects on normal gastrointestinal transit with ANAVEX 1066 and
a favorable safety profile in a battery of behavioral measures.
Our compounds are in the pre-clinical and clinical
testing stages of development, and there is no guarantee that the activity demonstrated in pre-clinical models will be shown in
human testing.
Our Target Indications
We have developed compounds with potential
application to two broad categories and several specific indications. The two categories are diseases of the central nervous system,
and cancer. Specific indications include:
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Alzheimer’s disease - In 2015, an
estimated 5.3 million Americans were suffering from Alzheimer’s disease. The Alzheimer’s Association® reports that
by 2025, 7.1 million Americans will be afflicted by the disease, a 40 percent increase from currently affected patients. Medications
on the market today treat only the symptoms of Alzheimer’s disease and do not have the ability to stop its onset or its progression.
There is an urgent and unmet need for both a disease modifying cure for Alzheimer’s disease as well as for better symptomatic
treatments.
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Parkinson’s disease – Parkinson’s
disease is a progressive disease of the nervous system marked by tremors, muscular rigidity, and slow, imprecise movement. It is
associated with degeneration of the basal ganglia of the brain and a deficiency of the neurotransmitter dopamine. Parkinson’s
disease afflicts more than 10 million people worldwide, typically middle-aged and elderly people. Parkinson’s disease market
is set to expand from $2.1 billion in 2014 to $3.2 billion by 2021, according to business intelligence provider GBI Research.
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Rett syndrome - Rett syndrome is a rare
non-inherited genetic postnatal progressive neurodevelopmental disorder that occurs almost exclusively in girls and leads to severe
impairments, affecting nearly every aspect of the child’s life: their ability to speak, walk, eat, and even breathe easily.
Rett syndrome is caused by mutations in the MECP2 gene and strikes all racial and ethnic groups and occurs worldwide in approximately
1 in every 10,000-15,000 live female births.
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Depression - Depression is a major cause
of morbidity worldwide according to the World Health Organization. Pharmaceutical treatment for depression is dominated by blockbuster
brands, with the leading nine brands accounting for approximately 75% of total sales. However, the dominance of the leading brands
is waning, largely due to the effects of patent expiration and generic competition.
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Epilepsy - Epilepsy is a common chronic
neurological disorder characterized by recurrent unprovoked seizures. These seizures are transient signs and/or symptoms of abnormal,
excessive or synchronous neuronal activity in the brain. According to the Centers for Disease Control and Prevention, epilepsy
affects 2.2 million Americans. Today, epilepsy is often controlled, but not cured, with medication that is categorized as older
traditional anti-epileptic drugs and second generation anti epileptic drugs. Because epilepsy afflicts sufferers in different ways,
there is a need for drugs used in combination with both traditional anti-epileptic drugs and second generation anti-epileptic drugs.
GBI Research estimates that the epilepsy market will increase to $4.5 billion by 2019.
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Neuropathic Pain – We define neuralgia,
or neuropathic pain, as pain that is not related to activation of pain receptor cells in any part of the body. Neuralgia is more
difficult to treat than some other types of pain because it does not respond well to normal pain medications. Special medications
have become more specific to neuralgia and typically fall under the category of membrane stabilizing drugs or antidepressants.
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Malignant Melanoma - Predominantly a skin
cancer, malignant melanoma can also occur in melanocytes found in the bowel and the eye. Malignant melanoma accounts for 75% of
all deaths associated with skin cancer. The treatment includes surgical removal of the tumor, adjuvant treatment, chemo and immunotherapy,
or radiation therapy. According to IMS Health the worldwide Malignant Melanoma market is expected to grow to $4.4 billion by 2022.
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Prostate Cancer – Specific to men,
prostate cancer is a form of cancer that develops in the prostate, a gland in the male reproductive system. The cancer cells may
metastasize from the prostate to other parts of the body, particularly the bones and lymph nodes. Drug therapeutics for Prostate
Cancer are expected to increase to nearly $18.6 billion in 2017 according to BCC Research.
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Pancreatic Cancer - Pancreatic cancer
is a malignant neoplasm of the pancreas. In the United States approximately 45,000 new cases of pancreatic cancer will be diagnosed
this year and approximately 38,000 patients will die as a result of their cancer. Sales predictions by GlobalData forecast that
the market for the pharmaceutical treatment of pancreatic cancer in the five largest European countries and the United States,
will increase to $1.63 billion by 2017.
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Competition
The pharmaceutical industry is intensely competitive.
At this time, we view our competition as biomedical
development companies that are trying to discover and develop compounds to be used in the treatment of Alzheimer’s disease
and other CNS diseases, and those companies already doing so. Those companies include Biogen (NASDAQ:BIIB), Axovant Sciences Ltd.
(NYSE: AXON), Perrigo Company Plc (NYSE:PRGO), Pfizer Inc. (NYSE:PFE), Allergan Plc (NYSE:AGN), Novartis AG (NYSE:NVS), GlaxoSmithKline
Plc (NYSE:GSK), Merck & Co. Inc. (NYSE:MRK), Eli Lilly & Co. (NYSE: LLY), Johnson & Johnson (NYSE:JNJ) and Roche Holding
AG (VTX:ROG).
Each of our competitors have greater capital
resources, larger overall research and development staffs and facilities, and a longer history in drug discovery and development,
obtaining regulatory approval, and pharmaceutical product manufacturing and marketing than we do. With these additional resources,
our competitors will be able to respond to the rapid and significant technological changes in the biotechnology and pharmaceutical
industries faster than we can. Our future success will depend in large part on our ability to acquire funding for our research
and development. To continue to acquire funding for our research and development, we will likely have to show progress toward our
goals and we will eventually be expected to develop a compound that may result in a transaction with another pharmaceutical company.
Patents, Trademarks and Intellectual
Property
Anavex holds ownership or exclusive rights
to three issued U.S. patent and eight U.S. patent applications with various international counterpart applications, all of which
relate to drug candidates and methods associated therewith. The most recent U.S. patent application was filed in November, 2016.
We regard patents and other intellectual property rights as corporate assets. Accordingly, we attempt to optimize the value of
intellectual property in developing our business strategy including the selective development, protection, and exploitation of
our intellectual property rights.
In addition to filings made with intellectual
property organizations, we protect our intellectual property and confidential information by means of carefully considered processes
of communication and the sharing of information, and by the use of confidentiality and non-disclosure agreements and provisions
for the same in contractor’s agreements. While no agreement offers absolute protection, such agreements provide some form
of recourse in the event of disclosure, or anticipated disclosure.
Our intellectual property position, like that
of many biomedical companies, is uncertain and involves complex legal and technical questions for which important legal principles
are unresolved. We may file additional patent applications in the United States, or in other jurisdictions for further inventions.
We may not be successful in obtaining critical claims or in protecting our potential drug compounds or processes. Even if we do
obtain patents, they may not adequately protect the technology we own or have licensed. In addition, others may challenge, seek
to invalidate, infringe or circumvent any patents we own or license, and rights we receive under those patents may not provide
competitive advantages to us. Further, the manufacture, use or sale of our potential drug compounds may infringe the patent rights
of others.
Our success will also depend in part on our
ability to commercialize our compounds without infringing the proprietary rights of others. We have not conducted extensive freedom
of use patent searches and no assurance can be given that patents do not exist or could not be filed which would have an adverse
effect on our ability to market our technology or maintain our competitive position with respect to our technology. If our compounds
or other subject matter are claimed under other existing United States or other patents or are otherwise protected by third party
proprietary rights, we may be subject to infringement actions. In such event, we may challenge the validity of such patents or
other proprietary rights or we may be required to obtain licenses from such companies in order to develop, manufacture or market
our technology. There can be no assurances that we would be able to obtain such licenses or that such licenses, if available, could
be obtained on commercially reasonable terms. Furthermore, the failure to either develop a commercially viable alternative or obtain
such licenses could result in delays in marketing all of our potential drug compounds based on our drug technology or the inability
to proceed with the development, manufacture or sale of potential drug compounds requiring such licenses, which could have a material
adverse effect on our business, financial condition and results of operations. If we defend ourselves against charges of patent
infringement or to protect our proprietary rights against third parties, substantial costs will be incurred regardless of whether
we are successful. Such proceedings are typically protracted with no certainty of success. An adverse outcome could subject us
to significant liabilities to third parties and force us to curtail or cease our research and development of our technology.
Government Approval
Regulation by governmental authorities in the
United States and foreign countries is a significant factor in the development, manufacture, and expected marketing of our potential
drug compounds and in potential future research and development activities. The nature and extent to which such regulation will
apply to us will vary depending on the nature of any potential drug compounds developed. We anticipate that all of our potential
drug compounds will require regulatory approval by governmental agencies prior to commercialization.
In particular, human therapeutic products are
subject to rigorous non-clinical and clinical testing and other approval procedures of the FDA and similar regulatory authorities
in other countries. Various federal statutes and regulations also govern or influence testing, manufacturing, safety, labeling,
storage, and record-keeping related to such products and their marketing. The process of obtaining these approvals and the subsequent
compliance with the appropriate federal statutes and regulations requires substantial time and financial resources. Any failure
by us or our collaborators to obtain, or any delay in obtaining, regulatory approval could adversely affect the marketing of any
potential drug compounds developed by us, our ability to receive product revenues, and our liquidity and capital resources.
The steps ordinarily required before a new
drug may be marketed in the United States, which are similar to steps required in most other countries, include:
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non-clinical laboratory tests, non-clinical
studies in animals, formulation studies and the submission to the FDA of an investigational new drug application;
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adequate and well-controlled clinical
trials to establish the safety and efficacy of the drug;
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the submission of a new drug application
or biologic license application to the FDA; and
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FDA review and approval of the new drug
application or biologics license application.
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Non-clinical tests include laboratory evaluation
of potential drug compound chemistry, formulation and toxicity, as well as animal studies. The results of non-clinical testing
are submitted to the FDA as part of an investigational new drug application. A 30-day waiting period after the filing of each investigational
new drug application is required prior to commencement of clinical testing in humans. At any time during the 30-day period or at
any time thereafter, the FDA may halt proposed or ongoing clinical trials until the FDA authorizes trials under specified terms.
The investigational new drug application process may be extremely costly and substantially delay the development of our potential
drug compounds. Moreover, positive results of non-clinical tests will not necessarily indicate positive results in subsequent clinical
trials. The FDA may require additional animal testing after an initial investigational new drug application is approved and prior
to Phase III trials.
Clinical trials to support new drug applications
are typically conducted in three sequential phases, although the phases may overlap. During Phase I, clinical trials are conducted
with a small number of subjects to assess metabolism, pharmacokinetics, and pharmacological actions and safety, including side
effects associated with increasing doses. Phase II usually involves studies in a limited patient population to assess the efficacy
of the drug in specific, targeted indications; assess dosage tolerance and optimal dosage; and identify possible adverse effects
and safety risks.
If a compound is found to be potentially effective
and to have an acceptable safety profile in Phase I and II evaluations, Phase III trials are undertaken to further demonstrate
clinical efficacy and to further test for safety within an expanded patient population at geographically dispersed clinical trial
sites.
After successful completion of the required
clinical trials, a new drug application is generally submitted. The FDA may request additional information before accepting the
new drug application for filing, in which case the new drug application must be resubmitted with the additional information. Once
the submission has been accepted for filing, the FDA reviews the new drug application and responds to the applicant. The FDA’s
requests for additional information or clarification often significantly extends the review process. The FDA may refer the new
drug application to an appropriate advisory committee for review, evaluation, and recommendation as to whether the new drug application
should be approved, although the FDA is not bound by the recommendation of an advisory committee.
Sales outside the United States of potential
drug compounds we develop will also be subject to foreign regulatory requirements governing human clinical trials and marketing
for drugs. The requirements vary widely from country to country, but typically the registration and approval process takes several
years and requires significant resources. In most cases, if the FDA has not approved a potential drug compound for sale in the
United States, the potential drug compound may be exported for sale outside of the United States, only if it has been approved
in any one of the following: the European Union, Canada, Australia, New Zealand, Japan, Israel, Switzerland and South Africa. There
are specific FDA regulations that govern this process.
Research and Development Expenses
Historically, a significant portion of our
operating expenses has related to research and development. See “Financial Statements and Supplementary Data” of this
Annual Report for costs and expenses related to research and development, and other financial information for fiscal years 2016,
2015 and 2014.
Scientific Advisors
We are advised by scientists and physicians
with experience relevant to our Company and our product candidates. In the past twelve months, our advisors included Drs Harald
Hampel, MD, PhD, Jacqueline French, MD, Michael Gold, MD, John Harrison, PhD, Ottavio Arancio, MD, Norman Relkin, MD, PhD, Corinne
Lasmezas, PhD, Tangui Maurice, PhD, Abraham Fisher, PhD, Paul Aisen, MD, Jeffrey Cummings, MD, Tanya Simuni, MD, Daniel Weintraub,
MD, Kalpana Merchant, PhD.
Officers
One of our directors is engaged as an officer-employee
of the Company serving in the capacity of Chief Executive Officer, president, and secretary.
Employees
We currently have ten full-time employees,
and we retain several independent contractors on an as-needed basis. We believe that we have good relations with our employees.
Available Information
Our internet website address is www.anavex.com.
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed
or furnished pursuant to section 13(a) or 15(d) of the Exchange Act are available free of charge through our website through a
link to the website of the U.S. Securities and Exchange Commission. We include our website address in this report only as an inactive
textual reference and do not intend it to be an active link to our website. The contents of our website are not incorporated into
this report.
ITEM 1A. RISK FACTORS
In addition to other information in this Annual
Report on Form 10-K, the following risk factors should be carefully considered in evaluating our business because such factors
may have a significant impact on our business, operating results, liquidity and financial condition. As a result of the risk factors
set forth below, actual results could differ materially from those projected in any forward-looking statements. Additional risks
and uncertainties not presently known to us, or that we currently consider to be immaterial, may also impact our business, operating
results, liquidity and financial condition. If any such risks occur, our business, operating results, liquidity and financial condition
could be materially affected in an adverse manner. Under such circumstances, the trading price of our securities could decline,
and you may lose all or part of your investment.
Risks Related to our Company
We have had a history of losses and no
revenue, which raise substantial doubt about our ability to continue as a going concern.
Since inception on January 23, 2004 through
September 30, 2016, we have an accumulated deficit of $78,018,153. We can offer no assurance that we will ever operate profitably
or that we will generate positive cash flow in the future. To date, we have not generated any revenues from our operations. Our
history of losses and no revenues raise substantial doubt about our ability to continue as a going concern. As a result, our management
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. We will need to raise additional funds, and such funds may not be available on commercially
acceptable terms, if at all. If we are unable to raise funds on acceptable terms, we may not be able to execute our business plan,
take advantage of future opportunities, or respond to competitive pressures or unanticipated requirements. This may seriously harm
our business, financial condition and results of operations.
We are an early stage pharmaceutical
research and development company and may never be able to successfully develop marketable products or generate any revenue. We
have a very limited relevant operating history upon which an evaluation of our performance and prospects can be made. There is
no assurance that our future operations will result in profits. If we cannot generate sufficient revenues, we may suspend or cease
operations.
We are an early stage company and have not
generated any revenues to date and have no operating history. All of our potential drug compounds are in the concept stage or early
clinical development stage. Moreover, we cannot be certain that our research and development efforts will be successful or, if
successful, that our potential drug compounds will ever be approved for sales to pharmaceutical companies or generate commercial
revenues. We have no relevant operating history upon which an evaluation of our performance and prospects can be made. We are subject
to all of the business risks associated with a new enterprise, including, but not limited to, risks of unforeseen capital requirements,
failure of potential drug compounds either in non-clinical testing or in clinical trials, failure to establish business relationships
and competitive disadvantages against larger and more established companies. If we fail to become profitable, we may suspend or
cease operations.
We will need additional funding and may
be unable to raise additional capital when needed, which would force us to delay, reduce or eliminate our research and development
activities.
We will need to raise additional funding and
the current economic conditions may have a negative impact on our ability to raise additional needed capital on terms that are
favorable to our Company or at all. We may not be able to generate significant revenues for several years, if at all. Until we
can generate significant revenues, if ever, we expect to satisfy our future cash needs through equity or debt financing. We cannot
be certain that additional funding will be available on acceptable terms, or at all. If adequate funds are not available, we may
be required to delay, reduce the scope of, or eliminate one or more of our research and development activities.
Risks Related to our Business
Even if we are able to develop our potential
drug compounds, we may not be able to receive regulatory approval, or if approved, we may not be able to generate significant revenues
or successfully commercialize our products, which will adversely affect our financial results and financial condition and we will
have to delay or terminate some or all of our research and development plans which may force us to cease operations.
All of our potential drug compounds will require
extensive additional research and development, including non-clinical testing and clinical trials, as well as regulatory approvals,
before we can market them. We cannot predict if or when any of the potential drug compounds we intend to develop will be approved
for marketing. There are many reasons that we may fail in our efforts to develop our potential drug compounds. These include:
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the possibility that non-clinical testing
or clinical trials may show that our potential drug compounds are ineffective and/or cause harmful side effects;
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our potential drug compounds may prove
to be too expensive to manufacture or administer to patients;
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our potential drug compounds may fail
to receive necessary regulatory approvals from the United States Food and Drug Administration or foreign regulatory authorities
in a timely manner, or at all;
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even if our potential drug compounds are
approved, we may not be able to produce them in commercial quantities or at reasonable costs;
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even if our potential drug compounds are
approved, they may not achieve commercial acceptance;
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regulatory or governmental authorities
may apply restrictions to any of our potential drug compounds, which could adversely affect their commercial success; and
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the proprietary rights of other parties
may prevent us or our potential collaborative partners from marketing our potential drug compounds.
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If we fail to develop our potential drug compounds,
our financial results and financial condition will be adversely affected, we will have to delay or terminate some or all of our
research and development plans and may be forced to cease operations.
Our research and development plans will
require substantial additional future funding which could impact our operational and financial condition. Without the required
additional funds, we will likely cease operations.
It will take several years before we can develop
potentially marketable products, if at all. Our research and development plans will require substantial additional capital, arising
from costs to:
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conduct research, non-clinical testing
and human studies;
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establish pilot scale and commercial scale
manufacturing processes and facilities; and
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establish and develop quality control,
regulatory, marketing, sales, finance and administrative capabilities to support these programs.
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Our future operating and capital needs will
depend on many factors, including:
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the pace of scientific progress in our
research and development programs and the magnitude of these programs;
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the scope and results of pre-clinical
testing and human studies;
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the time and costs involved in obtaining
regulatory approvals;
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the time and costs involved in preparing,
filing, prosecuting, securing, maintaining and enforcing patents;
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competing technological and market developments;
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our ability to establish additional collaborations;
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changes in our existing collaborations;
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the cost of manufacturing scale-up; and
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the effectiveness of our commercialization
activities.
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We base our outlook regarding the need for
funds on many uncertain variables. Such uncertainties include the success of our research initiatives, regulatory approvals, the
timing of events outside our direct control such as negotiations with potential strategic partners and other factors. Any of these
uncertain events can significantly change our cash requirements as they determine such one-time events as the receipt or payment
of major milestones and other payments.
Additional funds will be required to support
our operations and if we are unable to obtain them on favorable terms, we may be required to cease or reduce further research and
development of our drug product programs, sell some or all our intellectual property, merge with another entity or cease operations.
If we fail to demonstrate efficacy in
our non-clinical studies and clinical trials our future business prospects, financial condition and operating results will be materially
adversely affected.
The success of our research and development
efforts will be greatly dependent upon our ability to demonstrate potential drug compound efficacy in non-clinical studies, as
well as in clinical trials. Non-clinical studies involve testing potential drug compounds in appropriate non-human disease models
to demonstrate efficacy and safety. Regulatory agencies evaluate these data carefully before they will approve clinical testing
in humans. If certain non-clinical data reveals potential safety issues or the results are inconsistent with an expectation of
the potential drug compound’s efficacy in humans, the regulatory agencies may require additional more rigorous testing before
allowing human clinical trials. This additional testing will increase program expenses and extend timelines. We may decide to suspend
further testing on our potential drug compounds if, in the judgment of our management and advisors, the non-clinical test results
do not support further development.
Moreover, success in non-clinical testing and
early clinical trials does not ensure that later clinical trials will be successful, and we cannot be sure that the results of
later clinical trials will replicate the results of prior clinical trials and non-clinical testing. The clinical trial process
may fail to demonstrate that our potential drug compounds are safe for humans and effective for indicated uses. This failure would
cause us to abandon a drug candidate and may delay development of other potential drug compounds. Any delay in, or termination
of, our non-clinical testing or clinical trials will delay the filing of an investigational new drug application and new drug application
with the Food and Drug Administration or the equivalent applications with pharmaceutical regulatory authorities outside the United
States and, ultimately, our ability to commercialize our potential drug compounds and generate product revenues. In addition, we
expect that our early clinical trials will involve small patient populations. Because of the small sample size, the results of
these early clinical trials may not be indicative of future results.
Following successful non-clinical testing,
potential drug compounds will need to be tested in a clinical development program to provide data on safety and efficacy prior
to becoming eligible for product approval and licensure by regulatory agencies. From the first human trial through to regulatory
approval can take many years and 10-12 years is not unusual for certain compounds.
If any of our future clinical development potential
drug compounds become the subject of problems, our ability to sustain our development programs will become critically compromised.
For example, efficacy or safety concerns may arise, whether or not justified, that could lead to the suspension or termination
of our clinical programs. Examples of problems that could arise include, among others:
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efficacy or safety concerns with the potential
drug compounds, even if not justified;
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manufacturing difficulties or concerns;
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regulatory proceedings subjecting the
potential drug compounds to potential recall;
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publicity affecting doctor prescription
or patient use of the potential drug compounds;
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pressure from competitive products; or
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introduction of more effective treatments.
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Each clinical phase is designed to test attributes
of the drug and problems that might result in the termination of the entire clinical plan can be revealed at any time throughout
the overall clinical program. The failure to demonstrate efficacy in our clinical trials would have a material adverse effect on
our future business prospects, financial condition and operating results.
If we do not obtain the support of qualified
scientific collaborators, our revenue, growth and profitability will likely be limited, which would have a material adverse effect
on our business.
We will need to establish relationships with
leading scientists and research institutions. We believe that such relationships are pivotal to establishing products using our
technologies as a standard of care for various indications. Additionally, although in discussion, there is no assurance that our
current research partners will continue to work with us or that we will be able to attract additional research partners. If we
are not able to establish scientific relationships to assist in our research and development, we may not be able to successfully
develop our potential drug compounds. If this happens, our business will be adversely affected.
We may not be able to develop, market
or generate sales of our products to the extent anticipated. Our business may fail and investors could lose all their investment
in our Company.
Assuming that we are successful in developing
our potential drug compounds and receiving regulatory clearances to market our products, our ability to successfully penetrate
the market and generate sales of those products may be limited by a number of factors, including the following:
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If our competitors receive regulatory
approvals for and begin marketing similar products in the United States, the European Union, Japan and other territories before
we do, greater awareness of their products as compared to ours will cause our competitive position to suffer;
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Information from our competitors or the
academic community indicating that current products or new products are more effective or offer compelling other benefits than
our future products could impede our market penetration or decrease our future market share; and
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The pricing and reimbursement environment
for our future products, as well as pricing and reimbursement decisions by our competitors and by payers, may have an effect on
our revenues.
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If this happens, our business will be adversely
affected.
None of our potential drug compounds
may reach the commercial market for a number of reasons and our business may fail.
Successful research and development of pharmaceutical
products is high risk. Most products and development candidates fail to reach the market. Our success depends on the discovery
of new drug compounds that we can commercialize. It is possible that our products may never reach the market for a number of reasons.
They may be found ineffective or may cause harmful side-effects during non-clinical testing or clinical trials or fail to receive
necessary regulatory approvals. We may find that certain products cannot be manufactured at a commercial scale and, therefore,
they may not be economical to produce. Our potential products could also fail to achieve market acceptance or be precluded from
commercialization by proprietary rights of third parties. Our patents, patent applications, trademarks and other intellectual property
may be challenged and this may delay or prohibit us from effectively commercializing our products. Furthermore, we do not expect
our potential drug compounds to be commercially available for a number of years, if at all. If none of our potential drug compounds
reach the commercial market, our business will likely fail and investors will lose all of their investment in our Company. If this
happens, our business will be adversely affected.
If our competitors succeed in developing
products and technologies that are more effective or with a better profile than our own, or if scientific developments change our
understanding of the potential scope and utility of our potential products, then our technologies and future products may be rendered
undesirable or obsolete.
We face significant competition from industry
participants that are pursuing technologies in similar disease states to those that we are pursuing and are developing pharmaceutical
products that are competitive with our products. Nearly all of our industry competitors have greater capital resources, larger
overall research and development staffs and facilities, and a longer history in drug discovery and development, obtaining regulatory
approval and pharmaceutical product manufacturing and marketing than we do. With these additional resources, our competitors may
be able to respond to the rapid and significant technological changes in the biotechnology and pharmaceutical industries faster
than we can. Our future success will depend in large part on our ability to maintain a competitive position with respect to these
technologies. Rapid technological development, as well as new scientific developments, may result in our products becoming obsolete
before we can recover any of the expenses incurred to develop them. For example, changes in our understanding of the appropriate
population of patients who should be treated with a targeted therapy like we are developing may limit the drug’s market potential
if it is subsequently demonstrated that only certain subsets of patients should be treated with the targeted therapy.
Our reliance on third parties, such as
university laboratories, contract manufacturing organizations and contract or clinical research organizations, may result in delays
in completing, or a failure to complete, non-clinical testing or clinical trials if they fail to perform under our agreements with
them.
In the course of product development, we may
engage university laboratories, other biotechnology companies or contract or clinical manufacturing organizations to manufacture
drug material for us to be used in non-clinical and clinical testing and contract research organizations to conduct and manage
non-clinical and clinical studies. If we engage these organizations to help us with our non-clinical and clinical programs, many
important aspects of this process have been and will be out of our direct control. If any of these organizations we may engage
in the future fail to perform their obligations under our agreements with them or fail to perform non-clinical testing and/or clinical
trials in a satisfactory manner, we may face delays in completing our clinical trials, as well as commercialization of any of our
potential drug compounds. Furthermore, any loss or delay in obtaining contracts with such entities may also delay the completion
of our clinical trials, regulatory filings and the potential market approval of our potential drug compounds.
If we fail to compete successfully with
respect to partnering, licensing, mergers, acquisitions, joint venture and other collaboration opportunities, we may be limited
in our ability to research and develop our potential drug compounds.
Our competitors compete with us to attract
established biotechnology and pharmaceutical companies or organizations for partnering, licensing, mergers, acquisitions, joint
ventures or other collaborations. Collaborations include contracting with academic research institutions for the performance of
specific scientific testing. If our competitors successfully enter into partnering arrangements or license agreements with academic
research institutions, we will then be precluded from pursuing those specific opportunities. Since each of these opportunities
is unique, we may not be able to find a substitute. Other companies have already begun many drug development programs, which may
target diseases that we are also targeting, and have already entered into partnering and licensing arrangements with academic research
institutions, reducing the pool of available opportunities.
Universities and public and private research
institutions also compete with us. While these organizations primarily have educational or basic research objectives, they may
develop proprietary technology and acquire patent applications and patents that we may need for the development of our potential
drug compounds. In some instances, we will attempt to license this proprietary technology, if available. These licenses may not
be available to us on acceptable terms, if at all. If we are unable to compete successfully with respect to acquisitions, joint
venture and other collaboration opportunities, we may be limited in our ability to develop new products.
The use of any of our products in clinical
trials may expose us to liability claims, which may cost us significant amounts of money to defend against or pay out, causing
our business to suffer.
The nature of our business exposes us to potential
liability risks inherent in the testing, manufacturing and marketing of our products. We currently have one drug compound in clinical
trials, however, when any of our products enter clinical trials or become marketed products, they could potentially harm people
or allegedly harm people possibly subjecting us to costly and damaging product liability claims. Some of the patients who participate
in clinical trials are already ill when they enter a trial or may intentionally or unintentionally fail to meet the exclusion criteria.
The waivers we obtain may not be enforceable and may not protect us from liability or the costs of product liability litigation.
Although we intend to obtain product liability insurance which we believe is adequate, we are subject to the risk that our insurance
will not be sufficient to cover claims. The insurance costs along with the defense or payment of liabilities above the amount of
coverage could cost us significant amounts of money and management distraction from other elements of the business, causing our
business to suffer.
The patent positions of biopharmaceutical
products and processes are complex and uncertain and we may not be able to protect our patented or other intellectual property.
If we cannot protect this property, we may be prevented from using it or our competitors may use it and our business could suffer
significant harm. Also, the time and money we spend on acquiring and enforcing patents and other intellectual property will reduce
the time and money we have available for our research and development, possibly resulting in a slow down or cessation of our research
and development.
We hold ownership or exclusive rights to three
issued U.S. patent and eight U.S. patent applications with various international counterpart applications, all of which relate
to drug candidates and methods associated therewith. Neither patents nor patent applications ensure the protection of our intellectual
property for a number of reasons, including the following:
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Competitors may interfere with our patenting process in a variety of ways. Competitors may claim that they invented the claimed invention prior to us. Competitors may also claim that we are infringing their patents and restrict our freedom to operate. Competitors may also contest our patents and patent applications, if issued, by showing in various patent offices that, among other reasons, the patented subject matter was not original, was not novel or was obvious. In litigation, a competitor could claim that our patents and patent applications are not valid or enforceable for a number of reasons. If a court agrees, we would lose some or all of our patent protection. As a company, we have no meaningful experience with competitors interfering with our patents or patent applications.
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Because of the time, money and effort involved in obtaining and enforcing patents, our management may spend less time and resources on developing potential drug compounds than they otherwise would, which could increase our operating expenses and delay product programs.
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Issuance of a patent may not provide much practical protection. If we receive a patent of narrow scope, then it may be easier for competitors to design products that do not infringe our patent(s).
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Our primary patent applications for ANAVEX
TM
2-73 and the combination of ANAVEX
TM
2-73 with donepezil are pending only in the United States Patent and Trademark Office. The lack of patent protection in global markets may inhibit our ability to advance our compounds and may make Anavex less attractive to potential partners.
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Defending a patent lawsuit takes significant time and can be very expensive.
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If a court decides that our drug compound, its method of manufacture or use, infringes on the competitor’s patent, we may have to pay substantial damages for infringement.
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A court may prohibit us from making, selling or licensing the potential drug compound unless the patent holder grants a license. A patent holder is not required to grant a license. If a license is available, we may have to pay substantial royalties or grant cross licenses to our patents, and the license terms may be unacceptable.
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Redesigning our potential drug compounds so that they do not infringe on other patents may not be possible or could require substantial funds and time.
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It is also unclear whether our trade secrets
are adequately protected. While we use reasonable efforts to protect our trade secrets, our employees or consultants may unintentionally
or willfully disclose our information to competitors. Enforcing a claim that someone illegally obtained and is using our trade
secrets, like patent litigation, is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside
the United States are sometimes less willing to protect trade secrets. Our competitors may independently develop equivalent knowledge,
methods and know-how.
We may also support and collaborate in research
conducted by government organizations, hospitals, universities or other educational institutions. These research partners may be
unable or unwilling to grant us exclusive rights to technology or products derived from these collaborations prior to entering
into the relationship.
If we do not obtain required intellectual property
licenses or rights, we could encounter delays in our product development efforts while we attempt to design around other patents
or even be prohibited from developing, manufacturing or selling potential drug compounds requiring these rights or licenses. There
is also a risk that disputes may arise as to the rights to technology or potential drug compounds developed in collaboration with
other parties.
If we are unable to safeguard against
security breaches with respect to our information systems our business may be adversely affected.
In the course of our business, we gather, transmit
and retain confidential information through our information systems. Although we endeavor to protect confidential information through
the implementation of security technologies, processes and procedures, it is possible that an individual or group could defeat
security measures and access sensitive information about our business and employees. Any misappropriation, loss or other unauthorized
disclosure of confidential information gathered, stored or used by us could have a material impact on the operation of our business,
including damaging our reputation with our employees, third parties and investors. We could also incur significant costs implementing
additional security measures and organizational changes, implementing additional protection technologies, training employees or
engaging consultants. In addition, we could incur increased litigation as a result of any potential cyber-security breach. We are
not aware that we have experienced any material misappropriation, loss or other unauthorized disclosure of confidential or personally
identifiable information as a result of a cyber-security breach or other act, however, a cyber-security breach or other act and/or
disruption to our information technology systems could have a material adverse effect on our business, prospects, financial condition
or results of operations.
Risks Related to our Common Stock
A decline in the price of our common
stock could affect our ability to raise further working capital and adversely impact our operations and would severely dilute existing
or future investors if we were to raise funds at lower prices.
A prolonged decline in the price of our common
stock could result in a reduction in our ability to raise capital. Because our operations have been financed through the sale of
equity securities, a decline in the price of our common stock could be especially detrimental to our continued operations. Any
reduction in our ability to raise equity capital in the future would force us to reallocate funds from other planned uses and would
have a significant negative effect on our business plans and operations, including our ability to develop new products and continue
our current operations. If our stock price declines, there can be no assurance that we can raise additional capital or generate
funds from operations sufficient to meet our obligations. We believe the following factors could cause the market price of our
common stock to continue to fluctuate widely and could cause our common stock to trade at a price below the price at which you
purchase your shares of common stock:
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actual or anticipated variations in our
quarterly operating results;
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announcements of new services, products,
acquisitions or strategic relationships by us or our competitors;
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changes in accounting treatments or principles;
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changes in earnings estimates by securities
analysts and in analyst recommendations; and
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general political, economic, regulatory
and market conditions.
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The market price for our common stock may also
be affected by our ability to meet or exceed expectations of analysts or investors. Any failure to meet these expectations, even
if minor, could materially adversely affect the market price of our common stock.
If we issue additional shares of common
stock in the future, it will result in the dilution of our existing stockholders.
Our articles of incorporation authorize the
issuance of 100,000,000 shares of common stock. Our board of directors has the authority to issue additional shares of common stock
up to the authorized capital stated in the articles of incorporation. Our board of directors may choose to issue some or all such
shares of common stock to acquire one or more businesses or to provide additional financing in the future. The issuance of any
such shares of common stock will result in a reduction of the book value or market price of the outstanding shares of our common
stock. If we do issue any such additional shares of common stock, such issuance also will cause a reduction in the proportionate
ownership and voting power of all other stockholders. Further, any such issuance may result in a change of control of our corporation.
Trading of our common stock may be volatile
and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their
shares.
There is currently a limited market for our
common stock and the volume of our common stock traded on any day may vary significantly from one period to another. Trading in
our stock is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do
with our operations or business prospects. The availability of buyers and sellers represented by this volatility could lead to
a market price for our common stock that is unrelated to operating performance. There is no assurance that a sufficient market
will develop in the stock, in which case it could be difficult for our stockholders to resell their stock.
The sale or issuance of our common stock
to Lincoln Park may cause dilution and the sale of the shares of common stock acquired by Lincoln Park, or the perception that
such sales may occur, could cause the price of our common stock to fall.
On October 21, 2015, we entered into a Purchase
Agreement (the “
Purchase Agreement
”) with Lincoln Park Capital Fund, LLC (“
Lincoln Park
”),
pursuant to which Lincoln Park committed to purchase up to $50,000,000 of our common stock. Concurrently with the execution of
the Purchase Agreement, we agreed to issue 179,598 shares of our common stock to Lincoln Park as a commitment fee and shall 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.
The purchase shares that may be sold pursuant to the Purchase Agreement may be sold by us to Lincoln Park at our discretion from
time to time over a 36-month period commencing after the Securities and Exchange Commission (“SEC”) declared effective
the related registration statement. The purchase price for the shares that we may sell to Lincoln Park under the Purchase Agreement
will fluctuate based on the price of our common stock. Depending on market liquidity at the time, sales of such shares may cause
the trading price of our common stock to fall.
We generally have the right to control the
timing and amount of any sales of our shares to Lincoln Park, except that, pursuant to the terms of our agreements with Lincoln
Park, we would be unable to sell shares to Lincoln Park if and when the closing sale price of our common stock is below $3.00 per
share, subject to adjustment as set forth in the Purchase Agreement. Additional sales of our common stock, if any, to Lincoln Park
will depend upon market conditions and other factors to be determined by us. Lincoln Park may ultimately purchase all the shares
of our common stock that may be sold pursuant to the Purchase Agreement and, after it has acquired shares, Lincoln Park may sell
all, some or none of those shares. Therefore, sales to Lincoln Park by us could result in substantial dilution to the interests
of other holders of our common stock. Additionally, the sale of a substantial number of shares of our common stock to Lincoln Park,
or the anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future
at a time and at a price that we might otherwise wish to effect sales.
ITEM 1B. UNRESOLVED
STAFF COMMENTS
Not Applicable.
ITEM 2. PROPERTIES
We do not own any real property. We maintain
several offices of which the office at 7th Floor, 51 West 52nd Street, New York, NY, USA is our main office. Our lease costs are
$11,500 per month. We believe our offices are suitable and adequate to operate our business now as they provide us with sufficient
space to conduct our operations. We fully utilize our current premises.
ITEM 3. LEGAL PROCEEDINGS
On December 30,
2015, Kevin Cortina filed a purported class action lawsuit in the United States District Court for the Southern District of New
York, Cortina v. Anavex
Life Sciences Corp., et al., Case No. 1:15-cv-10162, against the Company, Christopher
Missling, Sandra Boenisch, and Athanasios Skarpelos. The complaint alleges violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 on behalf of purchasers of the Company’s stock between May 17, 2013 and December 28, 2015.
The complaint alleges that defendants made materially false and misleading statements regarding the Company’s business,
operational, and compliance policies. Among other things, the complaint alleges that the Company failed to disclose that
it used a paid stock promoter to artificially inflate the Company’s share price. The complaint does not specify an
amount of damages sought. On April 5, 2016 the court appointed Lam Truong as lead plaintiff and Levi & Korsinsky to
serve as lead counsel. On April 13, 2016, the court granted lead plaintiff thirty days to amend the complaint and set
a briefing schedule. Defendants filed a motion to dismiss the complaint on June 13, 2016. The parties have fully briefed this
motion and it is currently pending before the court. Defendants believe this action is meritless and deny all allegations
against them. The Company intends to vigorously defend this matter.
On March 12, 2016, Jeffery Dhungana filed a purported shareholder derivative action in the Supreme Court
of the State of New York, in the County of New York, Dhungana v. Missling, et. al., Case No. 651317-2016, against Christopher
Missling and other officers and directors at the Company. The complaint alleges that the defendants breached their fiduciary
duties to the Company in connection with events alleged in the Cortina matter described above. The complaint seeks
damages of an unspecified amount, a declaration that the defendants violated their fiduciary duties, and an order directing the
Company and defendants to improve its corporate governance and internal procedures. On May 11, 2016, the parties stipulated
to a temporary stay of the Dhungana action. On March 18, 2016, Mary McCambell filed an action in the United States District
Court for the Southern District of New York, McCambell v. Missling, et. al., Case No. 1:16-cv-02035. The allegations
in the McCambell complaint are substantively similar to those asserted in the Dhungana complaint. Like
the Dhungana complaint, the McCambell complaint seeks damages of an unspecified amount and an order directing
the Company to take all necessary actions to reform and improve its corporate governance and internal procedures. On May 12, 2016,
the court entered an order temporarily staying the McCambell action.
Other than as disclosed under this Item 3, we know of no material, existing or pending legal proceedings
to which we or our subsidiary are a party or of which any of our properties is the subject.
ITEM 4. MINE SAFETY
DISCLOSURES
Not applicable.
PART III
ITEM 10 DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
Our directors are to be elected at our annual
meeting and each director elected is to hold office until his or her successor is elected and qualified. Our board of directors
may remove our officers at any time.
Our directors and executive officers, their
age, positions held, and duration of such, are as follows:
Name
|
|
Position
|
|
Age
|
|
Date first appointed
|
Christopher Missling, PhD
|
|
Director, President, Chief Executive Officer, Secretary
|
|
51
|
|
July 5, 2013
|
Athanasios Skarpelos
|
|
Director
|
|
50
|
|
January 9, 2013
|
Bernd Metzner, PhD
|
|
Director
|
|
45
|
|
May 7, 2014
|
Elliot Favus, MD
|
|
Director
|
|
42
|
|
May 7, 2014
|
Steffen Thomas, PhD
|
|
Director
|
|
50
|
|
June 15, 2015
|
Sandra Boenisch
|
|
Principal Financial Officer, Treasurer
|
|
35
|
|
October 1, 2015
|
Business Experience
The following is a brief account of the education
and business experience of directors and executive officers during at least the past five years, indicating their principal occupation
during the period, and the name and principal business of the organization by which they were employed.
Christopher Missling, PhD
. Christopher
Missling has over twenty (20) years of healthcare industry experience in big pharmaceutical, biotech industry and investment banking.
Most recently, from March 2007 until his appointment by our company, Mr. Missling served as the head of healthcare investment banking
at Brimberg & Co. in New York, New York. Also, Mr. Missling served as the Chief Financial Officer of Curis, Inc. (NASDAQ:CRIS)
and ImmunoGen, Inc. (NASDAQ:IMGN). Mr. Missling earned his MS and PhD from the University of Munich and an MBA from Northwestern
University Kellogg School of Management and WHU Otto Beisheim School of Management.
Athanasios Skarpelos
. Athanasios (Tom)
Skarpelos is a self-employed investor with 18 years of experience working with private and public companies. For the past 10 years,
he has been focused on biotechnology companies involved in drug discovery and drug development projects. Mr. Skarpelos was engaged
as a consultant to our company for one year effective August 2, 2010. His experience has led to relationships with researchers
at academic institutes in Europe and North America. Mr. Skarpelos is a founder of Anavex.
Bernd Metzner, PhD.
Bernd Metzner is
currently the Chief Financial Officer of the Stroeer Group. Previously, he was Chief Administration Officer and member of the Board
of Management of Bayer Schering Pharma AG, the pharmaceutical division of $100+ billion market cap company Bayer AG. In this position,
Dr. Metzner had worldwide financial responsibility for the Bayer Pharma Group. During his almost 10-years with Bayer AG, Dr. Metzner
also held several senior international management positions in the corporate finance organization of Bayer AG, including Chief
Financial Officer of Bayer S.p.A. Italy and heading the coordination of the successful spin-off of Lanxess, a specialty chemicals
group. Dr. Metzner started his career at the law firm Flick Gocke Schaumburg and has a degree in business administration from the
University of Siegen. After obtaining his doctorate, he became a chartered accountant.
Elliot Favus, MD.
Elliot Favus is Chief
Executive Officer of Favus Institutional Research, a healthcare research firm serving institutional investors. He has been a healthcare
equity research analyst on Wall Street since 2006, starting at Lazard Capital Markets and subsequently at Och-Ziff Capital Management
Group. Prior to working on Wall Street, Dr. Favus was an Instructor in medicine at Mount Sinai School of Medicine in New York.
He attended the University of Michigan (BA, 1996), the University of Chicago Pritzker School of Medicine (MD, 2001) and the NYU-Bellevue
Hospital Internal Medicine Residency Program (2004). He is board-certified in Internal Medicine (2004) and has 10 years of basic
science laboratory experience working on human genetics projects at Harvard Medical School, the University of Chicago and the University
of Pittsburgh.
Steffen Thomas, PhD
Steffen Thomas,
PhD, has over 15 years of experience as a European patent attorney and is currently practicing at Epping Hermann Fischer, a major
intellectual property law firm in Europe. Previously, he worked for Japan-based Takeda Pharmaceutical Company, the largest pharmaceutical
company in Asia and a top firm worldwide, as an in-house patent attorney. Prior to that, he worked for Nycomed Pharma, acquired
by Takeda in 2011 for approximately USD $10 billion. Dr. Thomas’ legal practice covers drafting of patent applications, prosecuting
patent applications before national and international patent offices, defending and challenging patents in opposition, appeal,
and nullity proceedings, enforcing patents before the infringement courts, and preparing opinions on patentability and infringement
in the technical field of chemistry. Dr. Thomas has particular expertise in small molecule pharmaceuticals. He holds MS and PhD
degrees in Chemistry from the University of Munich.
Sandra Boenisch, CPA, CGA
Ms. Boenisch
is a Chartered Professional Accountant (CPA, CGA) with 14 years of accounting, audit, and financial reporting experience in a variety
of industries, both in the United States and Canada. Ms. Boenisch has been an independent consultant, providing financial reporting
services to a range of public companies in the United States and Canada since January 2012. From 2008 until 2012, Ms. Boenisch
was employed at BDO Canada LLP (Vancouver, BC) where she was hired as a Senior Accountant and was later promoted to Manager, Audit
Assurance. Ms. Boenisch specialized in managing assurance engagements for public companies in the United States and Canada. Prior
to that, Ms. Boenisch worked for a public accounting firm beginning in 2001. As an independent consultant, Ms. Boenisch has acquired
considerable experience in finance, governance, and regulatory compliance. She holds a BComm from Laurentian University.
Family Relationships
There are no family relationships between any
director or executive officer.
Involvement in Certain Legal Proceedings
There are no material proceedings to which
any director or executive officer or any associate of any such director or officer is a party adverse to our company or has a material
interest adverse to our company.
No director or executive officer has been involved
in any of the following events during the past ten years:
|
1.
|
any bankruptcy petition filed by or against any business of which such person was a general partner
or executive officer either at the time of the bankruptcy or within two years prior to that time;
|
|
2.
|
any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding
traffic violations and other minor offences);
|
|
3.
|
being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated,
of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement
in any type of business, securities or banking activities;
|
|
4.
|
being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange
Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the
judgment has not been reversed, suspended, or vacated;
|
|
5.
|
being the subject of, or a party to, any federal or state judicial or administrative order, judgment,
decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: (i) any federal or state
securities or commodities law or regulation; or (ii) any law or regulation respecting financial institutions or insurance companies
including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or
temporary or permanent cease- and- desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail
or wire fraud or fraud in connection with any business entity; or
|
|
6.
|
being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended
or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934), any registered
entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization
that has disciplinary authority over its members or persons associated with a member.
|
Compliance with Section 16(a) of the
Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act
of 1934 requires our executive officers and directors and persons who own more than 10% of our common stock to file with the Securities
and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning
their ownership of our common stock and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors
and greater than 10% shareholders are required by the Securities and Exchange Commission regulations to furnish us with copies
of all Section 16(a) reports that they file.
Based solely on the
copies of such reports and amendments thereto received by us, or written representations that no filings were required, we believe
that all Section 16(a) filing requirements applicable to our executive officers and directors and 10% stockholders were met for
the year ended September 30, 2016, with the exception of the following: (i) Dr. Missling did not timely file one (1) Form 4 report
in which one (1) transaction was reported, and (ii) Dr. Favus did not timely file three (3) Form 4 reports in which three (3) transactions
were reported.
Code of Ethics
We have adopted a code of ethics that applies
to our directors, principal executive officer, principal financial officer, principal accounting officer or controller, or persons
performing similar functions and to all employees. We have posted our policy on our website at
www.anavex.com
.
Audit Committee and Audit Committee Financial
Experts
The members of the Audit Committee are Bernd
Metzner (Chairman), Athanasios Skarpelos and Steffen Thomas. Our board of directors has determined that Bernd Metzner is an “audit
committee financial expert” as defined by applicable SEC and Nasdaq rules.
The Audit Committee oversees and reports to
our board of directors on various auditing and accounting-related matters, including, among other things, the maintenance of the
integrity of our financial statements, reporting process and internal controls; the selection, evaluation, compensation and retention
of our independent registered public accounting firm; legal and regulatory compliance, including our disclosure controls and procedures;
and oversight over our risk management policies and procedures.
The Audit Committee operates under a charter
that was adopted by our board of directors.
Nominating and Corporate Governance Committee
The members of our Nominating and Corporate
Governance Committee are Bernd Metzner (Chairman) and Steffen Thomas.
The Nominating and Corporate Governance Committee
is appointed by the Board to oversee and evaluate the Board's performance and the company's compliance with corporate governance
regulations, guidelines and principles, to identify individuals qualified to become Board members, to recommend to the Board proposed
nominees for Board membership, and to recommend to the Board directors to serve on each standing committee.
Compensation Committee
The members of our Compensation Committee are
Bernd Metzner (Chairman) and Steffen Thomas.
The Compensation Committee assists our board
of directors in discharging its responsibilities relating to compensation of our directors and executive officers. Its responsibilities
include, among other things, reviewing, approving and recommending compensation programs and arrangements applicable to our officers;
determining the objectives of our executive officer compensation programs; overseeing the evaluation of our senior executives;
administering our incentive compensation plans and equity-based plans, including reviewing and granting equity awards to our executive
officers; and reviewing and approving director compensation and benefits. The Compensation Committee can delegate to other members
of our board of directors, or an officer or officers of the Company, the authority to review and grant stock-based compensation
for employees who are not executive officers.
The Compensation Committee has the responsibilities
and authority designated by Nasdaq rules. Specifically, the Compensation Committee has the sole discretion to select and receive
advice from a compensation consultant, legal counsel or other adviser and is directly responsible for oversight of their work.
The Compensation Committee must also determine reasonable compensation to be paid to such advisors by us.
Prior to the formation of our Compensation Committee, our board
of directors performed the functions that would have been handled by the Compensation Committee.
The Compensation Committee operates under a charter that was adopted
by our board of directors.
ITEM 11. EXECUTIVE
COMPENSATION
The Company’s compensation objectives
are to offer our executive officers compensation and benefits that are competitive and meet our goals of attracting, retaining
and motivating highly skilled, talented management, which is necessary for the Company to achieve its financial and strategic objectives
and create long-term value for our stockholders.
A significant portion of
the Company’s executive compensation opportunity is related to factors that directly and indirectly influence shareholder
value, including long-term stock performance and operational performance. We believe the levels of compensation we provide should
be competitive, reasonable and appropriate for our business needs and circumstances.
Our Executive Compensation
Program and Philosophy
The intent of the Company’s compensation
program is to attract and retain talent, to create incentives for and to reward excellent performance. We seek to compensate our
executives in a manner that is competitive, rewards performance that creates shareholder value, recognizes individual contributions,
and encourages long-term value creation.
The Compensation Committee meets at least twice
per year to review and evaluate executive compensation and each executive officer’s performance. The Compensation Committee
utilizes quantitative and qualitative factors, including the accomplishment of initiatives, attitude, and leadership and applies
overall judgment to assess performance, taking into account the financial condition of the Company. Ultimately, the Compensation
Committee seeks to evaluate, based on the achievement of financial and nonfinancial objectives, the variable compensation, including
special awards, of executive officers of the Company and decide on the base salary and target discretionary bonus for such persons
taking into account relevant benchmark data.
The Compensation Committee believes that a
significant portion of each executive’s compensation opportunity should be tied to variable compensation and value creation
for shareholders. The Compensation Committee believes this mix provides an appropriate balance between the financial security required
to attract and retain qualified individuals, and the Compensation Committee’s goal of ensuring that executive compensation
rewards performance that benefits shareholders over the long term.
Compensation Consultants
The Compensation Committee makes recommendations
to the Board for all compensation for executives, including the structure and design of the compensation programs. The Compensation
Committee is responsible for retaining and terminating compensation consultants and determining the terms and conditions of their
engagement.
Annual Discretionary
Cash Bonuses
The Company has an annual discretionary cash
bonus program. The Compensation Committee, or board of directors works with the Chief Executive Officer to evaluate the Company’s
financial performance and overall financial condition to determine if discretionary bonuses are to be paid.
Benefits
The Company’s executives are entitled
to participate in employee benefit plans, programs and arrangements implemented by the Company and generally available to all salaried
employees, such as medical, dental and insurance programs. Executives are also allowed to participate in the Company’s tax-qualified
401(k) Plan offered to all similarly situated full-time employees.
Summary Compensation
The particulars of compensation paid to the
following persons for the last two completed fiscal years:
|
a)
|
our principal executive officers;
|
|
b)
|
each of our two most highly compensated executive officers who were serving as executive officers
at the end of the fiscal year ended September 30, 2016 who had total compensation exceeding $100,000; and
|
|
c)
|
up to two additional individuals for whom disclosure would have been provided under (b) but for
the fact that the individual was not serving as our executive officer at the end of the most recently completed financial year,
who we will collectively refer to as the named executive officers, for our fiscal years ended September 30, 2016 and 2015, are
set out in the following summary compensation table:
|
Name and
Principal
Position
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Other
Annual
Compensation
($)
|
|
|
Total
($)
|
|
Christopher Missling, PhD
(1)
|
|
2016
|
|
|
305,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,495,900
|
|
|
|
2,290,340
|
(2)
|
|
|
11,091,240
|
|
President, Chief Executive Officer,
|
|
2015
|
|
|
240,000
|
|
|
|
-
|
|
|
|
1,220,000
|
|
|
|
1,151,309
|
|
|
|
1,128,064
|
(2)
|
|
|
3,739,373
|
|
Chief Financial Officer and Director
|
|
2014
|
|
|
240,000
|
|
|
|
400,000
|
(3)
|
|
|
-
|
|
|
|
127,800
|
|
|
|
-
|
|
|
|
767,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sandra Boenisch
(4)
|
|
2016
|
|
|
58,000
|
(5)
|
|
|
-
|
|
|
|
-
|
|
|
|
407,400
|
|
|
|
-
|
|
|
|
465,419
|
|
Principal Financial Officer
|
|
2015
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2014
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
(1)
|
Christopher Missling was
appointed as director, President, Chief Executive Officer, Chief Financial Officer, and Secretary on July 5, 2013.
|
|
(2)
|
The compensation was recorded in connection with the Company’s
payment of an income tax withholding obligation arising as a result of the vesting of restricted stock awards during the years
ended September 30, 2016 and 2015, in accordance with the terms of Dr. Missling’s employment agreement dated July 5, 2013.
|
|
(3)
|
The bonus was a result
of the successful financing in March 2014.
|
|
(4)
|
Ms. Boenisch’s employment became effective on October
1, 2015.
|
|
(5)
|
Compensation to Ms. Boenisch denominated in Canadian Dollars
and has been translated to US dollars at an exchange rate of 0.7438 during the year ended September 30, 2016.
|
Employment Agreements
Christopher Missling
The Company and Dr. Missling have entered into
an employment agreement dated July 5, 2013, as amended and extended on July 5, 2016 and as amended and restated on July 18, 2016,
whereby the Company agreed to pay to Dr. Missling an annual base salary of $500,000. In addition, Dr. Missling (i) is eligible
to earn an annual cash bonus for each whole or partial calendar year of up to $100,000; (ii) is eligible to participate in the
Company’s employee benefit plans; and (iii) the Company has agreed to indemnify Dr. Missling in connection with his provision
of services to the Company.
During the year ended September 30, 2016 and
in connection with the Amended and Restated First Amendment to the Employment Agreement with Dr. Missling in his continuing capacity
as Chief Executive Officer of the Company, Dr. Missling was granted options with a value of Two Million Dollars ($2,000,000) to
purchase shares of the Company’s common stock, which was equal to 379,625 options at an exercise price of $6.26 These options
shall vest quarterly over a three year period, commencing on October 5, 2016. In addition, Dr. Missling was granted options to
purchase 861,429 shares of the Company’s common stock at an exercise price of $7.06, which options will vest quarterly over
a three-year period, commencing on October 18, 2016.
Sandra Boenisch
In connection with Ms. Boenisch’s appointment
as Principal Financial Officer, the Company and Ms. Boenisch entered into an employment agreement, effective October 1, 2015, whereby:
(a) the Company shall pay to Ms. Boenisch an annual base salary of Seventy-Eight Thousand and 00/100 Canadian Dollars ($78,000
CAD), with Ms. Boenisch being eligible for bonuses which are anticipated to be up to 25% of her annual base salary, and salary
increases; (b) Ms. Boenisch received a sign-on stock option grant of 100,000 shares; and (c) Ms. Boenisch is able to participate
in the Company’s employee benefit plans.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth for each named
executive officer and director certain information concerning the outstanding equity awards as of September 30, 2016.
Option Awards
|
|
Stock Awards
|
|
Name
|
|
Number of
Securities
Underlying
Exercisable
Options
(#)
|
|
|
Number of
Securities
Underlying
Unexercisable
Options
(#)
|
|
|
Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
|
|
Option
Exercise
Price
($)
|
|
|
Option
Expiration
Date
|
|
Number
of
Shares
of
Units of
Stock
that have
not
Vested
(#)
|
|
|
Market
Value of
Shares or
Units of
Stock
that
have not
Vested
($)
|
|
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units
or
Other
Rights
that
have
not
Vested
(#)
|
|
|
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
that
have not
Vested
($)
|
|
Christopher Missling
|
|
|
500,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1.60
|
|
|
July 5, 2023
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
62,500
|
|
|
|
62,500
|
|
|
|
-
|
|
|
|
1.32
|
|
|
May 8, 2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
333,334
|
|
|
|
166,666
|
|
|
|
-
|
|
|
|
0.92
|
|
|
April 2, 2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,500
|
|
|
|
125,000
|
|
|
|
-
|
|
|
|
5.04
|
|
|
Sept 18, 2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
379,625
|
|
|
|
-
|
|
|
|
6.26
|
|
|
July 5, 2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
861,429
|
|
|
|
-
|
|
|
|
7.06
|
|
|
July 18, 2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3.28
|
|
|
Sept 22, 2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Athanasios Skarpelos
|
|
|
33,334
|
|
|
|
16,666
|
|
|
|
-
|
|
|
|
0.92
|
|
|
April 2, 2025
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3.28
|
|
|
Sep 22, 2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bernd Metzner
|
|
|
25,000
|
|
|
|
12,500
|
|
|
|
-
|
|
|
|
1.20
|
|
|
May 7, 2024
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
33,334
|
|
|
|
16,666
|
|
|
|
-
|
|
|
|
0.92
|
|
|
April 2, 2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3.28
|
|
|
Sept 22, 2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elliot Favus
|
|
|
25,000
|
|
|
|
12,500
|
|
|
|
-
|
|
|
|
1.20
|
|
|
May 7, 2024
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
33,334
|
|
|
|
16,666
|
|
|
|
-
|
|
|
|
0.92
|
|
|
April 2, 2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5.64
|
|
|
Sept 30, 2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5.57
|
|
|
Dec 31, 2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
1,500
|
|
|
|
-
|
|
|
|
4.90
|
|
|
Mar 31, 2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5.66
|
|
|
April 27, 2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
1,500
|
|
|
|
-
|
|
|
|
6.11
|
|
|
June 30, 2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3.28
|
|
|
Sept 22, 2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steffen Thomas
|
|
|
16,667
|
|
|
|
33,333
|
|
|
|
-
|
|
|
|
1.76
|
|
|
June 15, 2025
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3.28
|
|
|
Sept 22, 2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sandra Boenisch
|
|
|
8,333
|
|
|
|
16,667
|
|
|
|
-
|
|
|
|
5.68
|
|
|
Oct 2, 2026
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
106,696
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3.28
|
|
|
Sept 22, 2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Option Plan
Our board of directors adopted an Omnibus Incentive
Plan (the “2015 Plan”), which was approved by our board on September 18, 2015. The 2015 Plan 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, and the exercise price of each option shall be at least the
fair market value on the grant date; provided, however, that in the event that a grantee owns more than 10% of the Company’s
common stock as of the date of grant, the exercise price of an option granted to such grantee that is intended to be an incentive
stock option shall be not less than 110% of the fair market value on the date of grant. 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.
Compensation of Directors
The table below shows the compensation of our
directors who were not our named executive officers for the fiscal year ended September 30, 2016:
Name
|
|
Fees Earned
or Paid in
Cash
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-Equity
Incentive
Plan
Compensation ($)
|
|
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
|
All Other
Compensation ($)
|
|
|
Total
($)
|
|
Athanasios Skarpelos
|
|
|
-
|
|
|
|
-
|
|
|
|
274,150
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
274,150
|
|
Bernd Metzner
|
|
|
15,500
|
|
|
|
-
|
|
|
|
274,150
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
289,650
|
|
Elliot Favus
|
|
|
-
|
|
|
|
-
|
|
|
|
308,450
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
308,450
|
|
Steffen Thomas
|
|
|
-
|
|
|
|
-
|
|
|
|
274,150
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
274,150
|
|
We have agreed to compensate Bernd Metzner
an amount of $4,000 per quarter for performing the functions of Chairman of the Company’s Audit Committee, Compensation Committee
and Nominating and Corporate Governance Committee.
In addition, directors are entitled to reimbursement
for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors.
Our board of directors may award further special remuneration to any director undertaking any special services on our behalf other
than services ordinarily required of a director.
Retirement or Similar Benefit Plans
There are no arrangements or plans in which
we provide retirement or similar benefits for our directors or executive officers.
Resignation, Retirement, Other Termination,
or Change in Control Arrangements
Effective July 18, 2016 the Company entered
into the Amended and Restated First Amendment to Employment Agreement with Dr. Missling (“Employment Agreement”) in
his continuing capacity as Chief Executive Officer of the Company. The Amendment amends the First Amendment to Employment Agreement
dated July 5, 2016, and the Employment Agreement by and between the Company and Dr. Missling, dated June 27, 2013 and filed as
an exhibit to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 14, 2013. The Employment Agreement
contains provisions regarding our obligations to Dr. Missling upon his termination and upon a change of control. In the event of
a change of control, as such term is defined in the Employment Agreement, all of the restricted stock granted to Dr. Missling shall
vest. Depending on the nature of the termination of Dr. Missling’s services, certain of his salary, bonus and granted securities
shall vest in the amounts at such time as set forth in the Employment Agreement. A copy of the Employment Agreement is set forth
in its entirety as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on July 22, 2016.
Our employment agreement with Sandra Boenisch
contains provisions regarding our obligations to Ms. Boenisch upon a change of control. In the event of a change of control, as
such term is defined in the employment agreement, all of the remaining unvested option shares granted to Ms. Boenisch will immediately
vest with no restrictions on purchase or sales. A copy of the employment agreement is set forth in its entirety as an exhibit hereto.
Compensation Committee Interlocks and
Insider Participation
None of our directors who currently serve as
members of our compensation committee is, or has at any time during the past year been, one of our officers or employees. None
of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation
committee of any other entity that has one or more executive officers serving on our board of directors or compensation committee.
Compensation Committee Report
The Compensation Committee has reviewed and
discussed with management the Compensation Discussion and Analysis and has recommended to the board of directors that the Compensation
Discussion and Analysis be included in this Annual Report on Form 10-K for the year ended September 30, 2016.
The members of our Compensation Committee are
Bernd Metzner (Chairman) and Steffen Thomas.
ITEM 12. SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The following table sets forth, as of December
12, 2016, certain information with respect to the beneficial ownership of our common stock by each stockholder known by us to be
the beneficial owner of more than 5% of our common stock and by each of our current directors and our named executive officers
and by our current directors and executive officers as a group. We have determined the number and percentage of shares beneficially
owned by such person in accordance with Rule 13d-3 under the Securities Exchange Act of 1934. This information does not necessarily
indicate beneficial ownership for any other purpose.
Title of class
|
|
Name and address of
beneficial owner
|
|
Amount and nature of
beneficial ownership
|
|
|
Percent of
class
(1)
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Christopher Missling (CEO/Director)
|
|
|
2,461,584
|
(2)
|
|
|
6.0
|
%
|
|
|
51 W 52nd Street,
|
|
|
|
|
|
|
|
|
|
|
7th floor
|
|
|
|
|
|
|
|
|
|
|
New York, NY 10019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Athanasios Skarpelos
(Director)
|
|
|
1,439,792
|
(3)
|
|
|
3.6
|
%
|
|
|
51 W 52
nd
Street,
|
|
|
|
|
|
|
|
|
|
|
7
th
Floor
|
|
|
|
|
|
|
|
|
|
|
New York, NY 10019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Bernd Metzner (Director)
|
|
|
158,334
|
(4)
|
|
|
0.4
|
%
|
|
|
51 W 52
nd
Street,
|
|
|
|
|
|
|
|
|
|
|
7
th
Floor
|
|
|
|
|
|
|
|
|
|
|
New York, NY 10019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Elliot Favus (Director)
|
|
|
162,834
|
(5)
|
|
|
0.4
|
%
|
|
|
51 W 52
nd
Street,
|
|
|
|
|
|
|
|
|
|
|
7
th
Floor
|
|
|
|
|
|
|
|
|
|
|
New York, NY 10019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Steffen Thomas (Director)
|
|
|
116,667
|
(6)
|
|
|
0.3
|
%
|
|
|
51 W 52
nd
Street,
|
|
|
|
|
|
|
|
|
|
|
7
th
Floor
|
|
|
|
|
|
|
|
|
|
|
New York, NY 10019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Sandra Boenisch (Principal Financial Officer)
|
|
|
140,075
|
(7)
|
|
|
0.4
|
%
|
|
|
51 W 52
nd
Street,
|
|
|
|
|
|
|
|
|
|
|
7
th
Floor
|
|
|
|
|
|
|
|
|
|
|
New York, NY 10019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Directors & Executive Officers as a group (6 persons)
|
|
|
4,479,286
|
|
|
|
10.7
|
%
|
|
(1)
|
Percentage of ownership is based on 39,610,967 shares of our common stock issued and
outstanding as of December 12, 2016. Except as otherwise indicated, we believe that the beneficial owners of the common stock
listed above, based on information furnished by such owners, have sole investment and voting power with respect to such
shares, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules
of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities.
Shares of common stock subject to options or warrants currently exercisable or exercisable within 60 days, are deemed
outstanding for purposes of computing the percentage ownership of the person holding such option or warrants, but are not
deemed outstanding for purposes of computing the percentage ownership of any other person.
|
|
(2)
|
Includes options to purchase 500,000 shares of our common stock at $1.60 per share, options to
purchase 62,500 shares of our common stock at $1.32 per share, options to purchase 333,334 shares of our common stock at $0.92
per share, options to purchase 62,500 shares of our common stock at $5.04 per share, and options to purchase 500,000 shares of
our common stock at $3.28 per share that have vested or are vesting within 60 days. Excludes options to purchase 62,500 shares
of our common stock at $1.32 per share, options to purchase 166,666 shares of our common stock at $0.92 per share, options to purchase
125,000 shares of our common stock at $5.04 per share, options to purchase 379,625 shares of our common stock at $6.26 per share
and options to purchase 861,429 shares of our common stock at $7.06 per share that do not vest within 60 days.
|
|
(3)
|
Includes options to purchase 33,334 shares of our common stock at $0.92 per share and options to
purchase 100,000 shares of our common stock at $3.28 per share that have vested or are vesting within 60 days. Excludes options
to purchase 16,666 shares of our common stock at $0.92 per share that do not vest within 60 days.
|
|
(4)
|
Includes options to purchase 25,000 shares of our common stock at $1.20 per share, options
to purchase 33,334 shares of our common stock at $0.92 per share, and options to purchase 100,000 shares of our common stock at
$3.28 per share that have vested or are vesting within 60 days. Excludes options to purchase 12,500 shares of our common stock
at $1.20 per share and options to purchase 16,666 shares of our common stock at $0.92 per share that are not vesting within 60
days.
|
|
(5)
|
Includes options to purchase 25,000 shares of our common stock at $1.20 per share, options
to purchase 33,334 shares of our common stock at $0.92 per share, options to purchase 1,500 shares of our common stock at $1.80
per share, options to purchase 1,500 shares of our common stock at $5.64 per share, options to purchase 1,500 shares of our common
stock at $5.47 per share, options to purchase 1,500 shares of our common stock at $4.05, options to purchase 1,500 shares of our
common stock at $6.11 per share, and options to purchase 100,000 shares of our common stock at $3.28 per share that have vested
or are vesting within 60 days. Excludes options to purchase 12,500 shares of our common stock at $1.20 per share and options to
purchase 16,666 shares of our common stock at $0.92 per share that are not vesting within 60 days.
|
|
(6)
|
Includes options to purchase 16,667 shares of our common stock at $1.68 per share and options to
purchase 100,000 shares of our common stock at $3.28 per share that have vested or are vesting within 60 days. Excludes options
to purchase 33,333 shares of our common stock at $1.68 per share that do not vest within 60 days.
|
|
(7)
|
Includes options to purchase 10,416 shares of our common stock at $5.68 per share and options to
purchase 106,696 shares of our common stock at $3.28 per share that have vested or are vesting within 60 days. Excludes options
to purchase 14,583 shares of our common stock at $5.68 per share that do not vest within 60 days.
|
Change in Control
We are unaware of any contract or other arrangement
the operation of which may at a subsequent date result in a change of control of our Company.
ITEM 13. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions with related persons
Our Code of Business
Conduct and Audit Committee Charter set forth our policies and procedures for the review and approval of transactions with related
persons, including transactions that would be required to be disclosed in this Annual Report on Form 10-K in accordance with SEC
rules.
In circumstances where
one of our directors or executive officers, or a family member, has a direct or indirect material interest in a transaction with
the Company, our Corporate Governance Committee must review and approve all such proposed transactions. In determining whether
to approve or ratify a transaction with a related person, among the factors the Audit Committee may consider (as applicable) are:
the business purpose for entering into the transaction, the size and terms of the transaction, the availability of alternative
sources of comparable products or services, whether the transaction could impair the judgment of the related person in performing
his or her duties and whether the transaction would be consistent with NASDAQ’s requirements for independent directors, and
any other factors the Audit Committee deems relevant.
There have been no other transactions, since
October 1, 2015, or currently proposed transactions, in which we were or are to be a participant and the amount involved exceeds
the lesser of $120,000, and in which any of the following persons had or will have a direct or indirect material interest.
|
i.
|
any director or executive officer of our company;
|
|
ii.
|
any beneficial owner of shares carrying more than 5% of the voting rights attached to our outstanding
shares of common stock; and
|
|
iii.
|
any member of the immediate family (including spouse, parents, children, siblings and in-laws)
of any of the foregoing persons.
|
Compensation of Named Executive Officers
and Directors
For information regarding compensation of named
executive officers and directors, please see “Item 11. Executive Compensation.”
Director Independence
We deem that Christopher Missling, PhD is not
independent as that term is defined by NASDAQ 5605(a)(2) because Mr. Missling serves as our President, Chief Executive Officer,
and Secretary.
We deem that Bernd Metzner, Elliot Favus, Athanasios
Skarpelos and Steffen Thomas are independent as that term is defined by NASDAQ 5605(a)(2).
ITEM 14. PRINCIPAL
ACCOUNTING FEES AND SERVICES
Fees Paid to Our Independent Registered
Public Accounting Firm
The following table sets forth the aggregate
fees billed or expected to be billed to our company for professional services rendered by our independent registered public accounting
firm, for the fiscal years ended September 30, 2016, 2015 and 2014:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Audit Fees
|
|
$
|
197,942
|
|
|
$
|
120,848
|
|
|
$
|
115,125
|
|
Audit Related Fees
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Tax Fees
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
All Other Fees
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total Fees
|
|
$
|
197,942
|
|
|
$
|
120,848
|
|
|
$
|
115,125
|
|
Audit Fees
. Consist of fees billed for
professional services rendered for the audits of our financial statements, reviews of our interim financial statements included
in quarterly reports, services performed in connection with regular filings with the Securities and Exchange Commission and other
services that are normally provided by our independent registered public accounting firm for the fiscal years ended September 30,
2016, 2015 and 2014, in connection with statutory and regulatory filings or engagements.
Policy on Pre-Approval by Audit Committee
of Services Performed by Independent Registered Public Accounting Firm
Our Audit Committee pre-approves all services
provided by our independent registered public accounting firm. All of the above services and fees were reviewed and approved by
our Audit Committee and board of directors before the respective services were rendered.
Our Audit Committee and board of directors
has considered the nature and amount of fees billed or expected to be billed by BDO USA, LLP and believes that the provision of
services for activities unrelated to the audit was compatible with maintaining BDO USA, LLP’s independence.
Notes to the Consolidated Financial
Statements
September 30, 2016 – 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.
Reverse
Stock Split
Effective
October 7, 2015, the Company effected a reverse stock split on the basis of 1:4. As such, the Company’s authorized capital
was decreased from 400,000,000 shares of common stock, par value $0.001 to 100,000,000 shares of common stock, par value $0.001
and all shares of common stock issued and outstanding were decreased on the basis of one new share for each four old shares. These
condensed consolidated financial statements give retroactive effect to such reverse split and all share and per share amounts
have been adjusted accordingly.
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 subsidiary, Anavex Australia
Pty Limited, a company incorporated under the laws of Australia. All inter-company transactions and balances have been eliminated.
Equipment
is recorded at cost and is depreciated at 33% per annum on the straight-line basis.
Anavex Life Sciences Corp.
Notes to the Consolidated Financial
Statements
September 30, 2016 – Page
2
|
Note 2
|
Summary of Significant
Accounting Policies
– (continued)
|
The
carrying value of the Company’s financial instruments, consisting of cash and accounts payable and accrued liabilities approximate
their fair value due to the short-term maturity of such instruments. Based on borrowing rates currently available to the Company
for similar terms and based on the short term duration of the debt instruments, the carrying value of the promissory notes payable
approximate their fair value. 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.
|
e)
|
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.
|
f)
|
Research
and Development Expenses
|
Research
and developments 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, 2016 – Page
3
|
Note 2
|
Summary of Significant
Accounting Policies
– (continued)
|
|
f)
|
Research
and Development Expenses – (continued)
|
The
Company is eligible to obtain a research and development tax credit from the Australian Tax Authority (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. Research and development incentive
income is recognized when eligible research and development activities have been undertaken and we have completed our assessment
of whether such activities meet the relevant qualifying criteria.
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, 2016 – Page
4
|
Note 2
|
Summary of Significant
Accounting Policies
– (cont’d)
|
|
i)
|
Basic
and Diluted Loss per Share
|
The
basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of
common shares outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator
is increased to include the number of additional common shares that would have been outstanding if the potential common shares
had been issued and if the additional common shares were dilutive.
For
the year ended September 30, 2016, loss per share excludes 6,008,309 (2015 – 6,101,534) potentially dilutive common shares
related to outstanding options, warrants, and convertible debentures as their effect was anti-dilutive.
|
j)
|
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.
Anavex Life Sciences Corp.
Notes to the Consolidated Financial
Statements
September 30, 2016 – Page
5
|
Note 2
|
Summary of Significant
Accounting Policies
– (cont’d)
|
|
k)
|
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 accounts payable and accrued liabilities approximate their fair values due to the short term maturity of those instruments.
Based on borrowing rates currently available to the Company under similar terms, the book value of promissory notes payable approximates
their fair values. The Company’s promissory notes payable are based on Level 2 inputs in the ASC 820 fair value hierarchy.
At September 30, 2016 and 2015, the
Company did not have any Level 3 assets or liabilities.
Certain
assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair
value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is
evidence of impairment). There were no assets or liabilities measured at fair value on a nonrecurring basis during the
periods ended September 30, 2016 and 2015.
Anavex Life Sciences Corp.
Notes to the Consolidated Financial
Statements
September 30, 2016 – Page
6
|
Note 2
|
Summary of Significant
Accounting Policies
– (cont’d)
|
|
l)
|
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.
Anavex Life Sciences Corp.
Notes to the Consolidated Financial
Statements
September 30, 2016 – Page
7
|
Note 2
|
Summary of Significant
Accounting Policies
– (cont’d)
|
|
m)
|
Recent
Accounting Pronouncements
|
Recent
Accounting Pronouncements Not Yet Adopted
In
June 2014, the Financial Accounting Standards Board (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 amendments in this ASU are effective for annual periods and interim
periods within those annual periods beginning after December 15, 2015. This standard is effective for the Company beginning on
October 1, 2016. The adoption of this standard is not expected to have a material impact for any period presented.
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 will explicitly require management to assess an entity’s ability to continue
as a going concern, and to provide related footnote disclosure in certain circumstances. The new standard will be effective for
all entities in the first annual period ending after December 15, 2016. The Company is currently evaluating the impact this guidance
will have on its financial condition, results of operations and cash flows.
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.
In
April 2015, the 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. For public business
entities, the final guidance will be effective for fiscal years beginning after December 15, 2015, however, early adoption (including
in interim periods) is permitted. Upon adoption, an entity must apply the new guidance retrospectively to all prior periods presented
in the financial statements. An entity is also required in the year of adoption to provide certain disclosures about the change
in accounting principle, including the nature of and reason for the change, the transition method, a description of the prior-period
information that has been retrospectively adjusted and the effect of the change on the financial statement line items (that is,
debt issuance cost asset and the debt liability). The adoption of this standard is not expected to have a material impact for any
period presented.
Anavex Life Sciences Corp.
Notes to the Consolidated Financial
Statements
September 30, 2016 – Page
8
|
Note 2
|
Summary of Significant
Accounting Policies
– (cont’d)
|
|
m)
|
Recent
Accounting Pronouncements
– (cont’d)
|
Recent
Accounting Pronouncements Not Yet Adopted
– (cont’d)
In
November 2015, 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.
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, 2016 – Page
9
|
Note 3
|
Promissory Notes Payable
|
|
|
2016
|
|
|
2015
|
|
Promissory note dated January 9, 2013 with a principal balance of CDN$86,677, bearing interest at 12% per annum, secured by all the present and future assets of the Company; due on demand (a)
|
|
$
|
-
|
|
|
$
|
64,630
|
|
|
|
|
|
|
|
|
|
|
Promissory note dated January 9, 2013 with a principal balance of CDN$27,639, bearing interest at 12% per annum, secured by all the present and future assets of the Company; due on demand (b)
|
|
|
-
|
|
|
|
20,608
|
|
|
|
$
|
-
|
|
|
$
|
85,238
|
|
|
a)
|
During the year ended September
30, 2013, the Company issued a promissory note in the amount of $64,630 (CDN$86,677) to the former President, Secretary, Treasurer,
CFO and director of the Company (the “President”) in exchange for unpaid consulting fees owing to the President. The
note was bearing interest at 12% per annum and was due June 30, 2013.
|
|
b)
|
During
the year ended September 30, 2013, the Company issued a promissory note in the amount
of $20,608 (CDN$27,639) to a former director of the Company (the “Director”)
in exchange for unpaid consulting fees owing to the Director. The note was bearing interest
at 12% per annum and was due June 30, 2013.
|
The
Notes were secured by a right to delay the transfer of any or all of the Company’s assets until the obligations of the Notes
were satisfied, including a restriction on the transfer of cash by the Company and a security interest over the intellectual property
of the Company.
During
the year ended September 30, 2016, the Company settled the remaining principal and interest owed under the Notes of $95,964 (CDN$124,237)
with cash payments totaling $34,759 (CDN$45,000) to the former officer and director, resulting in a gain on settlement of debt
of $61,205 (CDN$79,237).
Anavex Life Sciences Corp.
Notes to the Consolidated Financial
Statements
September 30, 2016 – Page
10
|
Note 4
|
Deferred Grant Income
|
During
the year ended September 30, 2015, the Company was awarded grant funding in the amount of $286,455, of which the Company received
$143,222 during the year ended September 30, 2016 (2015 - $71,614) and the remainder will be received in equal semi-annual instalments
over the remainder of the commitment through January 2017. 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 Parkinsons disease.
The grant
income was deferred and is being amortized as an increase to other income over a two-year period as the related research and development
expenditures are incurred. During the year ended September 30, 2016, the Company recognized $141,195 (2015: $0, 2014: $0) of this
grant on its statement of operations within grant income.
During
the year ended September 30, 2016, the Company recognized other grant income of $571,093 in respect of a research and development
incentive program offered by the Australian government. This grant income is included on its statement of operations within grant
income.
|
Note 5
|
Senior Convertible Debentures
|
|
|
2016
|
|
|
2015
|
|
Senior Convertible Debentures, non-interest bearing, unsecured, due March 18, 2044
|
|
$
|
-
|
|
|
$
|
6,162
|
|
Less: Debt Discount
|
|
|
-
|
|
|
|
(5,830
|
)
|
Total carrying value
|
|
|
-
|
|
|
|
332
|
|
Less: current portion
|
|
|
-
|
|
|
|
-
|
|
Long term liability
|
|
$
|
-
|
|
|
$
|
332
|
|
On March
13, 2014, the Company entered into a Securities Purchase Agreement with certain purchasers, pursuant to which the Company issued
senior convertible debentures in the aggregate principal amount of $10,000,000 (the “Debentures”).
The
Debentures were unsecured, non-interest bearing and were due on March 18, 2044. The Debentures were originally convertible, in
whole or in part, at the option of the holder into common shares of the Company at $1.20 per share (“the Conversion Price”).
The Conversion Price of the debenture will be adjusted in the event of common stock dividend, split or consolidation. The Conversion
Price was later amended to $1.00 per share.
At September
30, 2016, all of the principal and amount of the Debentures had been converted to shares of common stock and, as a result, no
amounts were owing under the terms of the Debentures (2015: $6,162 in principal amount of these Debentures remained outstanding).
During
the year ended September 30, 2016, the Company issued an aggregate of 6,162 shares of common stock based on a conversion price
of $1.00 per share pursuant to the conversion of $6,162 in outstanding principal amounts due under the Debentures.
The
Company recorded a debt discount in connection with the issuance and amendment of the Debentures during the year ended September
30, 2014, which was being amortized using the effective interest method over the term of the Debentures. During the year ended
September 30, 2016, the Company recorded $5,830 (2015: $4,515,987, 2014: $1,917,615) in respect of the amortization of this discount.
Anavex Life Sciences Corp.
Notes to the Consolidated Financial
Statements
September 30, 2016 – Page
11
Effective
October 7, 2015, the Company effected a reverse stock split on the basis of 1:4. As such, the Company’s authorized capital
was decreased from 400,000,000 shares of common stock, par value $0.001 to 100,000,000 shares of common stock, par value $0.001
and all shares of common stock issued and outstanding were decreased on the basis of one new share for each four old shares. These
condensed consolidated financial statements give retroactive effect to such reverse split and all share and per share amounts
have been adjusted accordingly.
Authorized
100,000,000
shares of common stock.
Equity
Transactions
Year
ended September 30, 2016
During the year ended September
30, 2016, the Company issued 167,415 shares of common stock pursuant to the application of an incorrect conversion price for conversion
notices received in respect of the Debentures, during the year ended September 30, 2015.
During
the year ended September 30, 2016, the Company issued 1,000,000 shares of common stock to a director and officer of the Company
pursuant to the terms of a 2013 employment agreement with that director and officer.
Year
ended September 30, 2015
On October
22, 2014, the Company entered into a Securities Purchase Agreement (the “10/14 Purchase Agreement”) with one investor
for an equity investment of $500,000 at a price of $1.00 per unit. Pursuant to the terms of the 10/14 Purchase Agreement, the
Company agreed to sell, and the Investor agreed to purchase, 500,000 shares of common stock. In addition, the Company agreed to
issue an aggregate of 1,000,000 stock purchase warrants, of which 500,000 were exercisable at $1.20 per share and 500,000 were
exercisable at $1.68 per share, each for a period of five years, subject to normal adjustment for stock splits, combinations,
and reclassification events.
The
warrants issued were required to be accounted for as derivative liabilities at their date of issuance, pursuant to the guidance
of ASC 815. Consequently, the Company allocated the proceeds from the issuance of the units first to the warrants, at their fair
value of $527,000 with an amount of $2,000 being allocated to equity at par value on the date of the transaction. The $29,000
excess of the sum of fair value and par value over the proceeds received of $500,000 was recorded as a component of financing
related charges and adjustments on the statement of operations during the year ended September 30, 2015. The fair value of the
warrants was determined based on the binomial option pricing model using the following weighted average assumptions: risk-free
interest rate: 1.46%, expected life: 5 years, expected volatility: 100.21%, dividend yield: 0%.
The
Company paid a finder’s fee of $50,000 in connection with the 10/14 Purchase Agreement. This amount was expensed as a component
of financing related charges and adjustments during the year ended September 30, 2015.
Anavex Life Sciences Corp.
Notes to the Consolidated Financial
Statements
September 30, 2016 – Page
12
Equity
Transactions – (cont’d)
On March 16, 2015, pursuant
to an anti-dilution provision contained in private placement subscription agreements dated May 31, 2012, the Company adjusted
the price of 658,612 shares of common stock from $2.00 to $1.00 per share. Consequently, the Company issued 658,612 shares of
common stock for no additional consideration.
Year
ended September 30, 2014
On
February 24, 2014, the Company issued 30,000 units at $2.00 per unit for gross proceeds of $60,000, which was received during
the year ended September 30, 2013. Each unit consisted of one common share and one common share purchase warrant entitling the
holder to purchase additional common shares at $4.00 per share for a period of five years from the date of issuance.
On
February 24, 2014, the Company issued 125,000 units at $1.20 per unit for gross proceeds of $150,000. Each unit consisted of one
common share and one common share purchase warrant entitling the holder to purchase additional common shares at $3.00 per share
for a period of five years from the date of issuance.
On
February 28, 2014, the Company received $30,000 in share subscriptions in respect of the issuance of 25,000 units at $1.20 per
unit. Each unit consisted of one common share and one common share purchase warrant entitling the holder to purchase additional
common shares at $3.00 per share for a period of five years from the date of issuance. These shares were issued during the year
ended September 30, 2015.
|
Note 7
|
Lincoln Park Purchase Agreement
|
2013
Purchase Agreement
On
July 5, 2013, the Company entered into a $10,000,000 purchase agreement (the “2013 Purchase Agreement”) with Lincoln
Park Capital Fund, LLC, (“Lincoln Park”) an Illinois limited liability company (the “Financing”) pursuant
to which the Company sold and issued to Lincoln Park, and Lincoln Park purchased $10,000,000 in value of its shares of common
stock from time to time over a 25-month period.
During
the year ended September 30, 2016, the Company issued to Lincoln Park an aggregate of 296,104 (2015: 1,852,144, 2014: 100,628)
shares of common stock under the 2013 Purchase Agreement, including 290,523 (2015: 1,825,000, 2014: 100,000) shares of common
stock for an aggregate purchase price of $1,684,560 (2015: $8,127,265, 2014: $188,170) and 5,581 (2015: 27,144, 2014: 628) commitment
shares. At September 30, 2016, all remaining purchase amounts available under the 2013 Purchase Agreement have been utilized.
As such, no further shares will be sold under the 2013 Purchase Agreement.
Anavex Life Sciences Corp.
Notes to the Consolidated Financial
Statements
September 30, 2016 – Page
13
|
Note 7
|
Lincoln Park Purchase Agreement
|
2015
Purchase Agreement
On
October 21, 2015, the Company entered into a $50,000,000 purchase agreement (the “2015 Purchase Agreement”) with 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 2015 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 SEC covering the shares of the Company’s common stock that may be issued to Lincoln Park under the 2015
Purchase Agreement.
The
Company may direct Lincoln Park, at its sole discretion, and subject to certain conditions set forth in the 2015 Purchase Agreement,
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 an initial commitment fee. Under the terms of the 2015 Purchase Agreement, the Company shall 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, 2016, the Company issued to Lincoln Park an aggregate of 452,437 shares of common stock under the
2015 Purchase Agreement, including 450,000 shares of common stock for an aggregate purchase price of $1,357,800 and 2,437 commitment
shares.
|
Note 8
|
Related Party Transactions
|
As
at September 30, 2016, included in accounts payable and accrued liabilities was $59,264 (2015: $33,000) 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. See also Note 3.
|
Note 9
|
Commitments and Contingencies
|
On
September 30, 2015, the Company entered into a sublease agreement commencing October 1, 2015 and expiring August 31, 2016. On
August 22, 2016 the sublease agreement was amended and extended to March 31, 2019. The Company is committed to lease payments
as follows:
Fiscal year ending September 30,
|
|
Amount
|
|
2017
|
|
$
|
112,189
|
|
2018
|
|
|
112,189
|
|
2019
|
|
|
56,094
|
|
|
|
$
|
280,472
|
|
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
.
Anavex Life Sciences Corp.
Notes to the Consolidated Financial
Statements
September 30, 2016 – Page
14
|
Note 9
|
Commitments and Contingencies
– (cont’d)
|
|
c)
|
Share
Purchase Warrants
|
A summary
of the Company’s share purchase warrants outstanding is presented below:
|
|
Number of Shares
|
|
|
Weighted
Average
Exercise Price
|
|
Balance, October 1, 2014
|
|
|
18,728,910
|
|
|
$
|
1.59
|
|
Expired
|
|
|
(62,500
|
)
|
|
$
|
1.40
|
|
Exercised
|
|
|
(15,468,520
|
)
|
|
$
|
1.43
|
|
Issued
|
|
|
1,075,000
|
|
|
$
|
0.76
|
|
Balance, September 30, 2015
|
|
|
4,272,890
|
|
|
$
|
2.11
|
|
Exercised
|
|
|
(2,463,581
|
)
|
|
$
|
1.67
|
|
Balance, September 30, 2016
|
|
|
1,809,309
|
|
|
$
|
2.70
|
|
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.
At September
30, 2016, the Company had 1,809,309 currently exercisable share purchase warrants outstanding 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.
Anavex Life Sciences Corp.
Notes to the Consolidated Financial
Statements
September 30, 2016 – Page
15
|
Note 9
|
Commitments and Contingencies
– (cont’d)
|
|
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, and the exercise
price of each option shall be at least the fair market value on the grant date; provided, however, that in the event that a grantee
owns more than 10% of the Company’s common stock as of the date of grant, the exercise price of an option granted to such
grantee that is intended to be an incentive stock option shall be not less than 110% of the fair market value on the date of grant.
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 years ended September 30, 2016 and 2015 is presented
below:
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average Grant
Date fair value
|
|
Outstanding at October 1, 2014
|
|
|
792,500
|
|
|
$
|
2.82
|
|
|
|
|
|
Forfeited
|
|
|
(67,500
|
)
|
|
$
|
12.00
|
|
|
|
|
|
Granted
|
|
|
1,097,500
|
|
|
$
|
2.02
|
|
|
$
|
1.66
|
|
Outstanding at September 30, 2015
|
|
|
1,822,500
|
|
|
$
|
2.00
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Granted
|
|
|
2,401,500
|
|
|
$
|
5.22
|
|
|
$
|
4.38
|
|
Expired
|
|
|
(25,000
|
)
|
|
$
|
14.68
|
|
|
|
|
|
Outstanding at September 30, 2016
|
|
|
4,199,000
|
|
|
$
|
3.76
|
|
|
|
|
|
Exercisable at September 30, 2016
|
|
|
2,290,716
|
|
|
$
|
2.41
|
|
|
|
|
|
Exercisable at September 30, 2015
|
|
|
825,002
|
|
|
$
|
1.78
|
|
|
|
|
|
Anavex Life Sciences Corp.
Notes to the Consolidated Financial
Statements
September 30, 2016 – Page
16
|
Note 9
|
Commitments and Contingencies
– (cont’d)
|
|
d)
|
Stock–based
Compensation Plan – (cont’d)
|
At September
30, 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
|
|
|
1,015,000
|
|
|
|
6.76
|
|
|
75,000
|
|
|
|
50,000
|
|
|
$
|
1.20
|
|
|
May 7, 2024
|
|
|
182,250
|
|
|
|
7.60
|
|
|
125,000
|
|
|
|
62,500
|
|
|
$
|
1.32
|
|
|
May 8, 2024
|
|
|
288,750
|
|
|
|
7.60
|
|
|
718,750
|
|
|
|
479,170
|
|
|
$
|
0.92
|
|
|
April 2, 2025
|
|
|
1,947,813
|
|
|
|
8.50
|
|
|
50,000
|
|
|
|
20,834
|
|
|
$
|
1.44
|
|
|
June 8, 2025
|
|
|
109,500
|
|
|
|
8.69
|
|
|
50,000
|
|
|
|
16,667
|
|
|
$
|
1.76
|
|
|
June 15, 2025
|
|
|
93,500
|
|
|
|
8.71
|
|
|
278,750
|
|
|
|
116,146
|
|
|
$
|
5.04
|
|
|
September 18, 2025
|
|
|
-
|
|
|
|
8.97
|
|
|
1,500
|
|
|
|
1,500
|
|
|
$
|
5.64
|
|
|
September 30, 2025
|
|
|
-
|
|
|
|
9.00
|
|
|
31,250
|
|
|
|
10,416
|
|
|
$
|
5.68
|
|
|
October 2, 2025
|
|
|
-
|
|
|
|
9.00
|
|
|
25,000
|
|
|
|
8,333
|
|
|
$
|
8.98
|
|
|
October 16, 2025
|
|
|
-
|
|
|
|
9.04
|
|
|
1,500
|
|
|
|
1,500
|
|
|
$
|
5.57
|
|
|
December 31, 2025
|
|
|
-
|
|
|
|
9.25
|
|
|
1,500
|
|
|
|
-
|
|
|
$
|
4.90
|
|
|
March 31, 2026
|
|
|
-
|
|
|
|
9.50
|
|
|
1,500
|
|
|
|
1,500
|
|
|
$
|
5.66
|
|
|
April 27, 2026
|
|
|
-
|
|
|
|
9.57
|
|
|
50,000
|
|
|
|
12,121
|
|
|
$
|
4.09
|
|
|
May 18, 2026
|
|
|
-
|
|
|
|
9.63
|
|
|
1,500
|
|
|
|
-
|
|
|
$
|
6.11
|
|
|
June 30, 2026
|
|
|
-
|
|
|
|
9.75
|
|
|
379,625
|
|
|
|
-
|
|
|
$
|
6.26
|
|
|
July 5, 2026
|
|
|
-
|
|
|
|
9.76
|
|
|
861,429
|
|
|
|
-
|
|
|
$
|
7.06
|
|
|
July 18, 2026
|
|
|
-
|
|
|
|
9.80
|
|
|
40,000
|
|
|
|
3,333
|
|
|
$
|
3.06
|
|
|
September 7, 2026
|
|
|
22,800
|
|
|
|
9.94
|
|
|
1,006,696
|
|
|
|
1,006,696
|
|
|
$
|
3.28
|
|
|
September 22, 2026
|
|
|
352,344
|
|
|
|
9.98
|
|
|
4,199,000
|
|
|
|
2,290,716
|
|
|
|
|
|
|
|
|
$
|
4,011,956
|
|
|
|
|
|
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, 2016.
Anavex Life Sciences Corp.
Notes to the Consolidated Financial
Statements
September 30, 2016 – Page
17
|
Note 9
|
Commitments and Contingencies
– (cont’d)
|
|
d)
|
Stock–based
Compensation Plan – (cont’d)
|
The
Company recognized stock based compensation expense of $4,452,267 during the year ended September 30, 2016 (2015: $413,979; 2014:
$27,925) 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:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
General and administrative
|
|
$
|
2,903,220
|
|
|
$
|
413,979
|
|
|
$
|
27,925
|
|
Research and development
|
|
|
1,549,047
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
4,452,267
|
|
|
$
|
413,979
|
|
|
$
|
27,925
|
|
An amount
of $7,741,573 in stock based compensation is expected to be recorded over the remaining term of such options through December
31, 2018.
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
|
|
|
2014
|
|
Risk-free interest rate
|
|
|
1.28
|
%
|
|
|
1.63
|
%
|
|
|
2.27
|
%
|
Expected life of options (years)
|
|
|
5.88
|
|
|
|
6.30
|
|
|
|
6.81
|
|
Annualized volatility
|
|
|
114.75
|
%
|
|
|
98.41
|
|
|
|
89.19
|
|
Dividend rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The tax effects of the temporary
differences that give rise to the Company’s estimated deferred tax assets and liabilities are as follows:
|
|
2016
|
|
|
2015
|
|
Assumed Tax rate
|
|
34%
|
|
|
34%
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
11,223,000
|
|
|
$
|
9,177,000
|
|
Research and development tax credits
|
|
|
1,036,000
|
|
|
|
794,000
|
|
Foreign exchange
|
|
|
(25,000
|
)
|
|
|
(10,000
|
)
|
Unpaid charges
|
|
|
152,000
|
|
|
|
832,000
|
|
Intangible asset costs
|
|
|
57,000
|
|
|
|
64,000
|
|
Stock-based compensation
|
|
|
2,004,000
|
|
|
|
581,000
|
|
Valuation allowance for deferred tax assets
|
|
|
(14,447,000
|
)
|
|
|
(11,438,000
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
Anavex Life Sciences Corp.
Notes to the Consolidated Financial
Statements
September 30, 2016 – Page
18
|
Note 10
|
Income Taxes
–
(cont’d)
|
The provision for income
taxes differ from the amount established using the statutory income tax rate as follows:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Income benefit at statutory rate of 34%
|
|
$
|
(5,010,000
|
)
|
|
$
|
(4,117,000
|
)
|
|
$
|
(3,865,000
|
)
|
Foreign income taxed at other rates
|
|
|
132,000
|
|
|
|
80,000
|
|
|
|
13,000
|
|
Permanent differences
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
202,000
|
|
Debt extinguishment
|
|
|
-
|
|
|
|
(29,000
|
)
|
|
|
2,736,000
|
|
Mark-to-market deriative liability adjustment
|
|
|
-
|
|
|
|
193,000
|
|
|
|
(994,000
|
)
|
Non-deductible finance and accretion expenses
|
|
|
5,000
|
|
|
|
1,511,000
|
|
|
|
808,000
|
|
Non-deductible compensation costs
|
|
|
738,000
|
|
|
|
|
|
|
|
|
|
Other permanent differences
|
|
|
-
|
|
|
|
(5,000
|
)
|
|
|
(16,000
|
)
|
Research and development tax credit
|
|
|
628,000
|
|
|
|
502,000
|
|
|
|
(26,000
|
)
|
Expiry of foreign net operating loss carryforwards
|
|
|
333,000
|
|
|
|
-
|
|
|
|
-
|
|
Adjustment and true up to prior years' tax provision
|
|
|
176,000
|
|
|
|
100,000
|
|
|
|
14,000
|
|
Effect of foreign exchange and other
|
|
|
(11,000
|
)
|
|
|
-
|
|
|
|
-
|
|
Change in valuation allowance related to current year provision
|
|
|
3,009,000
|
|
|
|
1,765,000
|
|
|
|
2,528,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Recovery
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,400,000
|
|
As
of September 30, 2016, the Company had net operating loss carry-forwards of approximately $33,000,000 (2015: $25,000,000) in the
United States and approximately $250,000 (2015: $Nil) in Australia, 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 both September 30, 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 2008.
The Company’s net operating loss
carryforwards of approximately $33,000,000
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, 2016 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, 2016 – Page
19
|
Note 11
|
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;
|
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.
|
During
the year ended September 30, 2014;
|
i)
|
the Company
reclassified an amount of $221,000 into equity upon modification of the terms of certain
derivative instruments.
|
|
ii)
|
the
Company issued 1,594,607 shares of common stock of the Company pursuant to the conversion
of $1,913,528 face value of convertible debentures at $1.20 per share;
|
|
iii)
|
the
Company issued 640,428 shares of common stock of the Company at a fair value of $551,120
pursuant to the conversion of convertible debentures at a conversion price of $1.00 per
share.
|
|
Note 12
|
Subsequent Events
|
Subsequent to September 30, 2016, the Company received proceeds of $11,039,022 through the issuance of
3,442,668 shares of common stock at various prices