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EX-32.1 - SECTION 906 CERTIFICATION - ANAVEX LIFE SCIENCES CORP.exhibit32-1.htm
EX-31.2 - SECTION 302 CERTIFICATION - ANAVEX LIFE SCIENCES CORP.exhibit31-2.htm
EX-31.1 - SECTION 302 CERTIFICATION - ANAVEX LIFE SCIENCES CORP.exhibit31-1.htm
EX-32.2 - SECTION 906 CERTIFICATION - ANAVEX LIFE SCIENCES CORP.exhibit32-2.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: December 31, 2010

or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____to _____

Commission File Number: 000-51652

ANAVEX LIFE SCIENCES CORP.
(Exact name of registrant as specified in its charter)

Nevada 20-8365999
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)

50 Harrison Street, Suite 315A, Hoboken, NJ 07030
(Address of principal executive offices) (Zip Code)

1-800-689-3939
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has 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.
Yes [X] No [ ]

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). [ ] Yes [ ] No

Indicate by check mark 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.

Large accelerated filer [ ]   Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company) Smaller reporting company [X]


ii

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 25,188,240 shares of common stock outstanding as of February 14, 2011.


iii

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION 1
Item 1. Financial Statements 1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 2
Item 3. Quantitative and Qualitative Disclosures about Market Risks. 8
Item 4T. Controls and Procedures. 9
PART II - OTHER INFORMATION 9
Item 1. Legal Proceedings. 9
Item 1A. Risk Factors 10
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 19
Item 3. Defaults upon Senior Securities. 19
Item 4. (Removed and Reserved) 19
Item 5. Other Information 19
Item 6. Exhibits. 19
SIGNATURES 23


1

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.


ANAVEX LIFE SCIENCES CORP.

(A Development Stage Company)

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010

(Stated in US Dollars)



ANAVEX LIFE SCIENCES CORP.
(A Development Stage Company)
INTERIM CONSOLIDATED BALANCE SHEETS
December 31, 2010 and September 30, 2010
(Stated in US Dollars)
(Unaudited)

    December 31,     September 30,  
    2010     2010  
ASSETS            
             
Current            
   Cash $  423,783   $  264,669  
   VAT receivable   -     37,820  
   Prepaid expenses   61,905     23,269  
    485,688     325,758  
             
Equipment   3,601     4,091  
  $  489,289   $  329,849  
             
LIABILITIES            
             
Current            
   Accounts payable and accrued liabilities - Note 5 $  382,937   $  797,763  
   Current portion of promissory notes payable – Note 3   200,000     2,492,308  
    582,937     3,290,071  
             
CAPITAL DEFICIT            
             
Capital stock – Note 4            
   Authorized:
          150,000,000 common shares, par value $0.001 per share
 

   

 
   Issued and outstanding:
          25,127,226 common shares (September 30, 2010: 23,516,952)
 
25,128
   
23,517
 
Shares to be issued - Note 6   60,000     -  
Additional paid-in capital   23,604,049     18,912,335  
Deficit accumulated during the development stage   (23,782,825 )   (21,896,074 )
             
    (93,648 )   (2,960,222 )
  $  489,289   $  329,849  

Nature of Operations and Ability to Continue as a Going Concern – Note 1
Commitments – Note 6

SEE ACCOMPANYING NOTES



ANAVEX LIFE SCIENCES CORP.
(A Development Stage Company)
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
for the three months ended December 31, 2010 and 2009 and
for the period from January 23, 2004 (Date of Inception) to December 31, 2010
(Stated in US Dollars)
(Unaudited)

                January 23,  
                2004 (Date of
    Three months ended     Inception) to  
    December 31,     December 31,  
    2010     2009     2010  
                   
Expenses                  
Accounting and audit fees $  48,948   $  21,859   $  413,076  
Amortization and depreciation   491     190     2,031  
Bank charges and interest   2,043     1,715     29,686  
Consulting fees – Note 5   652,201     473,184     8,483,091  
Investor relations   54,535     54,511     644,299  
Legal fees   19,747     27,908     406,236  
Management fees   -     -     14,625  
Office and miscellaneous   6,469     3,691     114,938  
Insurance   4,815     -     4,815  
Registration and filing fees   9,062     6,133     77,788  
Rent and administration   41,819     -     203,379  
Research and development   497,290     211,479     7,805,100  
Travel   31,725     81,037     523,784  
Website design and maintenance   -     -     28,417  
                   
Loss before other income (expenses)   (1,369,145 )   (881,707 )   (18,751,265 )
Other income (expenses)                  
Interest   (7,956 )   (22,802 )   (405,390 )
Accretion of debt discount   -     (220,410 )   (2,007,161 )
Change in fair value of derivative liability   -     649,038     (630,774 )
Debt conversion expense - Note 3   (504,160 )   -     (504,160 )
Loss on settlement of accounts payable   -     -     (444,000 )
Loss on extinguishment of debt   -     -     (487,469 )
Foreign exchange gain (loss)   (5,490 )   8,270     (1,802 )
                   
Net loss for the period $  (1,886,751 ) $  (467,611 ) $  (23,232,021 )
                   
Basic and diluted loss per share   ($0.08 )   ($0.02 )      
                   
Weighted average number of shares outstanding   24,267,082     21,007,630      

SEE ACCOMPANYING NOTES



ANAVEX LIFE SCIENCES CORP.
(A Development Stage Company)
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended December 31, 2010 and 2009 and
for the period from January 23, 2004 (Date of Inception) to December 31, 2010
(Stated in US Dollars)
(Unaudited)

                January 23,  
                2004 (Date of
    Three months ended     Inception) to  
    December 31,     December 31,  
    2010     2009     2010  
Cash Flows used in Operating Activities                  
   Net loss for the period $  (1,886,751 ) $  (467,611 ) $  (23,232,021 )
   Adjustments to reconcile net loss to net cash used in operations:                  
         Amortization   491     190     2,031  
         Accretion of debt discount   -     220,410     2,007,161  
         Stock based compensation   187,750     131,719     3,454,927  
         Amortization of deferred financing costs   -     5,826     55,777  
         Change in fair value of derivative liability   -     (649,038 )   630,774  
         Consulting expense recorded in exchange for shares to be issued   -     -     236,337  
         Common shares issued for consulting expenses   -     -     390,510  
         Promissory note issued for severance   -     -     71,500  
         Common shares issued for severance   -     -     340,600  
         Common shares issued for research and development expenses   -     -     800,000  
         Management fees contributed   -     -     14,625  
         Debt conversion expense   504,160           504,160  
         Loss on settlement of accounts payable   -     -     444,000  
         Loss on extinguishment of debt   -     -     487,469  
         Rent contributed   -     -     3,750  
   Changes in non-cash working capital balances related to operations:                  
         VAT receivable   37,820     -     -  
         Prepaid expenses   (38,636 )   3     (61,905 )
         Accounts payable and accrued liabilities   111,205     (21,459 )   2,473,408  
Net cash used in operating activities   (1,083,961 )   (779,960 )   (11,376,897 )
                   
Cash Flows provided by Financing Activities                  
   Issuance of common shares   1,183,075     300,000     7,412,146  
   Share subscriptions received   60,000     -     60,000  
   Proceeds from promissory notes   -     150,000     4,067,500  
   Repayment of promissory notes   -     -     (100,000 )
   Due to related parties   -     -     33,665  
   Shareholder advances   -     -     333,000  
Net cash provided by financing activities   1,243,075     450,000     11,806,311  
                   
Cash Flows used in Investing Activities                  
   Acquisition of equipment   -     -     (5,631 )
Net cash used in investing activities   -     -     (5,631 )
                   
Increase (decrease) in cash during the period   159,114     (329,960 )   423,783  
Cash, beginning of period   264,669     350,994     -  
Cash, end of period $  423,783   $  21,034   $  423,783  

Supplemental Cash Flow Information – Note 7

SEE ACCOMPANYING NOTES



ANAVEX LIFE SCIENCES CORP.
(A Development Stage Company)
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN CAPITAL DEFICIT
for the period January 23, 2004 (Date of Inception) to December 31, 2010
(Stated in US Dollars)
(Unaudited)

                            Deficit        
    Common Stock     Accumulated        
                Additional     Common     During the        
                Paid-in     Shares to     Development        
    Shares     Par Value     Capital     be Issued     Stage     Total  
                                     
Capital stock issued for cash on January 23, 2004 - at $0.0033   12,000,000   $  12,000   $  28,000   $  -   $  -   $  40,000  
     Net loss from January 23, 2004 to September 30, 2004   -     -     -     -     (14,395 )   (14,395 )
Balance, September 30, 2004   12,000,000     12,000     28,000     -     (14,395 )   25,605  
     Capital stock issued for cash on December 31, 2004 - at $0.0033   7,200,000     7,200     16,800     -     -     24,000  
     Management fees contributed   -     -     13,000     -     -     13,000  
     Rent contributed   -     -     3,000     -     -     3,000  
     Net loss for the year   -     -     -     -     (91,625 )   (91,625 )
Balance, September 30, 2005   19,200,000     19,200     60,800     -     (106,020 )   (26,020 )
     Management fees contributed   -     -     1,625     -     -     1,625  
     Rent contributed   -     -     750     -     -     750  
     Debt forgiven by directors   -     -     33,666     -     -     33,666  
     Net loss for the year   -     -     -     -     (25,532 )   (25,532 )
Balance, September 30, 2006   19,200,000     19,200     96,841     -     (131,552 )   (15,511 )
     Capital stock issued for research and development services on September 24, 2007 - at $3.60   222,222     222     799,778     -     -     800,000  
     Capital stock issued for settlement of loan payable on September 25, 2007 - at $3.60   92,500     93     332,907     -     -     333,000  
     Net loss for the year   -     -     -     -     (1,579,993 )   (1,579,993 )
Balance, September 30, 2007 – Carried forward   19,514,722   $  19,515   $  1,229,526   $  -   $  (1,711,545 ) $  (462,504 )

SEE ACCOMPANYING NOTES



ANAVEX LIFE SCIENCES CORP.
(A Development Stage Company)
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN CAPITAL DEFICIT
for the period January 23, 2004 (Date of Inception) to December 31, 2010
(Stated in US Dollars)
(Unaudited)

                            Deficit        
    Common Stock     Accumulated        
                Additional     Common     During the        
                Paid-in     Shares to     Development        
    Shares     Par Value     Capital     be Issued     Stage     Total  
                                     
Balance, September 30, 2007 – brought forward   19,514,722   $  19,515   $  1,229,526   $  -   $  (1,711,545 ) $   (462,504 )
     Capital stock issued for cash on December 10, 2007- at $3.50   150,000     150     524,850     -     -     525,000  
     Capital stock issued for consulting services on December 18,2007 - at $3.86   50,000     50     192,950     -     -     193,000  
     Capital stock issued debt settlement of debt on December 18, 2007- at $4.50   10,000     10     44,990     -     -     45,000  
     Stock-based compensation for shares issued at a discount   -     -     65,000     -     -     65,000  
     Capital stock issued for severance on May 15, 2008 - at $5.24   65,000     65     340,535     -     -     340,600  
     Common stock to be issued for consulting services   -     -     -     252,599     -     252,599  
     Capital stock issued for consulting services on August 19, 2008 - at $5.07   25,000     25     126,725     (126,750 )   -     -  
     Capital stock issued for cash on August 19,2008 - at $4.25   142,698     142     606,325     -     -     606,467  
     Stock based compensation   -     -     1,493,937     -     -     1,493,937  
     Net loss for the year   -     -     -     -     (5,351,269 )   (5,351,269 )
Balance, September 30, 2008 - carried forward   19,957,420   $  19,957   $  4,624,838   $  125,849   $  (7,062,814 ) $   (2,292,170 )

SEE ACCOMPANYING NOTES



ANAVEX LIFE SCIENCES CORP.
(A Development Stage Company)
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN CAPITAL DEFICIT
for the period January 23, 2004 (Date of Inception) to December 31, 2010
(Stated in US Dollars)
(Unaudited)

                            Deficit        
    Common Stock     Accumulated        
                Additional     Common     During the        
                Paid-in     Shares to     Development        
    Shares     Par Value     Capital     be Issued     Stage     Total  
                                     
Balance, September 30, 2008 - brought forward   19,957,420   $  19,957   $  4,624,838   $  125,849   $  (7,062,814 ) $  (2,292,170 )
     Stock based compensation   -     -     812,336     -     -     812,336  
     Capital stock issued for consulting services on November 20, 2008 – at $2.63   25,000     25     65,725     (65,750 )   -     -  
     Capital stock issued for consulting services on February 20, 2009 – at $2.50   25,000     25     62,475     (62,500 )   -     -  
     Capital stock issued for cash on March 6, 2009 – at $2.25   89,148     89     200,494     -     -     200,583  
     Capital stock issued for consulting services on March 20, 2009 – at $2.00   2,500     3     4,997     -     -     5,000  
     Capital stock issued for cash on March 20, 2009 – at $2.25   10,800     11     24,289     -     -     24,300  
     Capital stock issued for cash on June 11, 2009 – at $2.25   36,000     36     80,964     -     -     81,000  
     Capital stock issued for services on June 11, 2009 – at $2.25   29,227     29     65,731     -     -     65,760  
     Capital stock issued for cash on June 19, 2009 – at $2.25   495,556     496     1,114,504     -     -     1,115,000  
     Capital stock issued for finders’ fees on June 26, 2009 – at $2.51   22,222     22     55,755     -     -     55,777  
     Shares to be issued for consulting services   -     -     -     236,337     -     236,337  
     Capital stock issued for cash on August 19, 2009 – at $2.25   128,888     129     289,869     -     -     289,998  
     Less: Finders’ fees   -     -     (72,850 )   -     -     (72,850 )
     Beneficial conversion features on convertible debt issuances   -     -     333,056     -     -     333,056  
     Extinguishment of debt   -     -     487,469     -     -     487,469  
     Cancellation of common shares   (75,000 )   (75 )   234,011     (233,936 )   -     -  
     Share subscriptions received   -     -     -     300,000     -     300,000  
     Net loss for the year   -     -     -     -     (5,499,419 )   (5,499,419 )
Balance, September 30, 2009 - carried forward   20,746,761   $  20,747   $  8,383,663   $  300,000   $  (12,562,233 ) $  (3,857,823 )

SEE ACCOMPANYING NOTES



ANAVEX LIFE SCIENCES CORP.
(A Development Stage Company)
INTERIM CONSOLIDATEDSTATEMENT OF CHANGES IN CAPITAL DEFICIT
for the period January 23, 2004 (Date of Inception) to December 31, 2010
(Stated in US Dollars)
(Unaudited)

                            Deficit        
    Common Stock     Accumulated        
                Additional     Common     During the        
                Paid-in     Shares to     Development        
    Shares     Par Value     Capital     be Issued     Stage     Total  
                                     
Balance, September 30, 2009 - brought forward   20,746,761   $  20,747   $  8,383,663   $  300,000   $  (12,562,233 ) $  (3,857,823 )
     Cumulative effect of accounting changes   -     -     (333,056 )   -     (550,804 )   (883,860 )
     Capital stock issued for cash on October 2, 2009 – at $2.25   266,666     267     599,733     (300,000 )   -     300,000  
     Capital stock issued in settlement of promissory note on February 2, 2010 – at $2.02   49,505     49     99,951     -     -     100,000  
     Capital stock issued for cash on April 9, 2010 - at $2.60   92,499     93     240,405     -     -     240,498  
     Capital stock issued in settlement of debt on April 30, 2010 - at $2.85   9,825     9     27,991     -     -     28,000  
     Finders’ fees paid in cash   -     -     (24,050 )   -     -     (24,050 )
     Capital stock issued for cash on June 29, 2010 - at $2.50   941,000     941     2,351,559     -     -     2,352,500  
     Finders’ fees paid in cash   -     -     (206,500 )   -     -     (206,500 )
     Capital stock issued in settlement of debt on July 5, 2010 – at $2.50   400,000     400     999,600     -     -     1,000,000  
     Capital stock issued for cash on September 3, 2010 – at $2.75   163,000     163     448,087     -     -     448,250  
     Capital stock issued for finders’ fees on September 3, 2010 – at $2.75   9,000     9     (9 )   -     -     -  
     Finders’ fees paid in cash   -     -     (15,125 )   -     -     (15,125 )
     Shares issued on conversion of promissory note on September 30, 2010 – at $2.25 – Note 4   328,058     328     737,802     -     -     738,130  
     Shares issued on conversion of promissory note on September 30, 2010 – at $2.35 – Note 4   510,638     511     1,199,489     -     -     1,200,000  
     Reclassification of derivative liability on modification of note terms   -     -     3,144,520     -     -     3,144,520  
     Settlement of accounts payable   -     -     444,000     -     -     444,000  
     Stock-based compensation   -     -     770,055     -     -     770,055  
     Equity component of convertible interest bearing promissory note   -     -     44,220     -     -     44,220  
     Net loss for the year   -     -           -     (8,783,037 )   (8,783,037 )
Balance, September 30, 2010 - carried forward   23,516,952   $  23,517   $  18,912,335   $  -   $  (21,896,074 ) $  (2,960,222 )

SEE ACCOMPANYING NOTES



ANAVEX LIFE SCIENCES CORP.
(A Development Stage Company)
INTERIM CONSOLIDATEDSTATEMENT OF CHANGES IN CAPITAL DEFICIT
for the period January 23, 2004 (Date of Inception) to December 31, 2010
(Stated in US Dollars)
(Unaudited)

                            Deficit        
          Common Stock           Accumulated        
                Additional     Common     During the        
                Paid-in     Shares to     Development        
    Shares     Par Value     Capital     be Issued     Stage     Total  
                                     
Balance, September 30, 2010 - brought forward   23,516,952   $  23,517   $  18,912,335   $  -   $  (21,896,074 ) $  (2,960,222 )
     Capital stock issued for cash on November 18, 2010 – at $2.75   393,846     394     1,082,681     -     -     1,083,075  
     Capital stock issued for finders’ fees on November 18, 2010 – at $2.75   3,636     4     (4 )   -     -     -  
     Shares issued on conversion of promissory note on November 18, 2010 – at $2.25 – Note 3   44,444     44     99,956     -     -     100,000  
     Shares issued on conversion of promissory note on November 18, 2010 – at $2.25 – Note 3   808,631     809     1,818,609     -     -     1,819,418  
     Debt conversion expense - Note 3   -     -     504,160     -     -     504,160  
     Shares issued on conversion of promissory note on November 18, 2010 – at $2.75 – Note 3   145,063     145     398,777     -     -     398,922  
     Capital stock issued in settlement of debt on November 18, 2010 – at $2.75   181,818     182     499,818     -     -     500,000  
     Capital stock issued for cash on November 25, 2010 – at $3.35   29,851     30     99,970     -     -     100,000  
     Capital stock issued for finders’ fees on November 25, 2010 – at $3.35   2,985     3     (3 )   -     -     -  
     Stock based compensation - Note 6(b)   -     -     187,750     -     -     187,750  
     Share subscriptions received   -     -     -     60,000     -     60,000  
     Net loss for the period   -     -     -     -     (1,886,751 )   (1,886,751 )
Balance, December 31, 2010   25,127,226   $  25,128   $  23,604,049   $  60,000   $  (23,782,825 ) $  (93,648 )

SEE ACCOMPANYING NOTES



ANAVEX LIFE SCIENCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010
(Stated in US Dollars)
(Unaudited)

Note 1 Nature of Operations

The Company is in the development stage has not yet realized any revenues from its planned operations. The Company is seeking to develop and market proprietary drug targets for the treatment of diseases of the central nervous system and cancer.

These financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America on a going concern basis, which assumes that the Company will continue to realize its assets and discharge its obligations and commitments in the normal course of operations. Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. At December 31, 2010, the Company had an accumulated deficit of $23,782,825 (September 30, 2010 - $21,896,074) since its inception, has a working capital deficit of $97,249 (September 30, 2009 - $2,964,313) and expects to incur further losses in the development of its business, all of which casts substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has no formal plan in place to address this but considers obtaining additional funds by equity financing and/or from issuing promissory notes. Management expects the Company’s cash requirement over the twelve-month period ended December 30, 2011 to be approximately $10,000,000. While the Company is expending its best efforts to achieve the above plans, there is no assurance that any such activity will generate funds for operations.

The Company was incorporated in the State of Nevada, United States of America on January 23, 2004 as Thrifty Printing Inc. On January 25, 2007, the Company changed its business from developing online photofinishing services to its current business and changed its name to Anavex Life Sciences Corp.

These unaudited interim financial statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information contained therein. It is suggested that these interim financial statements be read in conjunction with the audited financial statements of the Company for the year ended September 30, 2010. The interim results are not necessarily indicative of the operating results expected for the fiscal year ending on September 30, 2011. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures herein are adequate to make the information presented not misleading.

Note 2 Recent Accounting Pronouncements

In October 2009, the FASB issued ASU No. 2009-13, “Multiple-Deliverable Revenue Arrangements,” or ASU 2009-13, which amends existing revenue recognition accounting pronouncements that are currently within the scope of ASC 605. This guidance eliminates the requirement to establish the fair value of undelivered products and services and instead provides for separate revenue recognition based upon management’s estimate of the selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In January 2010, the FASB issued Accounting Standards Update 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. The ASU amends Subtopic 820-10 with new disclosure requirements and clarification of existing disclosure requirements. New disclosures required include the amount of significant transfers in and out of levels 1 and 2 fair value measurements and the reasons for the transfers. In addition, the reconciliation for level 3 activity will be required on a gross rather than net basis. The ASU provides additional guidance related to the level of disaggregation in determining classes of assets and liabilities and disclosures about inputs and valuation techniques. The amendments are effective for annual or interim reporting periods beginning after December 15, 2009, except for the requirement to provide the reconciliation for level 3 activities on a gross basis, which will be effective for fiscal years beginning after December 15, 2010. The Company is currently assessing the impact of ASU 2010-6 and does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.



Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2010
(Stated in US Dollars)
Unaudited – Page 2

Note 3 Promissory Notes Payable

      December 31,     September 30,  
               
    2010     2010  
               
  Convertible non-interest bearing promissory notes payable $  -   $  1,919,418  
               
  Interest bearing promissory notes payable   200,000     572,890  
               
  Less: fair value of derivative liabilities on date of issuance   -     (2,489,422 )
  Less: equity component of convertible note   -     (44,220 )
  Add: accumulated accretion   -     2,533,642  
      200,000     2,492,308  
  Less:  current portion   (200,000 )   (2,492,308 )
               
    $  -   $  -  

Convertible non-interest bearing promissory notes

The convertible non-interest bearing promissory notes were due on demand and were convertible into units at $2.25 per unit with respect to $100,000 and at $2.50 per unit with respect to $1,819,418. Each unit was comprised of one common share and one common share purchase warrant exercisable at $3.00 per share for a period of two years from the conversion date.

The embedded conversion features included in these promissory notes were recorded as separate derivative liability along with a corresponding debt discount and were determined to have a cumulative fair value of $1,698,631 at their respective issuance dates. During the twelve months ended September 30, 2010, the Company recorded accretion expense of $1,202,816 in respect of the debt discount on these notes.

During the year ended September 30, 2010, the Company and the respective note-holders agreed to amend the notes by removing certain dilutive issuance clauses with the result that, as at September 30, 2010, the embedded conversion features were no longer required to be recorded as a separate derivative liability. In accordance with the guidance of ASC 815-15-50-3, “Embedded Conversion Option that Is No Longer Bifurcated”, the Company re-measured the fair value of the derivative liability associated with the embedded conversion features in these notes on the date the notes were amended and determined it to be $3,144,520 which was then reclassified from liabilities to additional paid-in capital.

During the year ended September 30, 2009, the promissory note of $1,669,418 was issued in exchange for a promissory note of the same amount that had matured as a result of the Company renegotiating this debt. The Company recorded the transaction as a debt extinguishment with a loss on extinguishment of $487,469 recorded as a result of recognizing the new promissory note as its fair value of $2,156,887. The premium of the fair value of the note over its principal balance in the amount of $487,469 was recorded as additional paid-in capital.

During the three months ended December 31, 2010, a convertible non-interest bearing promissory note in the amount of $100,000 was converted to 44,444 units at $2.25, pursuant to the terms of the note. Each unit consisted of one share of the Company’s common stock and one share purchase warrant exercisable at $3.00 until November 18, 2012.

During the three months ended December 31, 2010, the remaining two convertible non-interest bearing promissory notes in the amount of $1,819,418 were converted to 808,631 units at $2.25. The original conversion price of the notes was $2.50. The company agreed to convert these notes at $2.25 as an inducement to the note holders to convert at that time. Each unit consisted of one share of the Company’s common stock and one share purchase warrant exercisable at $3.00 until November 18, 2012. As a result of the reduction in the conversion price, the Company issued 80,864 more units than it would have had it converted the notes at the original $2.50. The Company recorded the fair value of the additional units as a debt conversion expense of $504,160 using a fair value of $4.12 for the shares based on the their quoted market price and $2.09 for each warrant based on their fair value using the Black Scholes model with the following assumptions: Stock price - $4.12; Strike price - $3.00; expected life – 2 Years; expected volatility – 78.33%; risk-free discount rate – 0.52% .

Interest bearing promissory notes

During the year ended September 30, 2009, the Company issued a promissory note in the amount of $150,000 bearing interest at 8% and which matured on December 31, 2009. On January 1, 2010, the Company exchanged this note with a new note bearing interest at 8%, having a principal balance of $157,890 representing principal and accrued interest on the promissory note that had matured and having a maturity date of December 31, 2010. During the three months ended December 31, 2010, this promissory note, in the amount of $168,998, including accrued interest of $11,108 was converted to common stock through the issuance of 61,454 shares at their fair value of $2.75 per share which was the value of the units issued in a private offering on the same date.



Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2010
(Stated in US Dollars)
Unaudited – Page 3

Note 3 Promissory Notes Payable – (cont’d)
   

During the twelve months ended September 30, 2010, the Company issued additional 8% interest bearing notes totaling $415,000 which were to mature on December 5, 2010 as to $50,000, December 22, 2010 as to $100,000, February 17, 2011 as to $65,000 and May 4, 2011 as to $200,000. During the three months ended December 31, 2010, interest bearing promissory notes totaling $229,924, including accrued interest of $14,924 were converted to common stock through the issuance of 83,609 shares at their fair value of $2.75 per share which was the value of the units issued in a private offering on the same date.

 

Note 4

Capital Stock

 

On May 24, 2006, the board of directors approved a six (6) for one (1) forward split of the authorized issued and outstanding common stock. The Company’s authorized capital increased from 25,000,000 shares of common stock to 150,000,000 shares of common stock.

 

On September 24, 2007, the Company issued 222,222 common shares common shares at $3.60 per share for a total of $800,000 for research and development expenses. The common shares were recorded based upon the quoted market price of the Company’s common stock on the agreement date.

 

On September 25, 2007, the Company settled a loan payable in the amount of $333,000 by issuing 92,500 common shares at $3.60 per share, being the quoted market price of the Company’s common stock on the settlement date.

 

On December 10, 2007, the Company issued 150,000 units at $3.50 per unit for proceeds of $525,000. Each unit consisted of one common share and one common share purchase warrant entitling the holder to purchase an additional common share at $5.00 per share until December 10, 2009.

 

On December 18, 2007, the Company issued 10,000 shares at $4.50 per share for a total of $45,000 pursuant to an agreement to settle a debt and issued 50,000 shares at $3.86 per share for a total of $193,000 pursuant to a consulting agreement. The Company recorded compensation expense of $65,000 in respect of these issuances based on the excess of the fair value of these shares over the balances at which they were recorded by the Company.

 

On May 15, 2008, the Company issued 65,000 common shares at $5.24 per share for a total of $340,600 to its former CEO in accordance with the terms of a severance agreement upon the termination of his services. The common shares were recorded based upon the quoted market price of the Company’s common stock on the agreement date.

 

On August 19, 2008, the Company issued 25,000 common shares at $5.07 per share for a total of $ 126,750 to a director of the Company pursuant to an agreement to provide consulting services. The common shares were recorded based upon the quoted market price of the Company’s common stock on the agreement date.

 

On August 19, 2008, the Company issued 142,698 units at $4.25 per unit for proceeds of $606,467 pursuant to private placement agreements. Each unit consisted of one common share and one common share purchase warrant entitling the holder to purchase an additional common share at $5.00 per share until August 19, 2009.

 

On November 20, 2008, the Company issued 25,000 common shares at $2.63 per share for a total of $65,750 to a director of the Company pursuant to an agreement to provide consulting services. The common shares were recorded based upon the quoted market price of the Company’s common stock on the issuance date.

 

On February 20, 2009, the Company issued 25,000 common shares at $2.50 per share for a total of $62,500 to a director of the Company pursuant to an agreement to provide consulting services. The common shares were recorded based upon the quoted market price of the Company’s common stock on the issuance date.

 

On March 6, 2009, the Company issued 89,148 units at $2.25 per unit for proceeds of $200,583 pursuant to private placement agreements. Each unit consisted of one common share and one common share purchase warrant entitling the holder to purchase an additional common share at $4.00 per share until March 6, 2010.

 

On March 20, 2009, the Company issued 10,800 units at $2.25 per unit for proceeds of $24,300 pursuant to private placement agreements. Each unit consisted of one common share and one common share purchase warrant entitling the holder to purchase an additional common share at $4.00 per share until March 20, 2010.

 

On March 20, 2009, the Company issued 2,500 common shares at $2.00 per share for a total of $5,000 to a public relations consultant pursuant to an agreement to provide consulting services. The common shares were recorded based upon the quoted market price of the Company’s common stock on the issuance date.




Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2010
(Stated in US Dollars)
Unaudited – Page 4

Note 4 Capital Stock – (cont’d)

On May 14, 2009, the Company entered into a revised consulting agreement with a director whereby the consultant returned 75,000 common shares to the Company for cancellation. The return of shares was recorded in the same amount at which they were originally issued.

On June 11, 2009 the Company issued 36,000 units at $2.25 per unit for proceeds of $81,000 pursuant to private placement agreements. Each unit consisted of one common share and one common share purchase warrant entitling the holder to purchase an additional common share at $4.00 per share until June 11, 2010. The Company paid finders’ fees in the amount of $8,100 in relation to this private placement.

On June 11, 2009 the Company issued 29,227 common shares at $2.25 per share for service rendered by consultants. The common shares were recorded based upon the fair value of the Company’s common stock on the issuance date of the shares.

On June 19, 2009, the Company issued 495,556 units at $2.25 per Unit for total proceeds of $1,115,000 pursuant to private placement agreements. Each unit consisted on one common share and one and one-half of a common share purchase warrant entitling the holder to purchase additional common shares at $2.25 per share until June 19, 2011.

On June 26, 2009, the Company issued 22,222 common shares at $2.51 per share for finder’s fees related to the issuance of a $500,000 note payable. The common shares were recorded based upon the quoted market price of the Company’s common stock on the issue date.

On August 19, 2009, the Company issued 128,888 units at $2.25 per Unit for total proceeds of $289,998. Of these placements, 40,000 Units consisted of one common share and one share purchase warrant entitling the holder to purchase an additional common share at $4.00 per share until July 9, 2010 and 88,888 Units consisted on one common share and one and one-eighth share purchase warrant entitling the holder to purchase an additional common shares at $2.25 per share until August 4, 2011. The Company paid finders’ fees totalling $19,000 in respect of these private placements.

On October 2, 2009 the Company issued 266,666 units at $2.25 per unit for proceeds of $600,000 pursuant to private placement agreement. Each unit consisted of one common share and one and one-eighth common share purchase warrant entitling the holder to purchase an additional common share at $2.25 per share until October 2, 2011. The Company had received $300,000 of this amount in the year ended September 30, 2010.

On February 2, 2010 the Company issued 49,505 common shares of the Company, at their fair value of $2.02 per share pursuant to an agreement with a former officer to settle an outstanding amount owed.

On April 9, 2010, the Company issued 92,499 units at $2.60 per unit for proceeds of $240,498 pursuant to private placement agreement. Each unit consisted of one common share and one-half common share purchase warrant entitling the holder to purchase an additional common share at $3.50 per share until April 9, 2011.

On April 30, 2010, the Company issued 9,825 common shares of the Company, at $2.85 per share as consideration for terminating a consulting agreement and for services rendered under the agreement. The common shares were recorded based upon the quoted market price of the Company’s common stock on the date of the termination of the agreement.

On June 29, 2010, the Company issued 941,000 units at $2.50 per unit for total proceeds of $2,352,500 pursuant to private placement agreements. Each unit consisted on one common share and one-half of a common share purchase warrant entitling the holder to purchase additional common shares at $3.50 per share until December 29, 2011.

On July 5, 2010, the Company issued 400,000 units in settlement of $1,000,000 owing to a creditor. Each unit consisted of one common share and one-half common share purchase warrant entitling the holder to purchase an additional common share at 3.50 per share until January 5, 2012. The fair value of the units issued was determined to be $1,444,000 on the date they were issued and thus the Company recorded a loss on settlement of accounts payable of $444,000 with a corresponding credit to additional paid-in capital of the same amount on date of issuance. The fair value of the shares included in the units was determined with reference to their quoted market price and the value of the warrants was determined using the Black-Scholes model with the following assumptions: exercise price - $3.50, stock price - $3.15, expected volatility – 68.45%, expected life – 1.5 years, dividend yield – 0.00% .

On September 3, 2010, the Company issued 163,000 units at $2.75 per unit for proceeds of $448,250 pursuant to a private placement agreement. Each unit consisted of one common share and one-half common share purchase warrant entitling the holder to purchase an additional common share at $3.75 per share until March 3, 2012.



Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2010
(Stated in US Dollars)
Unaudited – Page 5

Note 4 Capital Stock – (cont’d)

On September 3, 2010, the Company issued 9,000 units at $2.75 per unit for finder’s fees related to the private placement of the same date. Each unit consisted of one common share and one-half common share purchase warrant entitling the holder to purchase an additional common share at $3.75 per share until March 3, 2012.

On September 30, 2010, the Company issued 510,638 common shares at $2.35 per share pursuant to the terms of a convertible note payable.

On September 30, 2010, the Company issued 82,310 units at $2.25 per unit pursuant to the terms of the convertible notes payable. Each unit consisted of one common share and one-half common share purchase warrant entitling the holder to purchase an additional common share at $3.50 per share until September 30, 2011.

On September 30, 2010, the Company issued 245,748 units at $2.25 per unit pursuant to the terms of the convertible notes payable. Each unit consisted of one common share and one common share purchase warrant entitling the holder to purchase an additional common share at $3.00 per share until September 30, 2012.

On November 18, 2010, the Company issued 393,846 units at $2.75 per unit for proceeds of $1,083,075 pursuant to a private placement agreement. Each unit consisted of one common share and one-half common share purchase warrant entitling the holder to purchase an additional common share at $4.50 per share until May 18, 2012.

On November 18, 2010, the Company issued 3,636 units at $2.75 per unit for finder’s fees related to the private placement of the same date. Each unit consisted of one common share and one-half common share purchase warrant entitling the holder to purchase an additional common share at $4.50 per share until May 18, 2012.

On November 18, 2010, the Company issued 44,444 units at $2.25 per unit pursuant to the terms of a convertible note payable. Each unit consisted of one common share and one common share purchase warrant entitling the holder to purchase an additional common share at $3.00 per share until November 18, 2012.

On November 18, 2010, the Company issued 808,631 units at $2.25 per unit in the conversion of two notes payable originally convertible at $2.50. The Company recorded debt conversion expense of $504,160, related to the fair value of the additional units issued as a result of converting at the lower conversion price. Each unit consisted of one common share and one common share purchase warrant entitling the holder to purchase an additional common share at $3.00 per share until November 18, 2012.

On November 18, 2010, the Company issued 145,063 shares of common stock at their fair value of $2.75 per share based on the value of units issued in a private placement on the same date pursuant to non-convertible interest bearing notes payable outstanding in the amount of $398,923, including accrued interest of $26,032.

On November 18, 2010, the Company issued 181,818 shares of common stock at their fair value of $2.75 per share based on the value of units issued in a private placement on the same date to one creditor in settlement of $500,000 of debt owing.

On November 25, 2010, the Company issued 29,851 units at $3.35 per unit for proceeds of $100,000 pursuant to a private placement agreement. Each unit consisted of one common share and one-half common share purchase warrant entitling the holder to purchase an additional common share at $4.50 per share until November 25, 2012.

On November 25, 2010, the Company issued 2,985 units at $3.35 per unit for finder’s fees related to the private placement of the same date. Each unit consisted of one common share and one-half common share purchase warrant entitling the holder to purchase an additional common share at $4.50 per share until November 25, 2012.

Note 5 Related Party Transactions

The following amounts were contributed to the Company by the directors and officers of the Company:

                  January 23, 2004  
      Three Months     Three Months     (Date of Inception)  
      ended December     ended December     to December 31,  
      31, 2010     31, 2009     2009  
                     
  Management fees $  -   $  -   $  14,625  
  Rent   -     -     3,750  
  Debt forgiven by directors   -     -     33,666  
    $  -   $  -   $  52,041  



Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2010
(Stated in US Dollars)
Unaudited – Page 6

Note 5 Related Party Transactions – (cont’d)

During the three months ended December 31, 2010 and 2009 the Company was charged consulting fees totalling $248,541 (2009: $170,657) by directors, officers and a significant shareholder of the Company.

As at December 31, 2010, included in accounts payable and accrued liabilities is $61,624 (September 30, 2010: $9,521) owing to directors and officers of the Company.

Note 6 Commitments

  a)

Share Purchase Warrants

     
 

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


      Number of     Exercise  
      Shares     Price  
               
  Balance, September 30, 2009   983,448     $2.93  
       Expired   (325,948 )   $4.46  
       Issued   1,389,651     $3.16  
  Balance, September 30, 2010   2,047,151     $2.84  
       Expired   -     -  
       Issued   1,068,235     $3.30  
               
  Balance, December 31, 2010   3,115,386     $3.02  

At December 31, 2010 the Company has 3,115,386 currently exercisable share purchase warrants outstanding as follows:

Number Exercise Price Expiry Date
557,501 $2.25 June 19, 2011
99,999 $2.25 August 4, 2011
46,249 $3.50 April 9, 2011
41,155 $3.50 September 30, 2011
299,999 $2.25 October 2, 2011
470,500 $3.50 December 29, 2011
200,000 $3.50 January 5, 2012
86,000 $3.75 March 3, 2012
198,741 $4.50 May 18, 2012
245,748 $3.00 September 30, 2012
853,075 $3.00 November 18, 2012
16,419 $4.50 November 25, 2012
     
3,115,386    



Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2010
(Stated in US Dollars)
Unaudited – Page 7

Note 6 Commitments – (cont’d)

  b) Stock-based Compensation Plan

A summary of the status of the company’s outstanding stock purchase options for the three months ended December 31, 2010 is as follows:

            Weighted  
            Average  
      Number of     Exercise  
      Shares     Price  
               
  Outstanding at September 30, 2009   3,195,000   $ 3.37  
       Cancelled   (820,000 ) $ 2.50  
       Granted   400,000   $ 3.48  
               
  Outstanding at September 30, 2010 and December 31, 2010            
      2,775,000   $ 3.29  
               
     Exercisable at December 31, 2010   1,738,332   $ 3.52  
               
     Exercisable at September 30, 2010   1,613,333   $ 3.52  

At December 31, 2010, the following stock options were outstanding:

Number of Shares     Aggregate Remaining
        Intrinsic contractual
Total Number Exercise Expiry Date  Value life (yrs)
  Vested Price      
           
400,000 (1) 400,000 $ 5.25 May 20, 2011  $                - 0.38
50,000 (2) 50,000 $ 3.75 November 1, 2012 14,500 1.84
100,000 (3) - $ 3.86 December 1, 2012 18,000 1.92
150,000 (4) 150,000 $ 3.10 December 3, 2012 141,000 1.93
450,000 (5) 450,000 $ 3.10 June 3, 2013 423,000 2.42
50,000 (6) 50,000 $ 2.75 January 14, 2014 64,500 3.04
5,000 (7) 5,000 $ 2.50 March 2, 2014 7,700 3.17
400,000 (8) 400,000 $ 2.50 May 12, 2012 616,000 1.36
500,000 (9) - $ 2.50 June 11, 2014 770,000 2.80
200,000 (10) 200,000 $ 3.50 June 29, 2015 108,000 4.50
200,000 (11) 33,332 $ 3.45 September 1, 2015 118,000 4.67
270,000 (12) - $ 3.00 February 8, 2017 280,800 6.11
           
2,775,000 1,738,332     $ 2,561,500  

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, 2010.

  (1)

As at December 31, 2010 and September 30, 2010, these options had fully vested. The Company did not recognize any stock-based compensation for these options during the three month period ended December 31, 2010 (three months ended December 31, 2009: $nil).

     
  (2)

As at December 31, 2010 and September 30, 2010, these options had fully vested. The Company did not recognize any stock-based compensation for these options during the three month period ended December 31, 2010 (three months ended December 31, 2009: $nil).

     
  (3)

As at December 31, 2010 and September 30, 2010, these options have not vested. The options vest upon the Company listing its shares on the American Stock Exchange or any other nationally recognized stock exchange by December 1, 2012 or in the event of a change of control a listing on a nationally recognized stock exchange is not required. No stock-based compensation has been recorded in the financial statements as the performance condition has not yet been met.




Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2010
(Stated in US Dollars)
Unaudited – Page 8

Note 6 Commitments – (cont’d)

  b)

Stock–based Compensation Plan – (cont’d)

       
  (4)

As at December 31, 2010 and September 30, 2010, these options had fully vested. The Company did not recognize any stock-based compensation for these options during the three month period ended December 31, 2010 (three months ended December 31, 2009: $nil).

       
  (5)

As at December 31, 2010 and September 30, 2010, these options had fully vested. As a result of re-pricing these options, the Company recognized stock-based compensation of $196,425 for the year ended September 30, 2010. The Company did not recognize any stock-based compensation during the three month period ended December 31, 2010 (three months ended December 31, 2009: $nil).

       
  (6)

As at December 31, 2010 and September 30, 2010, these options had fully vested. The Company did not recognize any stock-based compensation for these options during the three month period ended December 31, 2010 (three months ended December 31, 2009: $2,950).

       
  (7)

As at December 31, 2010 and September 30, 2010, these options had fully vested. The Company did not recognize any stock-based compensation for these options during the three month period ended December 31, 2010 (three months ended December 31, 2009: $nil).

       
  (8)

As at December 31, 2010 and September 30, 2010, these options had fully vested. The Company did not recognize any stock-based compensation for these options during the three month period ended December 31, 2010 (three months ended December 31, 2009: $56,269).

       
  (9)

As at September 30, 2010 and 2009 none of these options have vested. The options vest as to 100,000 per compound entered into a phase 2 trial. The fair value of these options was calculated to be $740,000, which the Company has not yet recognized in the financial statements as the performance conditions have not yet been met.

       
  (10)

These options were granted during the year ended September 30, 2010 and, as at September 30, 2010, 100,000 of these options have vested. As at December 31, 2010, these options had fully vested. The fair value of these options on the grant date was calculated to be $500,000 of which the Company recognized stock-based compensation in the amount of $375,000 for the year ended September 30, 2010. The remaining fair value of $125,000 was recognized as stock-based compensation during the three month period ended December 31, 2010 (three months ended December 31, 2009: $nil).

       
  (11)

These options were granted during the year ended September 30, 2010 and as at September 30, 2010, 8,333 of these options have vested and the remaining options vest 8,333 monthly until August 2012 and 8,341 vest in September 2012. The fair value of these options on the grant date was calculated to be $502,000 of which the Company recognized stock-based compensation in the amount of $20,917 for the year ended September 30, 2010. The Company recognized stock-based compensation in the amount of $62,750 during the three month period ended December 31, 2010 (three months ended December 31, 2009: $nil).

       
  (12)

As at September 30, 2010 and 2009, these options have not vested. The options vest upon one or more compounds: entering Phase 2 Trial – 90,000 options; entering Phase 3 Trial – 90,000 options; and receiving FDA approval – 90,000 options. No stock-based compensation has been recorded in the financial statements as none of the performance conditions have yet been met.

       
  (13)

The Company cancelled 700,000 share purchase options on which it had recorded stock-based compensation of $72,500 during the year ended September 30, 2010. The Company did not recognize any stock-based compensation for these options during the three month period ended December 31, 2010 (three months ended December 31, 2009: $72,500).




Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2010
(Stated in US Dollars)
Unaudited – Page 9

Note 6 Commitments – (cont’d)

  b) Stock–based Compensation Plan – (cont’d)

The fair value of stock options granted has been determined using the Black-Scholes option pricing model using the following weighted average assumptions applied to stock options granted or re-priced during the periods:

      December 31,     September 30,  
      2010     2010  
               
  Risk-free interest rate   -     1.41%  
  Expected life of options   -     5.00 years  
  Annualized volatility   -     96.45%  
  Dividend rate   -     0%  

The volatility in the past was determined based on an index of volatility from comparable companies. Going forward, the Company expects to calculate volatility based on historical fluctuations in its own stock. The expected term of the options granted to employees is derived from the simplified method as prescribed by SEC Staff Accounting Bulletin No. 110 given that the Company has no historical experience with the exercise of options for which to base an estimate of the expected term of options granted. The Company anticipates it will discontinue the use of the simplified method of SAB 110 once sufficient historical option exercise behavior becomes apparent. The expected term of options granted to non-employees was determined to be the option term.

At December 31, 2010, the following summarizes the unvested stock options:

            Weighted     Weighted  
            Average     Average  
      Number of     Exercise     Grant-date  
      Shares     Price     Fair value  
                     
  Unvested options at September 30, 2010   1,161,667   $ 2.98   $ 1.80  
         Vested   (124,999 ) $ 3.49   $ 2.50  
                     
  Unvested options at December 31, 2010   1,036,668   $ 2.91   $ 1.74  

 

As at December 31, 2010, there was a total of $418,333 of unrecognized compensation cost associated with unvested share-based compensation awards that will become vested exclusive of achieving any performance milestones. This unrecognized compensation cost is expected to be recognized in the years ended September 30, 2011 and 2012. There has been no stock-based compensation recognized in the financial statements for the period ended December 31, 2010 for options that vest upon the achievement of performance milestones because the Company has determined that satisfaction of the performance milestones was not probable. Compensation relating to stock options exercisable upon achieving performance milestones will be recognized in the period the milestones are achieved.

     
  c)

Share Subscriptions

     
 

As at December 31, 2010 the Company had received $60,000 in respect of a private placement for 16,000 units at $3.75 per unit. Each unit will consist of one common share and one half common share purchase warrant entitling the holder thereof to purchase an additional common share for each whole warrant held at a price of $5.25 for a period of 18 months from closing date - Note 8(b).


Note 7 Supplemental Cash flow Information

Investing and financing activities that do not have a direct impact on current cash flows are excluded from the statements of cash flows.

During the period ended December 31, 2010:

  a)

The Company issued 3,636 units at $2.75 per unit for finder’s fees related to the private placement of the same date. Each unit consists of one common share and one-half common share purchase warrant entitling the holder to purchase an additional common share at $4.50 per share until May 18, 2012.




Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2010
(Stated in US Dollars)
Unaudited – Page 10

Note 7 Supplemental Cash flow Information – (cont’d)

  b)

The Company issued 44,444 units at $2.25 per unit pursuant to the terms of a convertible note payable. Each unit consisted of one common share and one common share purchase warrant entitling the holder to purchase an additional common share at $3.00 per share until November 18, 2012.

     
  c)

c) The Company issued 808,631 units at $2.25 per unit in the conversion of two notes payable originally convertible at $2.50. The Company recorded debt conversion expense of $504,160, related to the fair value of the additional units issued as a result of converting at the lower conversion price. Each unit consisted of one common share and one common share purchase warrant entitling the holder to purchase an additional common share at $3.00 per share until November 18, 2012.

     
  d)

The Company issued 145,063 shares of common stock at their fair value of $2.75 per share based on the value of units issued in a private placement on the same date pursuant to non-convertible interest bearing notes payable outstanding in the amount of $398,923, including accrued interest of $26,032.

     
  e)

The Company issued 181,818 shares of common stock at their fair value of $2.75 per share based on the based on the value of units issued in a private placement on the same date to one creditor in settlement of $500,000 of debt owing.

     
  f)

The Company issued 2,985 units at $3.35 per unit for finder’s fees related to the private placement of the same date. Each unit consisted of one common share and one-half common share purchase warrant entitling the holder to purchase an additional common share at $4.50 per share until November 25, 2012.


Note 8 Subsequent Events

Subsequent to December 31, 2010, the Company:

  a)

Terminated a consultant services agreement with Genesis BioPharma Group, LLC, a corporation that was providing the Company with clinical development services. Consideration for terminating the agreement is a payment of $45,000.

     
  b)

Issued 61,014 units of the Company’s securities at a purchase price of $3.75 per unit for gross proceeds of $228,800. Each unit consists of one share of our common stock and one-half of one share purchase warrant. Each whole share purchase warrant entitles the holder to purchase one share of the Company’s common stock at a purchase price of $5.25 per share for a period of 18 months. A finders’ fee of 10% of the proceeds was paid.

     
  c)

Entered into a consulting agreement with its President, Chief Operating Officer, Secretary and Director for another two year period at the annual compensation of $150,000 paid on a monthly basis.

     
  d)

Entered into a consulting agreement with its Vice President, Clinical Development and Medical Affairs for a period of two years at the annual compensation amount of $130,000 paid monthly.

     
  e)

Issued 400,000 common purchase share options exercisable at $4.28 per share for a period of five years to vest upon the achievement of certain development milestones to its Vice President, Clinical Development and Medical Affairs. The Vice President, Clinical Development and Medical Affairs is also eligible for up to 100,000 additional bonus stock options upon the achievement of certain development milestones.

     
  f)

Extended the expiry date of stock options issued to its Executive Chairman for two years giving them a total life of five years.



2

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

This quarterly report contains forward-looking statements. All statements other than statements of historical facts contained in this quarterly report, 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. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expect”, “plan”, “anticipate”, “believe”, “estimate”, “predict”, “potential” or “continue” or the negative of these terms or other comparable terminology. 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 statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” that may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

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. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Our financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles.

In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to the shares of our common stock.

As used in this quarterly report, the terms “we”, “us”, “our”, and “Anavex” mean Anavex Life Sciences Corp., unless the context clearly requires otherwise.

Our Current Business

We are a biopharmaceutical company engaged in the discovery and development of novel drug targets to treat serious diseases for which there are urgent unmet medical needs. The ANAVEX portfolio involves new sigma receptor compounds (ligands) in the preclinical stage that target neurodegenerative diseases and cancer. Our lead drug candidate ANAVEX 2-73, targeting Alzheimer’s disease (AD), is expected to enter first Human Clinical Trials (HCT) in the first quarter of 2011. Scale-up manufacturing and preclinical development of ANAVEX 2-73 has been completed. Genesis BioPharma Group LLC and ABX-CRO Advanced Pharmaceutical Services have been contracted to carry out our phase I and phase IIa clinical trials. We plan to commence preclinical work on other CNS compounds such as those targeting epilepsy, depression and neuropathic pain in 2011 provided sufficient capital is available. Additionally, we intend to further develop compounds in earlier preclinical phases, which target various types of cancer and continue to develop and expand our Sigmaceptortm platform.


3

Our Pipeline

Our proprietary SIGMACEPTOR™ Discovery Platform has resulted in and continues to generate small molecule drug candidates with unique modes of action, by making use of sigma receptors, which represent potential targets for therapeutic developments in combating many human diseases (such as AD, depression, epilepsy, pain and cancer). When activated by the appropriate ligands, these receptors influence the functioning of multiple biochemical signals that are involved in the pathogenesis (origin or development) of disease.

With our SIGMACEPTOR™-N program, we are focused on developing disease-modifying treatments for CNS conditions using sigma-1 receptor ligands. Among our lead CNS drug candidates, we have made significant progress with ANAVEX 2-73, our lead drug candidate for the treatment of Alzheimer’s disease (AD), and ANAVEX 19-144, a lead drug candidate to treat epilepsy. Preclinical data reveals that these compounds exhibit significant anti-amnesic, neuroprotective and anticonvulsant properties in a variety of in vitro systems and specialized animal models. These activities involve sigma-1 and NMDA receptor components as well as ion channels, indicating a unique mode of action. In AD, ANAVEX 2-73 has 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 types muscarinic receptors. In epilepsy, ANAVEX 19-144 controls seizures and the epileptogenesis process in animal models. Moreover, its neuroprotective properties prevent the process that causes long-term damage to tissue and cells as well as biochemical and physiological alterations to the brain from epileptic seizures.

We also have reported promising developments with ANAVEX 1-41, which is a sigma-1 agonist and a lead compound for depression and a back up compound for AD. Preclinical 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 in the 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 1-41 may offer disease-modifying options that reverse memory and learning deficits and protect nerve cells from death through its anti-amnesic and neuroprotective actions. ANAVEX 1-41 may slow the progression of AD and considerably improve the quality of life of those impacted by the disease as well as their caregivers.

Our SIGMACEPTOR™-C program leverages the unique properties of sigma-1 and/or sigma-2 receptor ligands, which may allow us to develop a new class of promising drug candidates designed to combat various types of solid cancer. Sigma receptors are highly expressed in different tumor cell types and 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 are believed to 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. The compounds in our oncology program are in pre-clinical testing, and there is no guarantee that the activity demonstrated in pre-clinical models will be shown in human testing.

ANAVEX 7-1037, our lead drug candidate for the treatment of prostate cancer, is a low molecular weight, synthetic compound exhibiting high (nanomolar) affinity for sigma-1 and moderate (micromolar) affinity for sigma-2 and sodium channels. In advanced preclinical 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 emphasize the promise of sigma receptor ligands, highlighting the fact that these ligands stop tumor growth and induce selective cell death in various tumor cell lines, including leukemia, melanoma and cancers of the colon, breast, prostate, lung, brain, ovary and kidney.

Numerous additional compounds are currently in the early discovery and lead optimization stages of our SIGMACEPTOR™-N and SIGMACEPTOR™-C programs.


4

Results of Operations

Revenue

We have not earned any revenues since our inception on January 23, 2004. We are still in the development stage and do not anticipate earning any revenues until we can establish an alliance with targeted companies to market or distribute the results of our research projects.

Expenses

Our expenses for the three months ended December 31, 2010 and 2009 were as follows:

    Three Months Ended  
    December 31,  
    2010     2009  
Accounting and audit fees $  48,948   $  21,859  
Amortization   491     190  
Bank charges and interest   2,043     1,715  
Consulting fees   652,201     473,184  
Investor Relations   54,535     54,511  
Legal fees   19,747     27,908  
Office and miscellaneous   6,469     3,691  
Insurance   4,815     -  
Registration and filing fees   9,062     6,133  
Rent and administration   41,819     -  
Research and development   497,290     211,479  
Travel   31,725     81,037  
Total expenses $  1,369,145   $  881,707  

Three Months Ended December 31, 2010 and 2009

Expenses for the three months ended December 31, 2010 increased by $487,438 over the same period in 2009. Accounting and audit fees increased by $27,089 from $21,859 for the three months ended December 31, 2009 to $48,948 for the same period in 2009, primarily due to the acceleration of audit work for the year ended September 30, 2010 over the prior year. Consulting fees increased by $179,017 from $473,184 for the three months ended December 31, 2009 to $652,201 for the same period in 2010, primarily as a result of increased management infrastructure and an increase in stock based compensation from additional option issuances resulting therefrom. Rent and administration increased by $41,819 from $nil for the three months ended December 31, 2009 to $41,819 for the same period in 2010, primarily as a result of establishing office and infrastructure in North America. Research and development expenses increased by $285,811 from $211,479 for the three months ended December 31, 2009 to $497,290 for the same period in 2010 primarily as a result of commencement of clinical trial activities associated with Anavex 2-73. Travel expense decreased by $49,312 from $81,037 for the three months ended December 31, 2009 to $31,725 for the same period in 2010 due to the establishment of office infrastructure in North America and a resulting decrease in international travel.

Other Income and loss

Other income and (loss) for the three months ended December 31, 2010, was $(517,606) as compared to income of $414,096 for the comparable three months ended December 31, 2009. The increase in loss of ($931,702) is primarily attributable to a) the gain from the change in fair value of the derivative liability of $649,038 recognized in the three month period ended December 31, 2009 with no corresponding gain recognized in the same period in 2010, b) the debt conversion expense of ($504,160) recognized in the three month period ended December 31, 2010 with no corresponding expense recognized in the same period in 2010, and c) offset by the accretion of debt discount expense of ($220,410) recognized in the three month period ended December 31, 2009 with no corresponding expense recognized in the same period in 2010.


5

Change in fair value of derivative liability

We recognized a gain on derivative financial instruments of $ Nil for the three months ended December 31, 2010, as compared to a gain of $ 649,038 for the prior year’s comparable period. The non-cash gain in the prior year arose from adjusting the embedded conversion feature of our convertible promissory notes payable to fair value at each reporting period in accordance with current accounting standards. The embedded conversion features of the convertible promissory notes were treated as derivative liabilities because the conversion price can be adjusted in certain circumstances. We use the Black-Scholes option pricing model to estimate the fair value of this derivative. The promissory notes were amended as of September 30, 2010 and as a result, the derivative liabilities were reversed to additional paid-in capital during the same period.

Liquidity and Capital Resources

Working Capital

    December 31, 2010     September 30, 2010  
Current Assets   485,688     325,758  
Current Liabilities   582,937     3,290,071  
Working Capital (Deficit) $  (97,249 ) $  (2,964,313 )

As at December 31, 2010, we had $423,783 in cash, an increase of $159,114 from September 30, 2010. The principal component of this increase in cash resulted from private placements of equity during the three month period ended December 31, 2010 as described below for total proceeds of $1,183,075. As at December 31, 2010, we had a working capital deficit of $97,249, a decrease in deficit of $2,867,064 from September 30, 2010. The principal component of this decrease in working capital deficit was the reduction in our current liabilities due to a) the reduction of accounts payable and accrued liabilities of $414,826 and b) the conversion of promissory notes of $2,292,308.

On November 18, 2010 we issued an aggregate of 393,846 units of our securities at a purchase price of $2.75 per unit for total proceeds of $1,083,075. Each unit consists of one share of common stock in the capital of our company and one-half of one common share purchase warrant. One full warrant entitles the holder to purchase one additional share of common stock at a price of $4.50 per warrant share for a period of two years.

On November 25, 2010 we issued an aggregate of 29,851 units of our securities at a purchase price of $2.75 per unit for total proceeds of $100,000. Each unit consists of one share of common stock in the capital of our company and one-half of one common share purchase warrant. One full warrant entitles the holder to purchase one additional share of common stock at a price of $4.50 per warrant share for a period of two years.

We anticipate that we will require up to $10 million for the 12 months ending December 31, 2011 to implement our plan of operation of researching and developing our patents, the related compounds and any further intellectual property we may acquire. The majority of our capital resources requirement is needed to enter ANAVEX 2-73, ANAVEX 1-41 and ANAVEX 7-1037 into clinical trials. If we are not able to secure additional financing, we will not be able to implement and fund these trials.

Cash Flows

    Three Months Ended     Three Months Ended  
    December 31, 2010     December 31, 2009  
Cash flows used in operating activities $  (1,083,961 )   (779,960 )
Cash flows from financing activities $  1,243,075     450,000  
Cash flows from investing activities $  -     -  
Increase (decrease) in cash $  159,114     (329,960 )


6

Cash flow used in operating activities

Our cash used in operating activities for the three months ended December 31, 2010 compared to our cash used in operating activities for the three months ended December 31, 2009 increased by 39% largely due to our increased research and development expenses related to clinical trials activities and the increase in management infrastructure resulting in increased consulting fees and stock based compensation expense.

Cash flow provided by financing activities

Our cash provided by financing activities for the three months ended December 31, 2010 compared to our cash provided by financing activities for the three months ended December 31, 2009 increased by 176% largely due to private placement activity during the quarter.

Cash Provided by Investing Activities

No cash was used in or provided by investing activities for the three months ended December 31, 2010 or 2009.

Going Concern

At December 31, 2010, we had an accumulated deficit of $23,782,825 since our inception and incurred a net loss of $1,886,751 for the three month period ended December 31, 2010. We expect to incur further losses in the development of our business, all of which casts substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to generate future profitable operations and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. Our independent auditors included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern in their report on our annual financial statements for the year ended September 30, 2010.

Future Financing

We will require additional financing to fund our planned operations, including researching and developing our patents, the related compounds and any further intellectual property that we may acquire and entering some of our current compounds into clinical trials. We currently do not have committed sources of additional financing and may not be able to obtain additional financing, particularly, if the volatile conditions in the stock and financial markets, and more particularly the market for early development stage biotechnology research and development company stocks persist.

There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to delay or scale down some or all of our research and development activities or perhaps even cease the operation of our business.

Since inception we have funded our operations primarily through equity and debt financings and we expect that we will continue to fund our operations through the equity and debt financing. If we are able to raise additional financing by issuing equity securities, our existing stockholders’ ownership will be diluted. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

There is no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on his, her, or its investment in our common stock. Further, we may continue to be unprofitable.


7

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders.

Application of Critical Accounting Policies

Our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and assumptions are affected by management’s application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financials.

We base our assumptions and estimates on historical experience and other sources that we believe to be reasonable at the time. Actual results may vary from our estimates due to changes in circumstances, weather, politics, global economics, mechanical problems, general business conditions and other factors. Our significant estimates are related to the valuation of warrants and options.

There are accounting policies that we believe are significant to the presentation of our financial statements. The most significant of these accounting policies relates to the accounting for our research and development expenses and stock-based compensation expense.

Research and Development Expenses

Research and developments costs are expensed as incurred. These expenses are comprised of the costs of our 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 to third parties are expensed when the specific milestone has been achieved.

In addition, we incur expenses in respect of the acquisition of intellectual property relating to patents and trademarks. The probability of success and length of time to developing 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, we expense the acquisition of patents and trademarks.

Stock-based Compensation

We account for all of our stock-based payments and awards under the fair value based 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 we had paid cash instead of paying with or using equity based instruments. The cost of the stock-based payments to non-employees that are fully vested and non-forfeitable as 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.


8

We account 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 capital surplus. Upon exercise of share purchase options, the consideration paid by the option holder, together with the amount previously recognized in additional capital surplus, is recorded as an increase to share capital.

We use 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 assumptions can materially affect the fair value estimate and therefore the Black-Scholes model does not necessarily provide a reliable single measure of the fair value of our share purchase options.

The summary of significant accounting policies should be read in conjunction with our consolidated financial statements and related notes and management’s discussion and analysis of financial condition and results of operations.

Recent accounting pronouncements

In October 2009, the FASB issued ASU No. 2009-13, “Multiple-Deliverable Revenue Arrangements,” or ASU 2009-13, which amends existing revenue recognition accounting pronouncements that are currently within the scope of ASC 605. This guidance eliminates the requirement to establish the fair value of undelivered products and services and instead provides for separate revenue recognition based upon management’s estimate of the selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In January 2010, the FASB issued Accounting Standards Update 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. The ASU amends Subtopic 820-10 with new disclosure requirements and clarification of existing disclosure requirements. New disclosures required include the amount of significant transfers in and out of levels 1 and 2 fair value measurements and the reasons for the transfers. In addition, the reconciliation for level 3 activity will be required on a gross rather than net basis. The ASU provides additional guidance related to the level of disaggregation in determining classes of assets and liabilities and disclosures about inputs and valuation techniques. The amendments are effective for annual or interim reporting periods beginning after December 15, 2009, except for the requirement to provide the reconciliation for level 3 activities on a gross basis, which will be effective for fiscal years beginning after December 15, 2010. We are currently assessing the impact of ASU 2010-6 and does not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risks.

Not Applicable.


9

Item 4T. Controls and Procedures.

Disclosure Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of 1934, our management, with the participation of our principal executive officer and our principal financial officer, evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered by this quarterly report on Form 10-Q. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to our principal executive officer and our principal financial officer to allow timely decisions regarding required disclosure.

Based on that evaluation, our management, with the participation of our principal executive officer and our principal financial officer, concluded that as of the end of the period covered by this quarterly report on Form 10-Q, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

We disclosed certain material weaknesses in our annual report on Form 10-K filed on December 27, 2010. We have developed a plan of action to correct those material weaknesses and have taken steps to implement that plan.

Specifically, we noted in our annual report that we had insufficient segregation of duties in our finance and accounting functions due to limited personnel, that there has been a lack of sufficient supervision and review by our management, that there has been insufficient corporate governance policies and that our company’s accounting staff has not had sufficient technical accounting knowledge relating to accounting for income taxes and complex US GAAP matters.

We have corrected these weaknesses through the hiring of a Chief Financial Officer who is a certified public accountant with over thirty years of public and private accounting experience. We have segregated duties in a manner that ensures that there is complete and proper review and approval of all transactions through an appropriate management hierarchy. We have also implemented appropriate corporate governance policies to ensure that decisions made by our board and management are properly documented and communicated on a timely basis to reduce the likelihood of any misunderstandings regarding key decisions affecting our operations and management.

We believe that these changes have corrected the material weaknesses that existed in prior reporting periods and we will continue to monitor our systems and procedures to ensure that no material weaknesses are present.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

We know of no material, existing or pending legal proceedings to which we are a party or of which any of our properties is the subject. In addition, we do not know of any such proceedings contemplated by any governmental authorities. We know of no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder is a party adverse to our company or has a material interest adverse to our company.


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Item 1A. Risk Factors.

In addition to other information in this quarterly report, 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, we have incurred aggregate net losses of $23,232,021 from operations. 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 flow 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 development stage biotechnology 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 development 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 and have not undergone significant testing in non-clinical studies or in clinical trials. 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 as 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, but the current economic condition will most likely have a negative impact on our ability to raise additional needed capital on terms that are favorable to our company or at all. We do not anticipate that we will 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.


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We may be unable to continue as a going concern in which case our securities will have little or no value.

Our independent auditors have noted in their report concerning our annual financial statements for the fiscal year ended September 30, 2010 that we have incurred substantial losses since inception, which raises substantial doubt about our ability to continue as a going concern. In the event we are not able to continue operations you will likely suffer a complete loss of your investment in our securities.

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 and we may be forced 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:

  • the possibility that non-clinical testing or clinical trials may show that our potential drug compounds are ineffective and/or cause harmful side effects;

  • our potential drug compounds may prove to be too expensive to manufacture or administer to patients;

  • 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;

  • even if our potential drug compounds are approved, we may not be able to produce them in commercial quantities or at reasonable costs;

  • even if our potential drug compounds are approved, they may not achieve commercial acceptance;

  • regulatory or governmental authorities may apply restrictions to any of our potential drug compounds, which could adversely affect their commercial success; and

  • the proprietary rights of other parties may prevent us or our potential collaborative partners from marketing our potential drug compounds.

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 are able to develop marketable potential drug compounds, if at all. Our research and development plans will require substantial additional capital, arising from costs to:

  • conduct research, non-clinical testing and human studies;

  • 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.

Our future operating and capital needs will depend on many factors, including:

  • the pace of scientific progress in our research and development programs and the magnitude of these programs;

  • the scope and results of preclinical testing and human studies;

  • the time and costs involved in obtaining regulatory approvals;

  • the time and costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims;

  • competing technological and market developments;

  • our ability to establish additional collaborations;

  • changes in our existing collaborations;

  • the cost of manufacturing scale-up; and

  • the effectiveness of our commercialization activities.

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 of 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.


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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 and, ultimately, our ability to commercialize our potential drug compounds and generate product revenues. In addition, we expect that our 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 product approval can take many years and 10-12 years is not unusual.

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:

  • efficacy or safety concerns with the potential drug compounds, even if not justified;

  • unexpected side-effects;

  • regulatory proceedings subjecting the potential drug compounds to potential recall;

  • publicity affecting doctor prescription or patient use of the potential drug compounds;

  • pressure from competitive products; or

  • introduction of more effective treatments.

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 of 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;

  • Information from our competitors or the academic community indicating that current products or new products are more effective than our future products could be, if and when they are generated, impede our market penetration or decrease our future market share; and,

  • The price for our future products, as well as pricing decisions by our competitors, may have an effect on our revenues.

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 potential drug compounds 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 potential drug compounds cannot be manufactured at a commercial scale and, therefore, they may not be economical to produce. Our potential drug compounds could also fail to achieve market acceptance or be precluded from commercialization by proprietary rights of third parties. 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 than our own, or if scientific developments change our understanding of the potential scope and utility of our potential drug compounds, then our technologies and future potential drug compounds may be rendered undesirable or obsolete.

We face significant competition from industry participants that are pursuing technologies similar to those that we are pursuing and are developing pharmaceutical products that are competitive with our potential drug compounds. 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 potential drug compounds 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.


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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 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 acquisitions, joint ventures, licensing arrangements 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 patents that we may need for the development of our potential drug compounds. 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 potential drug compounds in clinical trials may expose us to liability claims, which may cost us a 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 potential drug compounds. We currently do not have any potential drug compounds in clinical trials, however, when any of our potential drug compounds enter into clinical trials or become marketed products they could potentially harm people or allegedly harm people and we may be subject to costly and damaging product liability claims. Some of the patients who participate in clinical trials are already critically ill when they enter a trial. 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 that 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, causing our business to suffer.


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The patent positions of biopharmaceutical products 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 own patents related to certain of our potential drug compounds. However, these patents do not ensure the protection of our intellectual property for a number of reasons, including the following:

  1.

Competitors may interfere with our patent 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 on their patents and therefore cannot practice our technology as claimed under our patents and patent applications. Competitors may also contest our patents and patent application, if issued, by showing the patent examiner that the invention was not original, was not novel or was obvious. In litigation, a competitor could claim that our patents and patent application are not valid for a number of reasons. If a court agrees, we would lose that patents or patent application. As a company, we have no meaningful experience with competitors interfering with our patents or patent applications.

       
  2.

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.

       
  3.

Receipt of a patent may not provide much practical protection. If we receive a patent with a narrow scope, then it will be easier for competitors to design products that do not infringe on our patent.

       
  4.

In addition, competitors also seek patent protection for their inventions. Due to the number of patents in our field, we cannot be certain that we do not infringe on existing patents or that we will not infringe on patents granted in the future. If a patent holder believes our potential drug compound infringes on their patent, the patent holder may sue us even if we have received patent protection for our technology. If someone else claims we infringe on their patent, we would face a number of issues which could cause a slow down or cessation of our research and development, including the following:

       
  (a)

Defending a lawsuit takes significant time and can be very expensive.

       
  (b)

If the court decides that our potential drug compound infringes on the competitor’s patent, we may have to pay substantial damages for past infringement.

       
  (c)

The court may prohibit us from selling or licensing the potential drug compound unless the patent holder licenses the patent to us. The patent holder is not required to grant us a license. If a license is available, we may have to pay substantial royalties or grant cross licenses to our patents.

       
  (d)

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.

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 else 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.


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We may also support and collaborate in research conducted by government organizations, hospitals, universities or other educational institutions. These research partners may be unwilling to grant us any exclusive rights to technology or products derived from these collaborations prior to entering into the relationship.

If we do not obtain required 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 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.

We will incur increased costs as a result of recently enacted and proposed changes in laws and regulations and we cannot predict the impact of any future changes in law.

We face burdens relating to the recent trend toward stricter corporate governance and financial reporting standards. Legislations or regulations such as Section 404 of the Sarbanes-Oxley Act of 2002 follow the trend of imposing stricter corporate governance and financial reporting standards have led to an increase in our costs of compliance including increases in consulting, auditing and legal fees. Any new rules could make it more difficult or more costly for us to obtain certain types of insurance, including directors’ and officers’ liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers. A failure to comply with these new laws and regulations may impact market perception of our financial condition and could materially harm our business. Additionally, it is unclear what additional laws or regulations may develop, and we cannot predict the ultimate impact of any future changes in law.

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 the liquidity of our common stock and 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 liquidity and 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 the 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:

  • actual or anticipated variations in our quarterly operating results;

  • announcements of new services, products, acquisitions or strategic relationships by us or our competitors;

  • changes in accounting treatments or principles;

  • changes in earnings estimates by securities analysts and in analyst recommendations; and

  • general political, economic, regulatory and market conditions.

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.


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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 150,000,000 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 of 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 on the OTC Bulletin Board 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. Our common stock is quoted on the OTC Bulletin Board service of the Financial Industry Regulatory Authority. Trading in stock quoted on the OTC Bulletin Board 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. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Bulletin Board is not a stock exchange, and trading of securities on the OTC Bulletin Board is often more sporadic than the trading of securities listed on a stock exchange like NASDAQ. 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.

Our stock is classed as a “penny stock”. Trading of our stock may be restricted by the Securities and Exchange Commission’s penny stock regulations which may limit a stockholder’s ability to buy and sell our stock.

Our stock is a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 (excluding the value of the primary residence of such individuals) or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the Securities and Exchange Commission which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.


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The Financial Industry Regulatory Authority sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.

In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority or FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for shares of our common stock.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults upon Senior Securities.

None.

Item 4. (Removed and Reserved).

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibit
Number

Description
(3)

Articles of Incorporation and Bylaws

3.1

Articles of Incorporation (incorporated by reference to an exhibit to our Registration Statement on Form SB-2 filed on January 13, 2005)

3.2

Bylaws (incorporated by reference to an exhibit to our Registration Statement on Form SB-2 filed on January 13, 2005)

3.3

Articles of Merger filed with the Secretary of State of Nevada on January 10, 2007 and which is effective January 25, 2007 (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on January 25, 2007)

(4)

Instruments defining rights of security holders, including indentures

4.1

Specimen Stock Certificate (incorporated by reference to an exhibit to our Registration Statement on Form SB-2 filed on January 13, 2005)

4.2

Form of Convertible Loan Agreement (incorporated by reference to an exhibit to our Form 8-K filed on April 3, 2009)

4.3

8% Convertible Loan Agreement dated June 3, 2009 (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on June 23, 2009)

4.4

8% Convertible Loan Agreement dated June 19, 2009 (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on June 26, 2009)

(10)

Material Contracts

10.1

Agreement between Anavex Life Sciences Corp. and Dr. Alexandre Vamvakides dated January 31, 2007 (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on February 7, 2007)

10.2

Abstract of Disclosure of Greek Patent Number 1002616 (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on February 7, 2007)



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Exhibit
Number

Description
10.3

Abstract of Disclosure of Greek Patent Number 1004208 (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on February 7, 2007)

10.4

Abstract of Disclosure of Greek Patent Number 1004868 (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on February 7, 2007)

10.5

Written description of Greek Patent Application Number 20070100020 (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on February 7, 2007)

10.6

Form of Stock Option Agreement (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on February 22, 2007)

10.7

Shares for Services and Subscription Agreement dated September 11, 2007 between our company and Eurogenet Labs S.A. (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on September 27, 2007)

10.8

2007 Stock Option Plan (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on September 28, 2007)

10.9

Consulting Agreement with Cameron Durrant dated May 20, 2008 (incorporated by reference to an exhibit to our Quarterly Report on Form 10-QSB filed on August 18, 2008

10.10

Form of Convertible Loan Agreement (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on April 3, 2009)

10.11

Consulting Agreement with Tariq Arshad dated March 2, 2009 (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on April 3, 2009)

10.13

Consulting Agreement with Dr. Mark Smith dated January 13, 2009 (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on April 3, 2009)

10.14

Form of Subscription Agreement (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on April 3, 2009)

10.15

Form of Warrant Certificate (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on April 3, 2009)

10.16

Amended Consulting Agreement with Cameron Durrant dated May 14, 2009 (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on June 23, 2009)

10.17

CEO Consulting Agreement with Dr. Herve de Kergrohen dated June 12, 2009 (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on June 23, 2009)

10.18

Form of Private Placement subscription agreement dated June 15, 2009 (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on June 23, 2009)

10.19

Shares for Services Agreement with Andreas Eleuthariadis dated June 10, 2009 (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on June 23, 2009)

10.20

Shares for Services Agreement with Vasileios Kourafalos dated June 10, 2009 (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on June 23, 2009)

10.21

Shares for Services Agreement with George Kalkanis dated June 10, 2009 (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on June 23, 2009)

10.22

Stock Option Agreement with Alexandre Vamvakides dated June 11, 2009 (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on June 23, 2009)

10.23

Form of Private Placement Subscription Agreement Convertible Loan (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on June 26, 2009)

10.24

Form of Private Placement Subscription Agreement for Units (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on June 26, 2009)

10.25

Consultant Services Agreement with NAD Ltd. dated July 1, 2009 (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on November 24, 2009)

10.26

Form of Subscription Agreement (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on November 24, 2009)

10.27

Form of Warrant Certificate (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on August 12, 2009)

10.28

Stock Option Agreement with Alexander Vamvakides dated October 19, 2009 (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on November 24, 2009)



21

Exhibit
Number

Description
10.29

Promissory note issued to Stonehedge Limited on January 1, 2010 (incorporated by reference to an exhibit to our Quarterly Report on Form 10-Q filed on March 31, 2010)

10.30

Second Amended Consulting Agreement with Dr. Cameron Durrant dated January 2, 2010 (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on April 9, 2010)

10.31

Contract Lease Agreement with Euro Genet Labs SA dated February 1, 2010 (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on April 9, 2010)

10.32

Form of Subscription Agreement (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on April 9, 2010)

10.33

Form of Warrant Certificate (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on April 9, 2010)

10.34

Form of Convertible Loan Agreement (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on April 9, 2010)

10.35

Form of Subscription Agreement for US subscribers (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on July 6, 2010)

10.36

Form of Subscription Agreement for non-US subscribers (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on July 6, 2010)

10.37

Form of Warrant Certificate for US warrant holders (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on July 6, 2010)

10.38

Form of Warrant Certificate for non-US warrant holders (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on July 6, 2010)

10.39

Shares for Services Agreement dated July 5, 2010 with Eurogenet Labs SA (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on July 9, 2010)

10.40

Form of Warrant Certificate for non-US warrant holders (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on July 9, 2010)

10.41

Agreement for Services with Genesis Biopharma Group LLC dated August 10, 2010 (incorporated by reference to an exhibit of our Current Report on Form 8-K filed on August 18, 2010) (portions of the exhibit have been omitted pursuant to a request for confidential treatment)

10.42

Agreement for Services with ABX-CRO Advanced Pharmaceutical Services dated August 10, 2010 (incorporated by reference to an exhibit of our Current Report on Form 8-K filed on August 18, 2010) (portions of the exhibit have been omitted pursuant to a request for confidential treatment)

10.43

Form of Subscription Agreement (US Purchasers) (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on September 9, 2010)

10.44

Form of Subscription Agreement (Canadian and Offshore Purchasers) (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on September 9, 2010)

10.45

Form of Warrant Certificate (US warrant holders)(incorporated by reference to an exhibit to our Current Report on Form 8-K filed on September 9, 2010)

10.46

Form of Warrant Certificate (Canadian and Offshore warrant holders) (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on September 9, 2010)

10.47

Consulting Agreement dated August 2, 2010 with Tom Skarpelos (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on September 27, 2010)

10.48

Independent Contractor Agreement dated September 1, 2010 with David Tousley (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on September 27, 2010)

10.49

Sublease Contract with Genesis Research LLC dated September 15, 2010 (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on September 27, 2010)

10.50

Form of Subscription Agreement (US Purchasers) (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on November 22, 2010)

10.51

Form of Subscription Agreement (non-US Purchasers) (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on November 22, 2010)

10.52

Form of Warrant Certificate (US Warrant Holders) (US Purchasers) (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on November 22, 2010)

10.53

Form of Warrant Certificate (non-US Warrant Holders) (US Purchasers) (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on November 22, 2010)



22

Exhibit
Number

Description
10.54

Shares for Service and Subscription Agreement dated November 1, 2010 with Eurogenet Labs SA (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on November 22, 2010)

10.55

Subscription Agreement with Stonehedge Limited dated November 17, 2010 (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on November 22, 2010)

10.56

Form of Subscription Agreement (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on November 30, 2010)

10.57

Form of Warrant Certificate Form of Subscription Agreement (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on November 30, 2010)

10.58

Shares for Services Agreement Form of Subscription Agreement (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on November 30, 2010)

10.59

Form of Subscription Agreement (non-US Purchasers) (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on February 7, 2011)

10.60

Form of Warrant Certificate (non-US Warrant Holders) (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on February 7, 2011)

10.61

Termination Agreement dated February 2, 2011 with Genesis BioPharma Group, LLC (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on February 7, 2011)

10.62

Independent Contractor Agreement with Harvey Lalach dated February 1, 2011 (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on February 7, 2011)

10.63

Independent Contractor Agreement with Dr. Angelos Stergiou dated February 1, 2011 (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on February 7, 2011)

10.64

Amended and Restated 2007 Stock Option Plan (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on February 8, 2011)

(14)

Code of Ethics

14.1

Code of Conduct (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on September 28, 2007)

(21)

Subsidiaries

21.1

Anavex Life Sciences (France) SA, incorporated under the laws of France

(31)

Section 302 Certifications

31.1*

Section 302 Certification of Dr. Cameron Durrant

31.2*

Section 302 Certification of David Tousley

(32)

Section 906 Certifications

32.1*

Section 906 Certification of Dr. Cameron Durrant

32.2*

Section 906 Certification of David Tousley

(99)

Additional Exhibits

99.1

Insider Trading Policy Adopted August 27, 2010 (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on September 27, 2010)

* Filed herewith.


23

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ANAVEX LIFE SCIENCES CORP.

By:  
/s/ Cameron Durrant  
Dr. Cameron Durrant  
Executive Chairman and Director  
(Principal Executive Officer)  
Date: February 14, 2011  
   
   
   
/s/ David Tousley  
David Tousley  
Chief Financial Officer and Director  
(Principal Financial Officer and Principal Accounting Officer)  
Date: February 14, 2011