Attached files
| file | filename |
|---|---|
| EX-32.1 - EXHIBIT 32.1 - ANAVEX LIFE SCIENCES CORP. | s104917_ex32-1.htm |
| EX-31.2 - EXHIBIT 31.2 - ANAVEX LIFE SCIENCES CORP. | s104917_ex31-2.htm |
| EX-31.1 - EXHIBIT 31.1 - ANAVEX LIFE SCIENCES CORP. | s104917_ex31-1.htm |
| EX-23.1 - EXHIBIT 23-1 - ANAVEX LIFE SCIENCES CORP. | s104917_ex23-1.htm |
| EX-14.1 - EXHIBIT 14.1 - ANAVEX LIFE SCIENCES CORP. | s104917_ex14-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2016
¨ 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 | 98-0608404 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 51 W 52nd Street, 7th Floor, New York, NY USA | 10019 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code 1-844-689-3939
Securities registered under Section 12(b) of the Act:
| Common Stock, $0.001 par value | NASDAQ Stock Market LLC | |
| Title of each class | Name of each exchange on which registered |
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of class)
Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ¨ No x
Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yes ¨ No x
Indicate by checkmark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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 x No ¨
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
¨
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ¨ | Accelerated filer x | |
| Non-accelerated filer ¨ | (Do not check if a smaller reporting company) | Smaller reporting company ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ¨ No x
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $163,478,217 based on a price of $4.90 per share, being the closing price of the registrant’s common stock on March 31, 2016.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date 39,610,967 issued and outstanding as of December 12, 2016.
DOCUMENTS INCORPORATED BY REFERENCE
None.
TABLE OF CONTENTS
ii
Forward Looking Statements.
This Annual Report on Form 10-K includes forward-looking statements. All statements other than statements of historical facts contained in this Annual Report on Form 10-K, including statements regarding our anticipated future clinical and regulatory milestone events, future financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. Such forward-looking statements include, without limitation, statements regarding the anticipated start dates, durations and completion dates of our ongoing and future clinical studies, statements regarding the anticipated designs of our future clinical studies, statements regarding our anticipated future regulatory submissions and statements regarding our anticipated future cash position. We have based these forward-looking statements largely on our current expectations and projections about future events, including the responses we expect from the U.S. Food and Drug Administration, or FDA, and other regulatory authorities and financial trends that we believe may affect our financial condition, results of operations, business strategy, preclinical and clinical trials and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions including without limitation the risks described in “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K. These risks are not exhaustive. Other sections of this Annual Report on Form 10-K include additional factors which could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable laws including the securities laws of the United States, we assume no obligation to update or supplement forward-looking statements.
As used in this Annual Report on Form 10-K, the terms “we,” “us,” “our,” and “Anavex” mean Anavex Life Sciences Corp., unless the context clearly requires otherwise.
iii
Anavex Life Sciences Corp. (the “Company”) is a clinical stage biopharmaceutical company engaged in the development of differentiated therapeutics for the treatment of neurodegenerative and neurodevelopmental diseases including drug candidates to treat Alzheimer’s disease, other central nervous system (“CNS”) diseases, pain and various types of cancer. The Company’s lead compound ANAVEXTM 2-73 is being developed to treat Alzheimer’s disease, Parkinson’s disease and potentially other central nervous system diseases, including rare diseases, such as Rett syndrome.
In November 2016, a Phase 2a clinical trial going over 52 weeks was completed for ANAVEXTM 2-73 in mild-to-moderate Alzheimer’s patients. This open-label randomized trial met both primary and secondary endpoints, and was designed to assess the safety and exploratory efficacy of ANAVEXTM 2-73 in 32 patients. ANAVEXTM 2-73 targets sigma-1 and muscarinic receptors, which have been shown in preclinical studies to reduce stress levels in the brain believed to restore cellular homeostasis and to reverse the pathological hallmarks observed in Alzheimer’s disease. ANAVEXTM 2-73 showed no serious adverse events in a previously performed Phase 1 study. In pre-clinical studies, ANAVEXTM 2-73 demonstrated anti-amnesic and neuroprotective properties in various animal models including the transgenic mouse model Tg2576. In March 2016, we received approval from the Ethics Committee in Australia to extend the ongoing Phase 2a clinical trial, which had been requested by patients and their caregivers. The trial extension allows participants who complete 52 weeks in PART B to roll-over into a new trial and continue taking ANAVEXTM 2-73 for an additional 104 weeks, providing an opportunity to gather extended safety data. The trial is independent of the Company’s planned larger Phase 2/3 double-blind, placebo-controlled study of ANAVEXTM 2-73 in Alzheimer’s disease.
In February 2016, the Company presented positive preclinical data for ANAVEXTM 2-73 in Rett syndrome, a rare neurodevelopmental disease indication. The study was funded by the Rettsyndrome.org foundation.
In September 2016, the Company presented positive preclinical data for ANAVEXTM 2-73 in Parkinson’s disease, which demonstrated significant improvements on all measures: behavioral, histopathological, and neuroinflammatory endpoints. The study was funded by the Michael J Fox Foundation (“MJFF”).
We intend to identify and initiate discussions with potential commercial partners within the next 12 months. Further, we may acquire or develop new intellectual property and assign, license, or otherwise transfer our intellectual property to further our goals.
Effective October 7, 2015, the Company effected a reverse stock split on the basis of 1:4. As such, the Company’s authorized capital was decreased from 400,000,000 shares of common stock, par value $0.001 to 100,000,000 shares of common stock, par value $0.001 and all shares of common stock issued and outstanding were decreased on the basis of one new share for each four old shares.
Our Pipeline
Our research and development pipeline includes one clinical drug candidate and several compounds in different stages of pre-clinical study.
Our proprietary SIGMACEPTOR™ Discovery Platform produced small molecule drug candidates with unique modes of action, based on our understanding of sigma receptors. Sigma receptors may be targets for therapeutics to combat many human diseases, both of neurodegenerative nature, including Alzheimer’s disease, as well as of neurodevelopmental nature, like Rett syndrome, a rare disease. When bound by the appropriate ligands, sigma receptors influence the functioning of multiple biochemical signals that are involved in the pathogenesis (origin or development) of disease.
| 1 |
Compounds that have been subjects of our research include the following:
ANAVEXTM 2-73
ANAVEXTM 2-73 may offer a disease-modifying approach in Alzheimer’s disease (AD) by using ligands that activate sigma-1 receptors.
In AD animal models, ANAVEXTM 2-73 has shown pharmacological, histological and behavioral evidence as a potential neuroprotective, anti-amnesic, anti-convulsive and anti-depressive therapeutic agent, due to its potent affinity to sigma-1 receptors and moderate affinities to M1-4 type muscarinic receptors. In addition, ANAVEXTM 2-73 has shown a potential dual mechanism which may impact both amyloid and tau pathology. In a transgenic AD animal model Tg2576 ANAVEXTM 2-73 induced a statistically significant neuroprotective effect against the development of oxidative stress in the mouse brain, as well as significantly increased the expression of functional and synaptic plasticity markers that is apparently amyloid-beta independent. It also statistically alleviated the learning and memory deficits developed over time in the animals, regardless of sex, both in terms of spatial working memory and long-term spatial reference memory.
Based on the results of pre-clinical testing, we initiated and completed a Phase 1 single ascending dose (SAD) clinical trial of ANAVEXTM 2-73 in 2011. In this Phase 1 SAD trial, the maximum tolerated single dose was defined per protocol as 55-60 mg. This dose is above the equivalent dose shown to have positive effects in mouse models of AD. There were no significant changes in laboratory or electrocardiogram (ECG) parameters. ANAVEXTM 2-73 was well tolerated below the 55-60 mg dose with only mild adverse events in some subjects. Observed adverse events at doses above the maximum tolerated single dose included headache and dizziness, which were moderate in severity and reversible. These side effects are often seen with drugs that target CNS conditions, including AD.
The ANAVEXTM 2-73 Phase 1 SAD trial was conducted as a randomized, placebo-controlled study. Healthy male volunteers between the ages of 18 and 55 received single, ascending oral doses over the course of the trial. Study endpoints included safety and tolerability together with pharmacokinetic parameters. Pharmacokinetics includes the absorption and distribution of a drug, the rate at which a drug enters the blood and the duration of its effect, as well as chemical changes of the substance in the body. This study was conducted in Germany in collaboration with ABX-CRO, a clinical research organization that has conducted several Alzheimer’s disease studies, and the Technical University of Dresden.
In December 2014, a Phase 2a clinical trial was initiated for ANAVEX 2-73TM, which is being evaluated for the treatment of Alzheimer’s disease. The open-label randomized trial is designed to assess the safety and exploratory efficacy of ANAVEXTM 2-73 in 32 patients with mild to moderate Alzheimer’s disease. ANAVEXTM 2-73 targets sigma-1 and muscarinic receptors, which have been shown in preclinical studies to reduce stress levels in the brain believed to restore cellular homeostasis and to reverse the pathological hallmarks observed in Alzheimer’s disease. ANAVEXTM 2-73 showed no serious adverse events in a previously performed Phase 1 study. In pre-clinical studies ANAVEXTM 2-73 demonstrated anti-amnesic and neuroprotective properties in various animal models including the transgenic mouse model Tg2576.
The Phase 2a study met both primary and secondary objectives of the study. The 31-week preliminary exploratory safety and efficacy data from the ongoing Phase 2a study of ANAVEXTM 2-73 in Alzheimer’s patients, with most receiving also donepezil, the current standard of care, demonstrated favorable safety, maximum tolerated dose, positive dose response, sustained efficacy response through 31 weeks for both cognitive and functional measures, as well as positive unexpected therapeutic response events. ANAVEXTM 2-73 continues to demonstrate a favorable adverse event (AE) profile through 31 weeks in a patient population of elderly Alzheimer’s patients with varying degrees of physical fragility. The most common side effects across all AE categories tended to be of mild severity grade 1, and were resolved with dose reductions that were anticipated within the adaptive design of the study protocol.
| 2 |
At 41 weeks, Alzheimer’s patients taking a daily oral dose of ANAVEXTM 2-73 in the exploratory, not yet dose optimized Phase 2a clinical trial, showed a stabilization of cognitive and functional measures. This data of stabilization is promising since Alzheimer’s disease is a progressive disease where current therapeutics are only able to temporarily slow the worsening of dementia symptoms and not stop the disease from progressing. At 41 weeks, oral daily dosing between 10mg and 50mg, ANAVEXTM 2-73 was well tolerated, and no patients discontinued treatment due to adverse events. There were no clinically significant treatment-related adverse events, and no serious adverse events.
Pre-specified exploratory analyses included the cognitive (MMSE) and the functional (ADCS-ADL) changes from baseline. A continued stabilization of both cognitive (MMSE) and functional (ADCS-ADL) measures in patients treated with ANAVEXTM 2-73 was observed. This correlation was positive with all measured scores (MMSE, ADCS-ADL, Cogstate, HAM-D and EEG/ERP).
ANAVEXTM 2-73 data presented meets prerequisite information in order to progress into Phase 2/3 placebo controlled studies, which is currently in the planning phase.
Recent preclinical data validates ANAVEXTM 2-73 as a prospective platform drug for other neurodegenerative diseases beyond Alzheimer’s as well as neurodevelopmental diseases, more specifically, Parkinson’s disease, epilepsy and Rett syndrome. For Parkinson’s disease, data demonstrates significant improvements and restoration of function in a classic animal model of Parkinson’s disease. Significant improvements were seen on all measures tested: behavioral, histopathological, and neuroinflammatory endpoints. For epilepsy, data demonstrates both significant and dose related improvement in the reduction of seizures, as well as significant synergy with each of three generations of epilepsy drugs currently on the market. In Rett syndrome, a rare neurodevelopmental disease indication, administration of ANAVEXTM 2-73 resulted in both significant and dose related improvements in an array of behavioral paradigms in the MECP2 HET Rett syndrome disease model.
ANAVEX 3-71
ANAVEX 3-71, previously named AF710B is a preclinical drug candidate with a novel mechanism of action via sigma-1 receptor activation and M1 muscarinic allosteric modulation, which has shown to enhance neuroprotection and cognition in Alzheimer's disease. ANAVEX 3-71 is a CNS-penetrable mono-therapy that bridges treatment of both cognitive impairments with disease modifications. It is highly effective in very small doses against the major Alzheimer's hallmarks in transgenic (3xTg-AD) mice, including cognitive deficits, amyloid and tau pathologies, and also has beneficial effects on inflammation and mitochondrial dysfunctions. ANAVEX 3-71 indicates extensive therapeutic advantages in Alzheimer's and other protein-aggregation-related diseases given its ability to enhance neuroprotection and cognition via sigma-1 receptor activation and M1 muscarinic allosteric modulation.
A recent preclinical study examined the response of ANAVEX 3-71 in aged transgenic animal models, and showed a significant reduction in rate of cognitive deficit, amyloid beta pathology and inflammation with the administration of ANAVEX 3-71. In April 2016, the U.S. Food and Drug Administration (“FDA”) granted Orphan Drug Designation (“ODD”) to ANAVEX 3-71 for the treatment of Frontotemporal dementia (“FTD”).
ANAVEX 1-41
ANAVEX 1-41 is a sigma-1 agonist. Pre-clinical tests revealed significant neuroprotective benefits (i.e., protects nerve cells from degeneration or death) through the modulation of endoplasmic reticulum, mitochondrial and oxidative stress, which damages and destroys cells and is believed by some scientists to be a primary cause of AD. In addition, in animal models, ANAVEX 1-41 prevented the expression of caspase-3, an enzyme that plays a key role in apoptosis (programmed cell death) and loss of cells in the hippocampus, the part of the brain that regulates learning, emotion and memory. These activities involve both muscarinic and sigma-1 receptor systems through a novel mechanism of action.
| 3 |
ANAVEX 1037
ANAVEX 1037 is designed for the treatment of prostate cancer. It is a low molecular weight, synthetic compound exhibiting high affinity for sigma-1 receptors at nanomolar levels and moderate affinity for sigma-2 receptors and sodium channels at micromolar levels. In advanced pre-clinical studies, this compound revealed antitumor potential with no toxic side effects. It has also been shown to selectively kill human cancer cells without affecting normal/healthy cells and also to significantly suppress tumor growth in immune-deficient mice models. Scientific publications describe sigma receptor ligands positively, highlighting the possibility that these ligands may stop tumor growth and induce selective cell death in various tumor cell lines. Sigma receptors are highly expressed in different tumor cell types. Binding by appropriate sigma-1 and/or sigma-2 ligands can induce selective apoptosis. In addition, through tumor cell membrane reorganization and interactions with ion channels, our drug candidates may play an important role in inhibiting the processes of metastasis (spreading of cancer cells from the original site to other parts of the body), angiogenesis (the formation of new blood vessels) and tumor cell proliferation.
ANAVEX 1066
ANAVEX 1066, a mixed sigma-1/sigma-2 ligand is designed for the potential treatment of neuropathic pain and visceral pain. ANAVEX 1066 was tested in two preclinical models of neuropathic and visceral pain that have been extensively validated in rats. In the chronic constriction injury (CCI) model of neuropathic pain, a single oral administration of ANAVEX 1066 dose-dependently restored the nociceptive threshold in the affected paw to normal levels while leaving the contralateral healthy paw unchanged. Efficacy was rapid and remained significant for two hours. In a model of visceral pain, chronic colonic hypersensitivity was induced by injection of an inflammatory agent directly into the colon and a single oral administration of ANAVEX 1066 returned the nociceptive threshold to control levels in a dose-dependent manner. Companion studies in rats demonstrated the lack of any effects on normal gastrointestinal transit with ANAVEX 1066 and a favorable safety profile in a battery of behavioral measures.
Our compounds are in the pre-clinical and clinical testing stages of development, and there is no guarantee that the activity demonstrated in pre-clinical models will be shown in human testing.
Our Target Indications
We have developed compounds with potential application to two broad categories and several specific indications. The two categories are diseases of the central nervous system, and cancer. Specific indications include:
| · | Alzheimer’s disease - In 2015, an estimated 5.3 million Americans were suffering from Alzheimer’s disease. The Alzheimer’s Association® reports that by 2025, 7.1 million Americans will be afflicted by the disease, a 40 percent increase from currently affected patients. Medications on the market today treat only the symptoms of Alzheimer’s disease and do not have the ability to stop its onset or its progression. There is an urgent and unmet need for both a disease modifying cure for Alzheimer’s disease as well as for better symptomatic treatments. |
| · | Parkinson’s disease – Parkinson’s disease is a progressive disease of the nervous system marked by tremors, muscular rigidity, and slow, imprecise movement. It is associated with degeneration of the basal ganglia of the brain and a deficiency of the neurotransmitter dopamine. Parkinson’s disease afflicts more than 10 million people worldwide, typically middle-aged and elderly people. Parkinson’s disease market is set to expand from $2.1 billion in 2014 to $3.2 billion by 2021, according to business intelligence provider GBI Research. |
| 4 |
| · | Rett syndrome - Rett syndrome is a rare non-inherited genetic postnatal progressive neurodevelopmental disorder that occurs almost exclusively in girls and leads to severe impairments, affecting nearly every aspect of the child’s life: their ability to speak, walk, eat, and even breathe easily. Rett syndrome is caused by mutations in the MECP2 gene and strikes all racial and ethnic groups and occurs worldwide in approximately 1 in every 10,000-15,000 live female births. |
| · | Depression - Depression is a major cause of morbidity worldwide according to the World Health Organization. Pharmaceutical treatment for depression is dominated by blockbuster brands, with the leading nine brands accounting for approximately 75% of total sales. However, the dominance of the leading brands is waning, largely due to the effects of patent expiration and generic competition. |
| · | Epilepsy - Epilepsy is a common chronic neurological disorder characterized by recurrent unprovoked seizures. These seizures are transient signs and/or symptoms of abnormal, excessive or synchronous neuronal activity in the brain. According to the Centers for Disease Control and Prevention, epilepsy affects 2.2 million Americans. Today, epilepsy is often controlled, but not cured, with medication that is categorized as older traditional anti-epileptic drugs and second generation anti epileptic drugs. Because epilepsy afflicts sufferers in different ways, there is a need for drugs used in combination with both traditional anti-epileptic drugs and second generation anti-epileptic drugs. GBI Research estimates that the epilepsy market will increase to $4.5 billion by 2019. |
| · | Neuropathic Pain – We define neuralgia, or neuropathic pain, as pain that is not related to activation of pain receptor cells in any part of the body. Neuralgia is more difficult to treat than some other types of pain because it does not respond well to normal pain medications. Special medications have become more specific to neuralgia and typically fall under the category of membrane stabilizing drugs or antidepressants. |
| · | Malignant Melanoma - Predominantly a skin cancer, malignant melanoma can also occur in melanocytes found in the bowel and the eye. Malignant melanoma accounts for 75% of all deaths associated with skin cancer. The treatment includes surgical removal of the tumor, adjuvant treatment, chemo and immunotherapy, or radiation therapy. According to IMS Health the worldwide Malignant Melanoma market is expected to grow to $4.4 billion by 2022. |
| · | Prostate Cancer – Specific to men, prostate cancer is a form of cancer that develops in the prostate, a gland in the male reproductive system. The cancer cells may metastasize from the prostate to other parts of the body, particularly the bones and lymph nodes. Drug therapeutics for Prostate Cancer are expected to increase to nearly $18.6 billion in 2017 according to BCC Research. |
| · | Pancreatic Cancer - Pancreatic cancer is a malignant neoplasm of the pancreas. In the United States approximately 45,000 new cases of pancreatic cancer will be diagnosed this year and approximately 38,000 patients will die as a result of their cancer. Sales predictions by GlobalData forecast that the market for the pharmaceutical treatment of pancreatic cancer in the five largest European countries and the United States, will increase to $1.63 billion by 2017. |
Competition
The pharmaceutical industry is intensely competitive.
At this time, we view our competition as biomedical development companies that are trying to discover and develop compounds to be used in the treatment of Alzheimer’s disease and other CNS diseases, and those companies already doing so. Those companies include Biogen (NASDAQ:BIIB), Axovant Sciences Ltd. (NYSE: AXON), Perrigo Company Plc (NYSE:PRGO), Pfizer Inc. (NYSE:PFE), Allergan Plc (NYSE:AGN), Novartis AG (NYSE:NVS), GlaxoSmithKline Plc (NYSE:GSK), Merck & Co. Inc. (NYSE:MRK), Eli Lilly & Co. (NYSE: LLY), Johnson & Johnson (NYSE:JNJ) and Roche Holding AG (VTX:ROG).
| 5 |
Each of our competitors have greater capital resources, larger overall research and development staffs and facilities, and a longer history in drug discovery and development, obtaining regulatory approval, and pharmaceutical product manufacturing and marketing than we do. With these additional resources, our competitors will be able to respond to the rapid and significant technological changes in the biotechnology and pharmaceutical industries faster than we can. Our future success will depend in large part on our ability to acquire funding for our research and development. To continue to acquire funding for our research and development, we will likely have to show progress toward our goals and we will eventually be expected to develop a compound that may result in a transaction with another pharmaceutical company.
Patents, Trademarks and Intellectual Property
Anavex holds ownership or exclusive rights to three issued U.S. patent and eight U.S. patent applications with various international counterpart applications, all of which relate to drug candidates and methods associated therewith. The most recent U.S. patent application was filed in November, 2016. We regard patents and other intellectual property rights as corporate assets. Accordingly, we attempt to optimize the value of intellectual property in developing our business strategy including the selective development, protection, and exploitation of our intellectual property rights.
In addition to filings made with intellectual property organizations, we protect our intellectual property and confidential information by means of carefully considered processes of communication and the sharing of information, and by the use of confidentiality and non-disclosure agreements and provisions for the same in contractor’s agreements. While no agreement offers absolute protection, such agreements provide some form of recourse in the event of disclosure, or anticipated disclosure.
Our intellectual property position, like that of many biomedical companies, is uncertain and involves complex legal and technical questions for which important legal principles are unresolved. We may file additional patent applications in the United States, or in other jurisdictions for further inventions. We may not be successful in obtaining critical claims or in protecting our potential drug compounds or processes. Even if we do obtain patents, they may not adequately protect the technology we own or have licensed. In addition, others may challenge, seek to invalidate, infringe or circumvent any patents we own or license, and rights we receive under those patents may not provide competitive advantages to us. Further, the manufacture, use or sale of our potential drug compounds may infringe the patent rights of others.
Our success will also depend in part on our ability to commercialize our compounds without infringing the proprietary rights of others. We have not conducted extensive freedom of use patent searches and no assurance can be given that patents do not exist or could not be filed which would have an adverse effect on our ability to market our technology or maintain our competitive position with respect to our technology. If our compounds or other subject matter are claimed under other existing United States or other patents or are otherwise protected by third party proprietary rights, we may be subject to infringement actions. In such event, we may challenge the validity of such patents or other proprietary rights or we may be required to obtain licenses from such companies in order to develop, manufacture or market our technology. There can be no assurances that we would be able to obtain such licenses or that such licenses, if available, could be obtained on commercially reasonable terms. Furthermore, the failure to either develop a commercially viable alternative or obtain such licenses could result in delays in marketing all of our potential drug compounds based on our drug technology or the inability to proceed with the development, manufacture or sale of potential drug compounds requiring such licenses, which could have a material adverse effect on our business, financial condition and results of operations. If we defend ourselves against charges of patent infringement or to protect our proprietary rights against third parties, substantial costs will be incurred regardless of whether we are successful. Such proceedings are typically protracted with no certainty of success. An adverse outcome could subject us to significant liabilities to third parties and force us to curtail or cease our research and development of our technology.
| 6 |
Government Approval
Regulation by governmental authorities in the United States and foreign countries is a significant factor in the development, manufacture, and expected marketing of our potential drug compounds and in potential future research and development activities. The nature and extent to which such regulation will apply to us will vary depending on the nature of any potential drug compounds developed. We anticipate that all of our potential drug compounds will require regulatory approval by governmental agencies prior to commercialization.
In particular, human therapeutic products are subject to rigorous non-clinical and clinical testing and other approval procedures of the FDA and similar regulatory authorities in other countries. Various federal statutes and regulations also govern or influence testing, manufacturing, safety, labeling, storage, and record-keeping related to such products and their marketing. The process of obtaining these approvals and the subsequent compliance with the appropriate federal statutes and regulations requires substantial time and financial resources. Any failure by us or our collaborators to obtain, or any delay in obtaining, regulatory approval could adversely affect the marketing of any potential drug compounds developed by us, our ability to receive product revenues, and our liquidity and capital resources.
The steps ordinarily required before a new drug may be marketed in the United States, which are similar to steps required in most other countries, include:
| · | non-clinical laboratory tests, non-clinical studies in animals, formulation studies and the submission to the FDA of an investigational new drug application; |
| · | adequate and well-controlled clinical trials to establish the safety and efficacy of the drug; |
| · | the submission of a new drug application or biologic license application to the FDA; and |
| · | FDA review and approval of the new drug application or biologics license application. |
Non-clinical tests include laboratory evaluation of potential drug compound chemistry, formulation and toxicity, as well as animal studies. The results of non-clinical testing are submitted to the FDA as part of an investigational new drug application. A 30-day waiting period after the filing of each investigational new drug application is required prior to commencement of clinical testing in humans. At any time during the 30-day period or at any time thereafter, the FDA may halt proposed or ongoing clinical trials until the FDA authorizes trials under specified terms. The investigational new drug application process may be extremely costly and substantially delay the development of our potential drug compounds. Moreover, positive results of non-clinical tests will not necessarily indicate positive results in subsequent clinical trials. The FDA may require additional animal testing after an initial investigational new drug application is approved and prior to Phase III trials.
Clinical trials to support new drug applications are typically conducted in three sequential phases, although the phases may overlap. During Phase I, clinical trials are conducted with a small number of subjects to assess metabolism, pharmacokinetics, and pharmacological actions and safety, including side effects associated with increasing doses. Phase II usually involves studies in a limited patient population to assess the efficacy of the drug in specific, targeted indications; assess dosage tolerance and optimal dosage; and identify possible adverse effects and safety risks.
If a compound is found to be potentially effective and to have an acceptable safety profile in Phase I and II evaluations, Phase III trials are undertaken to further demonstrate clinical efficacy and to further test for safety within an expanded patient population at geographically dispersed clinical trial sites.
| 7 |
After successful completion of the required clinical trials, a new drug application is generally submitted. The FDA may request additional information before accepting the new drug application for filing, in which case the new drug application must be resubmitted with the additional information. Once the submission has been accepted for filing, the FDA reviews the new drug application and responds to the applicant. The FDA’s requests for additional information or clarification often significantly extends the review process. The FDA may refer the new drug application to an appropriate advisory committee for review, evaluation, and recommendation as to whether the new drug application should be approved, although the FDA is not bound by the recommendation of an advisory committee.
Sales outside the United States of potential drug compounds we develop will also be subject to foreign regulatory requirements governing human clinical trials and marketing for drugs. The requirements vary widely from country to country, but typically the registration and approval process takes several years and requires significant resources. In most cases, if the FDA has not approved a potential drug compound for sale in the United States, the potential drug compound may be exported for sale outside of the United States, only if it has been approved in any one of the following: the European Union, Canada, Australia, New Zealand, Japan, Israel, Switzerland and South Africa. There are specific FDA regulations that govern this process.
Research and Development Expenses
Historically, a significant portion of our operating expenses has related to research and development. See “Financial Statements and Supplementary Data” of this Annual Report for costs and expenses related to research and development, and other financial information for fiscal years 2016, 2015 and 2014.
Scientific Advisors
We are advised by scientists and physicians with experience relevant to our Company and our product candidates. In the past twelve months, our advisors included Drs Harald Hampel, MD, PhD, Jacqueline French, MD, Michael Gold, MD, John Harrison, PhD, Ottavio Arancio, MD, Norman Relkin, MD, PhD, Corinne Lasmezas, PhD, Tangui Maurice, PhD, Abraham Fisher, PhD, Paul Aisen, MD, Jeffrey Cummings, MD, Tanya Simuni, MD, Daniel Weintraub, MD, Kalpana Merchant, PhD.
Officers
One of our directors is engaged as an officer-employee of the Company serving in the capacity of Chief Executive Officer, president, and secretary.
Employees
We currently have ten full-time employees, and we retain several independent contractors on an as-needed basis. We believe that we have good relations with our employees.
Available Information
Our internet website address is www.anavex.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act are available free of charge through our website through a link to the website of the U.S. Securities and Exchange Commission. We include our website address in this report only as an inactive textual reference and do not intend it to be an active link to our website. The contents of our website are not incorporated into this report.
| 8 |
In addition to other information in this Annual Report on Form 10-K, the following risk factors should be carefully considered in evaluating our business because such factors may have a significant impact on our business, operating results, liquidity and financial condition. As a result of the risk factors set forth below, actual results could differ materially from those projected in any forward-looking statements. Additional risks and uncertainties not presently known to us, or that we currently consider to be immaterial, may also impact our business, operating results, liquidity and financial condition. If any such risks occur, our business, operating results, liquidity and financial condition could be materially affected in an adverse manner. Under such circumstances, the trading price of our securities could decline, and you may lose all or part of your investment.
Risks Related to our Company
We have had a history of losses and no revenue, which raise substantial doubt about our ability to continue as a going concern.
Since inception on January 23, 2004 through September 30, 2016, we have an accumulated deficit of $78,018,153. We can offer no assurance that we will ever operate profitably or that we will generate positive cash flow in the future. To date, we have not generated any revenues from our operations. Our history of losses and no revenues raise substantial doubt about our ability to continue as a going concern. As a result, our management expects the business to continue to experience negative cash flows for the foreseeable future and cannot predict when, if ever, our business might become profitable. We will need to raise additional funds, and such funds may not be available on commercially acceptable terms, if at all. If we are unable to raise funds on acceptable terms, we may not be able to execute our business plan, take advantage of future opportunities, or respond to competitive pressures or unanticipated requirements. This may seriously harm our business, financial condition and results of operations.
We are an early stage pharmaceutical research and development company and may never be able to successfully develop marketable products or generate any revenue. We have a very limited relevant operating history upon which an evaluation of our performance and prospects can be made. There is no assurance that our future operations will result in profits. If we cannot generate sufficient revenues, we may suspend or cease operations.
We are an early stage company and have not generated any revenues to date and have no operating history. All of our potential drug compounds are in the concept stage or early clinical development stage. Moreover, we cannot be certain that our research and development efforts will be successful or, if successful, that our potential drug compounds will ever be approved for sales to pharmaceutical companies or generate commercial revenues. We have no relevant operating history upon which an evaluation of our performance and prospects can be made. We are subject to all of the business risks associated with a new enterprise, including, but not limited to, risks of unforeseen capital requirements, failure of potential drug compounds either in non-clinical testing or in clinical trials, failure to establish business relationships and competitive disadvantages against larger and more established companies. If we fail to become profitable, we may suspend or cease operations.
We will need additional funding and may be unable to raise additional capital when needed, which would force us to delay, reduce or eliminate our research and development activities.
We will need to raise additional funding and the current economic conditions may have a negative impact on our ability to raise additional needed capital on terms that are favorable to our Company or at all. We may not be able to generate significant revenues for several years, if at all. Until we can generate significant revenues, if ever, we expect to satisfy our future cash needs through equity or debt financing. We cannot be certain that additional funding will be available on acceptable terms, or at all. If adequate funds are not available, we may be required to delay, reduce the scope of, or eliminate one or more of our research and development activities.
| 9 |
Risks Related to our Business
Even if we are able to develop our potential drug compounds, we may not be able to receive regulatory approval, or if approved, we may not be able to generate significant revenues or successfully commercialize our products, which will adversely affect our financial results and financial condition and we will have to delay or terminate some or all of our research and development plans which may force us to cease operations.
All of our potential drug compounds will require extensive additional research and development, including non-clinical testing and clinical trials, as well as regulatory approvals, before we can market them. We cannot predict if or when any of the potential drug compounds we intend to develop will be approved for marketing. There are many reasons that we may fail in our efforts to develop our potential drug compounds. These include:
| · | 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 can develop potentially marketable products, 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 |
| · | 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 pre-clinical testing and human studies; |
| · | the time and costs involved in obtaining regulatory approvals; |
| · | the time and costs involved in preparing, filing, prosecuting, securing, maintaining and enforcing patents; |
| · | competing technological and market developments; |
| · | our ability to establish additional collaborations; |
| · | changes in our existing collaborations; |
| 10 |
| · | 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 our intellectual property, merge with another entity or cease operations.
If we fail to demonstrate efficacy in our non-clinical studies and clinical trials our future business prospects, financial condition and operating results will be materially adversely affected.
The success of our research and development efforts will be greatly dependent upon our ability to demonstrate potential drug compound efficacy in non-clinical studies, as well as in clinical trials. Non-clinical studies involve testing potential drug compounds in appropriate non-human disease models to demonstrate efficacy and safety. Regulatory agencies evaluate these data carefully before they will approve clinical testing in humans. If certain non-clinical data reveals potential safety issues or the results are inconsistent with an expectation of the potential drug compound’s efficacy in humans, the regulatory agencies may require additional more rigorous testing before allowing human clinical trials. This additional testing will increase program expenses and extend timelines. We may decide to suspend further testing on our potential drug compounds if, in the judgment of our management and advisors, the non-clinical test results do not support further development.
Moreover, success in non-clinical testing and early clinical trials does not ensure that later clinical trials will be successful, and we cannot be sure that the results of later clinical trials will replicate the results of prior clinical trials and non-clinical testing. The clinical trial process may fail to demonstrate that our potential drug compounds are safe for humans and effective for indicated uses. This failure would cause us to abandon a drug candidate and may delay development of other potential drug compounds. Any delay in, or termination of, our non-clinical testing or clinical trials will delay the filing of an investigational new drug application and new drug application with the Food and Drug Administration or the equivalent applications with pharmaceutical regulatory authorities outside the United States and, ultimately, our ability to commercialize our potential drug compounds and generate product revenues. In addition, we expect that our early clinical trials will involve small patient populations. Because of the small sample size, the results of these early clinical trials may not be indicative of future results.
Following successful non-clinical testing, potential drug compounds will need to be tested in a clinical development program to provide data on safety and efficacy prior to becoming eligible for product approval and licensure by regulatory agencies. From the first human trial through to regulatory approval can take many years and 10-12 years is not unusual for certain compounds.
If any of our future clinical development potential drug compounds become the subject of problems, our ability to sustain our development programs will become critically compromised. For example, efficacy or safety concerns may arise, whether or not justified, that could lead to the suspension or termination of our clinical programs. Examples of problems that could arise include, among others:
| · | efficacy or safety concerns with the potential drug compounds, even if not justified; |
| · | manufacturing difficulties or concerns; |
| · | regulatory proceedings subjecting the potential drug compounds to potential recall; |
| 11 |
| · | 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 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:
| · | 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 or offer compelling other benefits than our future products could impede our market penetration or decrease our future market share; and |
| · | The pricing and reimbursement environment for our future products, as well as pricing and reimbursement decisions by our competitors and by payers, may have an effect on our revenues. |
If this happens, our business will be adversely affected.
None of our potential drug compounds may reach the commercial market for a number of reasons and our business may fail.
Successful research and development of pharmaceutical products is high risk. Most products and development candidates fail to reach the market. Our success depends on the discovery of new drug compounds that we can commercialize. It is possible that our products may never reach the market for a number of reasons. They may be found ineffective or may cause harmful side-effects during non-clinical testing or clinical trials or fail to receive necessary regulatory approvals. We may find that certain products cannot be manufactured at a commercial scale and, therefore, they may not be economical to produce. Our potential products could also fail to achieve market acceptance or be precluded from commercialization by proprietary rights of third parties. Our patents, patent applications, trademarks and other intellectual property may be challenged and this may delay or prohibit us from effectively commercializing our products. Furthermore, we do not expect our potential drug compounds to be commercially available for a number of years, if at all. If none of our potential drug compounds reach the commercial market, our business will likely fail and investors will lose all of their investment in our Company. If this happens, our business will be adversely affected.
| 12 |
If our competitors succeed in developing products and technologies that are more effective or with a better profile than our own, or if scientific developments change our understanding of the potential scope and utility of our potential products, then our technologies and future products may be rendered undesirable or obsolete.
We face significant competition from industry participants that are pursuing technologies in similar disease states to those that we are pursuing and are developing pharmaceutical products that are competitive with our products. Nearly all of our industry competitors have greater capital resources, larger overall research and development staffs and facilities, and a longer history in drug discovery and development, obtaining regulatory approval and pharmaceutical product manufacturing and marketing than we do. With these additional resources, our competitors may be able to respond to the rapid and significant technological changes in the biotechnology and pharmaceutical industries faster than we can. Our future success will depend in large part on our ability to maintain a competitive position with respect to these technologies. Rapid technological development, as well as new scientific developments, may result in our products becoming obsolete before we can recover any of the expenses incurred to develop them. For example, changes in our understanding of the appropriate population of patients who should be treated with a targeted therapy like we are developing may limit the drug’s market potential if it is subsequently demonstrated that only certain subsets of patients should be treated with the targeted therapy.
Our reliance on third parties, such as university laboratories, contract manufacturing organizations and contract or clinical research organizations, may result in delays in completing, or a failure to complete, non-clinical testing or clinical trials if they fail to perform under our agreements with them.
In the course of product development, we may engage university laboratories, other biotechnology companies or contract or clinical manufacturing organizations to manufacture drug material for us to be used in non-clinical and clinical testing and contract research organizations to conduct and manage non-clinical and clinical studies. If we engage these organizations to help us with our non-clinical and clinical programs, many important aspects of this process have been and will be out of our direct control. If any of these organizations we may engage in the future fail to perform their obligations under our agreements with them or fail to perform non-clinical testing and/or clinical trials in a satisfactory manner, we may face delays in completing our clinical trials, as well as commercialization of any of our potential drug compounds. Furthermore, any loss or delay in obtaining contracts with such entities may also delay the completion of our clinical trials, regulatory filings and the potential market approval of our potential drug compounds.
If we fail to compete successfully with respect to partnering, licensing, mergers, acquisitions, joint venture and other collaboration opportunities, we may be limited in our ability to research and develop our potential drug compounds.
Our competitors compete with us to attract established biotechnology and pharmaceutical companies or organizations for partnering, licensing, mergers, acquisitions, joint ventures or other collaborations. Collaborations include contracting with academic research institutions for the performance of specific scientific testing. If our competitors successfully enter into partnering arrangements or license agreements with academic research institutions, we will then be precluded from pursuing those specific opportunities. Since each of these opportunities is unique, we may not be able to find a substitute. Other companies have already begun many drug development programs, which may target diseases that we are also targeting, and have already entered into partnering and licensing arrangements with academic research institutions, reducing the pool of available opportunities.
Universities and public and private research institutions also compete with us. While these organizations primarily have educational or basic research objectives, they may develop proprietary technology and acquire patent applications and patents that we may need for the development of our potential drug compounds. In some instances, we will attempt to license this proprietary technology, if available. These licenses may not be available to us on acceptable terms, if at all. If we are unable to compete successfully with respect to acquisitions, joint venture and other collaboration opportunities, we may be limited in our ability to develop new products.
| 13 |
The use of any of our products in clinical trials may expose us to liability claims, which may cost us significant amounts of money to defend against or pay out, causing our business to suffer.
The nature of our business exposes us to potential liability risks inherent in the testing, manufacturing and marketing of our products. We currently have one drug compound in clinical trials, however, when any of our products enter clinical trials or become marketed products, they could potentially harm people or allegedly harm people possibly subjecting us to costly and damaging product liability claims. Some of the patients who participate in clinical trials are already ill when they enter a trial or may intentionally or unintentionally fail to meet the exclusion criteria. The waivers we obtain may not be enforceable and may not protect us from liability or the costs of product liability litigation. Although we intend to obtain product liability insurance which we believe is adequate, we are subject to the risk that our insurance will not be sufficient to cover claims. The insurance costs along with the defense or payment of liabilities above the amount of coverage could cost us significant amounts of money and management distraction from other elements of the business, causing our business to suffer.
The patent positions of biopharmaceutical products and processes are complex and uncertain and we may not be able to protect our patented or other intellectual property. If we cannot protect this property, we may be prevented from using it or our competitors may use it and our business could suffer significant harm. Also, the time and money we spend on acquiring and enforcing patents and other intellectual property will reduce the time and money we have available for our research and development, possibly resulting in a slow down or cessation of our research and development.
We hold ownership or exclusive rights to three issued U.S. patent and eight U.S. patent applications with various international counterpart applications, all of which relate to drug candidates and methods associated therewith. Neither patents nor patent applications ensure the protection of our intellectual property for a number of reasons, including the following:
| 1. | Competitors may interfere with our patenting process in a variety of ways. Competitors may claim that they invented the claimed invention prior to us. Competitors may also claim that we are infringing their patents and restrict our freedom to operate. Competitors may also contest our patents and patent applications, if issued, by showing in various patent offices that, among other reasons, the patented subject matter was not original, was not novel or was obvious. In litigation, a competitor could claim that our patents and patent applications are not valid or enforceable for a number of reasons. If a court agrees, we would lose some or all of our patent protection. As a company, we have no meaningful experience with competitors interfering with our patents or patent applications. | |
| 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. | Issuance of a patent may not provide much practical protection. If we receive a patent of narrow scope, then it may be easier for competitors to design products that do not infringe our patent(s). | |
| 4. | Our primary patent applications for ANAVEXTM 2-73 and the combination of ANAVEXTM 2-73 with donepezil are pending only in the United States Patent and Trademark Office. The lack of patent protection in global markets may inhibit our ability to advance our compounds and may make Anavex less attractive to potential partners. | |
| 5. | Defending a patent lawsuit takes significant time and can be very expensive. | |
| 6. | If a court decides that our drug compound, its method of manufacture or use, infringes on the competitor’s patent, we may have to pay substantial damages for infringement. |
| 14 |
| 7. | A court may prohibit us from making, selling or licensing the potential drug compound unless the patent holder grants a license. A patent holder is not required to grant a license. If a license is available, we may have to pay substantial royalties or grant cross licenses to our patents, and the license terms may be unacceptable. | |
| 8. | 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 illegally obtained and is using our trade secrets, like patent litigation, is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Our competitors may independently develop equivalent knowledge, methods and know-how.
We may also support and collaborate in research conducted by government organizations, hospitals, universities or other educational institutions. These research partners may be unable or unwilling to grant us exclusive rights to technology or products derived from these collaborations prior to entering into the relationship.
If we do not obtain required intellectual property licenses or rights, we could encounter delays in our product development efforts while we attempt to design around other patents or even be prohibited from developing, manufacturing or selling potential drug compounds requiring these rights or licenses. There is also a risk that disputes may arise as to the rights to technology or potential drug compounds developed in collaboration with other parties.
If we are unable to safeguard against security breaches with respect to our information systems our business may be adversely affected.
In the course of our business, we gather, transmit and retain confidential information through our information systems. Although we endeavor to protect confidential information through the implementation of security technologies, processes and procedures, it is possible that an individual or group could defeat security measures and access sensitive information about our business and employees. Any misappropriation, loss or other unauthorized disclosure of confidential information gathered, stored or used by us could have a material impact on the operation of our business, including damaging our reputation with our employees, third parties and investors. We could also incur significant costs implementing additional security measures and organizational changes, implementing additional protection technologies, training employees or engaging consultants. In addition, we could incur increased litigation as a result of any potential cyber-security breach. We are not aware that we have experienced any material misappropriation, loss or other unauthorized disclosure of confidential or personally identifiable information as a result of a cyber-security breach or other act, however, a cyber-security breach or other act and/or disruption to our information technology systems could have a material adverse effect on our business, prospects, financial condition or results of operations.
Risks Related to our Common Stock
A decline in the price of our common stock could affect our ability to raise further working capital and adversely impact our operations and would severely dilute existing or future investors if we were to raise funds at lower prices.
A prolonged decline in the price of our common stock could result in a reduction in our ability to raise capital. Because our operations have been financed through the sale of equity securities, a decline in the price of our common stock could be especially detrimental to our continued operations. Any reduction in our ability to raise equity capital in the future would force us to reallocate funds from other planned uses and would have a significant negative effect on our business plans and operations, including our ability to develop new products and continue our current operations. If our stock price declines, there can be no assurance that we can raise additional capital or generate funds from operations sufficient to meet our obligations. We believe the following factors could cause the market price of our common stock to continue to fluctuate widely and could cause our common stock to trade at a price below the price at which you purchase your shares of common stock:
| 15 |
| · | 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.
If we issue additional shares of common stock in the future, it will result in the dilution of our existing stockholders.
Our articles of incorporation authorize the issuance of 100,000,000 shares of common stock. Our board of directors has the authority to issue additional shares of common stock up to the authorized capital stated in the articles of incorporation. Our board of directors may choose to issue some or all such shares of common stock to acquire one or more businesses or to provide additional financing in the future. The issuance of any such shares of common stock will result in a reduction of the book value or market price of the outstanding shares of our common stock. If we do issue any such additional shares of common stock, such issuance also will cause a reduction in the proportionate ownership and voting power of all other stockholders. Further, any such issuance may result in a change of control of our corporation.
Trading of our common stock may be volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares.
There is currently a limited market for our common stock and the volume of our common stock traded on any day may vary significantly from one period to another. Trading in our stock is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. The availability of buyers and sellers represented by this volatility could lead to a market price for our common stock that is unrelated to operating performance. There is no assurance that a sufficient market will develop in the stock, in which case it could be difficult for our stockholders to resell their stock.
The sale or issuance of our common stock to Lincoln Park may cause dilution and the sale of the shares of common stock acquired by Lincoln Park, or the perception that such sales may occur, could cause the price of our common stock to fall.
On October 21, 2015, we entered into a Purchase Agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which Lincoln Park committed to purchase up to $50,000,000 of our common stock. Concurrently with the execution of the Purchase Agreement, we agreed to issue 179,598 shares of our common stock to Lincoln Park as a commitment fee and shall issue up to 89,799 shares pro rata, when and if, Lincoln Park purchases at the Company’s discretion the $50,000,000 aggregate commitment. The purchase shares that may be sold pursuant to the Purchase Agreement may be sold by us to Lincoln Park at our discretion from time to time over a 36-month period commencing after the Securities and Exchange Commission (“SEC”) declared effective the related registration statement. The purchase price for the shares that we may sell to Lincoln Park under the Purchase Agreement will fluctuate based on the price of our common stock. Depending on market liquidity at the time, sales of such shares may cause the trading price of our common stock to fall.
| 16 |
We generally have the right to control the timing and amount of any sales of our shares to Lincoln Park, except that, pursuant to the terms of our agreements with Lincoln Park, we would be unable to sell shares to Lincoln Park if and when the closing sale price of our common stock is below $3.00 per share, subject to adjustment as set forth in the Purchase Agreement. Additional sales of our common stock, if any, to Lincoln Park will depend upon market conditions and other factors to be determined by us. Lincoln Park may ultimately purchase all the shares of our common stock that may be sold pursuant to the Purchase Agreement and, after it has acquired shares, Lincoln Park may sell all, some or none of those shares. Therefore, sales to Lincoln Park by us could result in substantial dilution to the interests of other holders of our common stock. Additionally, the sale of a substantial number of shares of our common stock to Lincoln Park, or the anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not Applicable.
We do not own any real property. We maintain several offices of which the office at 7th Floor, 51 West 52nd Street, New York, NY, USA is our main office. Our lease costs are $11,500 per month. We believe our offices are suitable and adequate to operate our business now as they provide us with sufficient space to conduct our operations. We fully utilize our current premises.
On December 30, 2015, Kevin Cortina filed a purported class action lawsuit in the United States District Court for the Southern District of New York, Cortina v. Anavex Life Sciences Corp., et al., Case No. 1:15-cv-10162, against the Company, Christopher Missling, Sandra Boenisch, and Athanasios Skarpelos. The complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 on behalf of purchasers of the Company’s stock between May 17, 2013 and December 28, 2015. The complaint alleges that defendants made materially false and misleading statements regarding the Company’s business, operational, and compliance policies. Among other things, the complaint alleges that the Company failed to disclose that it used a paid stock promoter to artificially inflate the Company’s share price. The complaint does not specify an amount of damages sought. On April 5, 2016 the court appointed Lam Truong as lead plaintiff and Levi & Korsinsky to serve as lead counsel. On April 13, 2016, the court granted lead plaintiff thirty days to amend the complaint and set a briefing schedule. Defendants filed a motion to dismiss the complaint on June 13, 2016. The parties have fully briefed this motion and it is currently pending before the court. Defendants believe this action is meritless and deny all allegations against them. The Company intends to vigorously defend this matter.
On March 12, 2016, Jeffery Dhungana filed a purported shareholder derivative action in the Supreme Court of the State of New York, in the County of New York, Dhungana v. Missling, et. al., Case No. 651317-2016, against Christopher Missling and other officers and directors at the Company. The complaint alleges that the defendants breached their fiduciary duties to the Company in connection with events alleged in the Cortina matter described above. The complaint seeks damages of an unspecified amount, a declaration that the defendants violated their fiduciary duties, and an order directing the Company and defendants to improve its corporate governance and internal procedures. On May 11, 2016, the parties stipulated to a temporary stay of the Dhungana action. On March 18, 2016, Mary McCambell filed an action in the United States District Court for the Southern District of New York, McCambell v. Missling, et. al., Case No. 1:16-cv-02035. The allegations in the McCambell complaint are substantively similar to those asserted in the Dhungana complaint. Like the Dhungana complaint, the McCambell complaint seeks damages of an unspecified amount and an order directing the Company to take all necessary actions to reform and improve its corporate governance and internal procedures. On May 12, 2016, the court entered an order temporarily staying the McCambell action.
Other than as disclosed under this Item 3, we know of no material, existing or pending legal proceedings to which we or our subsidiary are a party or of which any of our properties is the subject.
| 17 |
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market information
Our common stock is quoted on the NASDAQ Stock Market LLC (“NASDAQ”) under the symbol “AVXL.” Our shares of common stock began trading on NASDAQ effective October 28, 2015. Prior to October 28, 2015 and during the fiscal year ended September 30, 2015, our common stock was quoted on the OTC Markets - OTCQX under the trading symbol “AVXL”.
The following table contains information about the range of high and low sale prices for our common stock over the fiscal quarters for the last two fiscal years as quoted on NASDAQ and OTCQX, as applicable. Investors should not rely on historical prices of our common stock as an indication of its future price performance. On December 12, 2016, the closing price of our common stock as reported by NASDAQ was $4.88 per share.
| Quarter Ended | High | Low | ||||||
| September 30, 2016 | $ | 8.30 | $ | 2.43 | ||||
| June 30, 2016 | $ | 6.49 | $ | 3.87 | ||||
| March 31, 2016 | $ | 6.34 | $ | 3.29 | ||||
| December 31, 2015 | $ | 14.84 | $ | 3.16 | ||||
| September 30, 2015 | $ | 6.68 | $ | 1.74 | ||||
| June 30, 2015 | $ | 1.96 | $ | 0.86 | ||||
| March 31, 2015 | $ | 0.99 | $ | 0.63 | ||||
| December 31, 2014 | $ | 0.88 | $ | 0.60 | ||||
Transfer Agent
Shares of our common stock are issued in registered form. The Nevada Agency and Trust Company, 50 West Liberty Street, Reno, Nevada (Telephone: (775) 322-0626; Facsimile: (775) 322-5623) is the registrar and transfer agent for shares of our common stock.
Holders of Common Stock
As of December 12, 2016, there were approximately 56 holders of record of our common stock. As of such date, 39,610,967 shares of our common stock were issued and outstanding.
Dividends
We have not paid any cash dividends on our common stock and have no intention of paying any dividends on the shares of our common stock. Our current policy is to retain earnings, if any, for use in our operations and in the development of our business. Our future dividend policy will be determined from time to time by our board of directors.
| 18 |
Securities Authorized for Issuance under Equity Compensation Plans or Individual Compensation Arrangements
The following table summarizes certain information regarding our equity compensation plan or individual compensation arrangements as at September 30, 2016:
| Equity Compensation Plan Information | ||||||||||||
| Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuances under equity compensation plans (excluding securities reflected in column (a)) (c) | |||||||||
| Equity compensation plans approved by security holders | 6,050,553 | 5.20 | 3,370,303 | |||||||||
| Equity compensation plans not approved by security holders | - | - | - | |||||||||
| Total | 6,050,553 | 3,370,303 | ||||||||||
Stock Option Plan
On September 18, 2015, our board of directors approved a 2015 Omnibus Incentive Plan (the “2015 Plan”), which provides for the grant of stock options and restricted stock awards to directors, officers, employees and consultants of the Company. The approval of the 2015 Plan was ratified by the Company’s stockholders on May 6, 2016.
The maximum number of our common shares reserved for issue under the plan is 6,050,553 shares subject to adjustment in the event of a change of the Company’s capitalization. As a result of the adoption of the 2015 Plan, no further option awards will be granted under any previously existing stock option plan. Stock option awards previously granted under previously existing stock option plans remain outstanding in accordance with their terms.
The purpose of the 2015 Plan is to retain the services of valued key employees and consultants of our company and such other persons as will be select in accordance with the 2015 Plan, and to encourage such persons to acquire a greater proprietary interest in our company, thereby strengthening their incentive to achieve the objectives of the shareholders of our company, and to serve as an aid and inducement in the hiring of new employees and to provide an equity incentive to consultants.
The 2015 Plan is administered by the board of directors, except that it may, in its discretion, delegate such responsibility to a committee of such board. The exercise price will be determined by the board of directors at the time of grant, and the exercise price of each option shall be at least the fair market value on the grant date; provided, however, that in the event that a grantee owns more than 10% of the Company’s common stock as of the date of grant, the exercise price of an option granted to such grantee that is intended to be an incentive stock option shall be not less than 110% of the fair market value on the date of grant. Stock options may be granted under the 2015 Plan for an exercise period of up to ten years from the date of grant of the option or such lesser periods as may be determined by the board, subject to earlier termination in accordance with the terms of the 2015 Plan.
| 19 |
Recent Sales of Unregistered Securities
Since the beginning of our fiscal year ended September 30, 2016, we have not sold any equity securities that were not registered under the Securities Act of 1933 that were not previously reported in a quarterly report on Form 10-Q or in a current report on Form 8-K.
Purchases of Equity Securities by Our Company and Affiliated Purchasers
None.
ITEM 6 SELECTED FINANCIAL DATA
| For the Years ended September 30, | ||||||||||||||||||||
| (in thousands, except per share amounts) | 2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||
| Results of operations | ||||||||||||||||||||
| Revenue | - | - | - | - | - | |||||||||||||||
| Total Operating Expenses | (15,589 | ) | (7,109 | ) | (2,969 | ) | (2,137 | ) | (4,321 | ) | ||||||||||
| Other income (Expenses), net | 882 | (4,999 | ) | (8,399 | ) | (1,563 | ) | (3,980 | ) | |||||||||||
| Net loss before provision for income taxes | (14,707 | ) | (12,108 | ) | (11,368 | ) | (3,700 | ) | (8,302 | ) | ||||||||||
| Income tax benefit (expense) | (30 | ) | - | 1,400 | - | - | ||||||||||||||
| Net loss and comprehensive loss | (14,737 | ) | (12,108 | ) | (9,968 | ) | (3,700 | ) | (8,302 | ) | ||||||||||
| Loss per share, basic | $ | (0.42 | ) | $ | (0.65 | ) | $ | (1.02 | ) | $ | (0.48 | ) | $ | (1.16 | ) | |||||
| Loss per share, diluted | $ | (0.42 | ) | $ | (0.65 | ) | $ | (1.02 | ) | $ | (0.48 | ) | $ | (1.16 | ) | |||||
| Weighted average number of shares outstanding | 35,153 | 18,585 | 9,805 | 7,977 | 7,042 | |||||||||||||||
| Financial Condition | ||||||||||||||||||||
| Cash and cash equivalents | 9,187 | 15,291 | 7,262 | 345 | 11 | |||||||||||||||
| Total assets | 9,499 | 15,470 | 7,354 | 393 | 13 | |||||||||||||||
| Long term debt | - | 0 | 5,720 | 904 | - | |||||||||||||||
| Shareholder equity | 6,308 | 12,809 | 193 | (2,463 | ) | (2,875 | ) | |||||||||||||
ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion should be read in conjunction with our audited consolidated financial statements and notes thereto for the fiscal year ended September 30, 2016, included elsewhere in this Annual Report on Form 10-K. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains “forward-looking statements”. Forward-looking statements are generally written in the future tense and/or are preceded by words such as “may,” “should,” “forecast,” “could,” “expect,” “suggest,” “believe,” “anticipate,” “intend,” “plan,” or other similar words. The forward-looking statements contained in this Annual Report on Form 10-K involve a number of risks and uncertainties, many of which are outside of our control. Factors that could cause actual results to differ materially from projected results include, but are not limited to, those discussed in “Risk Factors” elsewhere in this Annual Report on Form 10-K. Readers are expressly advised to review and consider those Risk Factors, which include risks associated with (1) our ability to successfully conduct clinical and preclinical trials for our product candidates, (2) our ability to obtain required regulatory approvals to develop and market our product candidates, (3) our ability to raise additional capital on favorable terms, (4) our ability to execute our development plan on time and on budget, (5) our ability to obtain commercial partners, (6) our ability, whether alone or with commercial partners, to successfully commercialize any of our product candidates that may be approved for sale, and (7) our ability to identify and obtain additional product candidates. Although we believe that the assumptions underlying the forward-looking statements contained in this Annual Report on Form 10-K are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that such statements will be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved. Furthermore, past performance in operations and share price is not necessarily indicative of future performance. Except as required by applicable laws including the securities laws of the United States, we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
| 20 |
Our Business
Anavex Life Sciences Corp. (the “Company”) is a clinical stage biopharmaceutical company engaged in the development of differentiated therapeutics for the treatment of neurodegenerative and neurodevelopmental diseases including drug candidates to treat Alzheimer’s disease, other central nervous system (“CNS”) diseases, pain and various types of cancer. The Company’s lead compound ANAVEXTM 2-73 is being developed to treat Alzheimer’s disease, Parkinson’s disease and potentially other central nervous system diseases, including rare diseases, such as Rett syndrome.
In November 2016, a Phase 2a clinical trial going over 52 weeks was completed for ANAVEXTM 2-73 in mild-to-moderate Alzheimer’s patients. This open-label randomized trial met both primary and secondary endpoints, and was designed to assess the safety and exploratory efficacy of ANAVEXTM 2-73 in 32 patients. ANAVEXTM 2-73 targets sigma-1 and muscarinic receptors, which have been shown in preclinical studies to reduce stress levels in the brain believed to restore cellular homeostasis and to reverse the pathological hallmarks observed in Alzheimer’s disease. ANAVEXTM 2-73 showed no serious adverse events in a previously performed Phase 1 study. In pre-clinical studies, ANAVEXTM 2-73 demonstrated anti-amnesic and neuroprotective properties in various animal models including the transgenic mouse model Tg2576. In March 2016, we received approval from the Ethics Committee in Australia to extend the ongoing Phase 2a clinical trial, which had been requested by patients and their caregivers. The trial extension allows participants who complete 52 weeks in PART B to roll-over into a new trial and continue taking ANAVEXTM 2-73 for an additional 104 weeks, providing an opportunity to gather extended safety data. The trial is independent of the Company’s planned larger Phase 2/3 double-blind, placebo-controlled study of ANAVEXTM 2-73 in Alzheimer’s disease.
In February 2016, the Company presented positive preclinical data for ANAVEXTM 2-73 in Rett syndrome, a rare neurodevelopmental disease indication. The study was funded by the Rettsyndrome.org foundation.
In September 2016, the Company presented positive preclinical data for ANAVEXTM 2-73 in Parkinson’s disease, which demonstrated significant improvements on all measures: behavioral, histopathological, and neuroinflammatory endpoints. The study was funded by the Michael J Fox Foundation (“MJFF”).
We intend to identify and initiate discussions with potential commercial partners in the next 12 months. Further, we may acquire or develop new intellectual property and assign, license, or otherwise transfer our intellectual property to further our goals.
Financial Highlights
We had cash of approximately $9.2 million at September 30, 2016, compared to approximately $15.3 million at September 30, 2015. The principal reason for the decrease in cash is due to cash used in operations and for the advancement of clinical trial work and preclinical development.
Operating expenses in fiscal 2016 were approximately $15.6 million, compared to approximately $7.1 million in fiscal 2015 and $3.0 million in fiscal 2014. This increase was primarily attributable to ongoing clinical trial activities, preclinical work, an expansion of the Company’s team and increased legal fees. Operating expenses in fiscal 2016 include $5.1 million in non-cash compensation charges, compared to $1.6 million in fiscal 2015.
We expect our research and development expenses will continue to increase as a result of our ongoing Phase 2a clinical trial extension, advancement into the Company’s planned larger Phase 2/3 clinical study, and other auxiliary research and development activities. We continue to target potential research partners to further advance our pipeline compounds.
Net loss for fiscal 2016 was $14.7 million, or $0.42 per share, compared to a net loss of approximately $12.1 million, or $0.65 per share for fiscal 2015 and $10.0 million, or $1.02 per share for fiscal 2014.
| 21 |
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 other companies to develop, co-develop, license, acquire or market our products.
Year ended September 30, 2016 compared to year ended September 30, 2015
Operating Expenses
Our operating expenses for the year ended September 30, 2016 were approximately $15.6 million which as an increase of 119% compared to approximately $7.1 million for the year ended September 30, 2015.
The increase was mainly attributable to an increase in research and development expenses, as well as an increase in salaries and wages, including non-cash stock based compensation charges.
Our research and development expenses for the year ended September 30, 2016 were approximately $7.3 million as compared to approximately $2.3 million for the year ended September 30, 2015, which represents an increase of 219%. Our research and development expenses have increased significantly as a result of an increase in expenses related to our Phase 2a clinical trial for ANAVEXTM 2-73 for Alzheimer’s disease, which commenced in December, 2014; and a significant increase in preclinical activities undertaken for ANAVEXTM 2-73 for other CNS indications.
Salaries and wages increased as a result of our expanded team. We incurred non-cash stock based compensation charges of $5.1 million associated with the vesting of stock options and restricted stock units issued to directors and officers, management and employees as part of long term compensation packages. In addition, we incurred other non-recurring compensation charges associated with the vesting of restricted stock awards to our CEO, in connection with the achievement of certain performance milestones stipulated in his 2013 employment agreement.
During the year ended September 30, 2016, we also incurred an increase in legal fees as a result of financing and SEC related activities.
Other income (expenses)
The aggregate amount in the other income (expense) for the year ended September 30, 2016, amounted to $0.9 million as compared to $(5.0) million for the comparable year ended September 30, 2015.
| 22 |
The largest reason for the increase in other income was a result of an amount of $0.7 million in grant income received during the period. We received a grant in the amount of $0.57 million as part of a research and development incentive program offered by the Australian government, in connection with eligible expenditures on our Phase 2a clinical trial, which was conducted in Australia. In addition, we received a research grant from the Michael J. Fox Foundation (“MJFF”) to develop ANAVEXTM 2-73 for the treatment of Parkinson’s disease. The MJFF research grant is being received over a period of two years and is being recognized into income as the related expenditures are incurred. During the year ended September 30, 2016, we recognized $0.14 million of this grant on our statement of operations.
In addition, there was a decrease in financing-related charges as a result of the conversion of a majority of the remaining principal balance on outstanding convertible debentures during the third and fourth quarter of fiscal 2015.
Year ended September 30, 2015 compared to year ended September 30, 2014
Operating Expenses
Our operating expenses for the year ended September 30, 2015 were $7.1 million, compared to approximately $3.0 million for the year ended September 30, 2014. The increase was mainly attributable to an increase in research and development expenses related to our Phase 2a clinical trial for ANAVEXTM 2-73, which commenced in December, 2014. In addition, the increase was attributable to compensation charges associated with the vesting of restricted stock awards to our CEO, in connection with the achievement of certain performance milestones. During the year ended September 30, 2015 we also incurred an increase in consulting fees relating to several consultants engaged to assist the Company with business development and scientific review, and legal fees relating to an increase in financing related activities.
Other income (expenses)
The aggregate amount in the other income (expense) for the year ended September 30, 2015, amounted to $(5.0) million as compared to $(8.4) million for the comparable year ended September 30, 2014. The largest single decrease in this loss was as a result of certain non-cash, non-operational accounting charges related to amendments to the Debentures in the comparative period which resulted in a non-cash accounting charge being recorded on the statement of operations in that period. Other net expenses in the current year consist primarily of accretion charges associated with the early conversion of a majority of the remaining principal balances owing under the Debentures during the year ended September 30, 2015.
Income tax expense (benefit)
The Company did not have any income tax expense during the year ended September 30, 2015. During the year ended September 30, 2014, the Company recognized a deferred income tax benefit of $1.4 million in connection with the issuance of Convertible Debentures and a related beneficial conversion feature for accounting purposes, which effectively created a temporary difference for tax purposes. The temporary difference for tax purposes was recognized as a deferred income tax liability, which in turn resulted in the Company being able to reduce its existing valuation allowance against deferred income tax assets available to offset such liability.
| 23 |
Liquidity and Capital Resources
Working Capital
| 2016 | 2015 | |||||||
| Current Assets | $ | 9,446,285 | $ | 15,468,661 | ||||
| Current Liabilities | 3,190,525 | 2,660,578 | ||||||
| Working Capital | $ | 6,255,760 | $ | 12,808,083 | ||||
As of September 30, 2016, we had $9.2 million in cash, a decrease from $15.3 million at September 30, 2015. The principal reason for the decrease in cash is due to cash used in operations and for the advancement of research and development. During the year ended September 30, 2016, operating expenses used $9.2 million in cash.
At December 12, 2016, we had $17.3 million in cash. We intend to use the majority of our capital resources to complete the next clinical trial for ANAVEXTM 2-73, and to perform work necessary to prepare for further clinical development.
| 24 |
Cash Flows
| 2016 | 2015 | 2014 | ||||||||||
| Cash flows used in operating activities | $ | (9,236,823 | ) | $ | (4,227,006 | ) | $ | (2,659,379 | ) | |||
| Cash flows used in investing activities | - | - | (3,015 | ) | ||||||||
| Cash flows provided by financing activities | 3,132,661 | 12,255,844 | 9,579,458 | |||||||||
| Increase (decrease) in cash | $ | (6,104,162 | ) | $ | 8,028,838 | $ | 6,917,064 | |||||
Cash flow used in operating activities
The increase in cash used in operating activities during fiscal 2016 as compared to fiscal 2015 was primarily as a result of increased research and development activities and an increase in internal staffing costs, as more fully described above, and as a result of non-recurring tax payments made on behalf of a director and officer of the Company in accordance with a 2013 employment agreement.
The increase in cash used in operating activities during fiscal 2015 as compared to fiscal 2014 was primarily as a result of the increased research and development activities as a result of the commencement of Phase 2a clinical trial work in December, 2014.
Cash used in investing activities
There was no material amount of cash used in investing activities during fiscal 2016, 2015 and 2014.
Cash flow provided by financing activities
Cash provided by financing activities for fiscal 2016 was mostly attributable to cash received pursuant to the exercise of outstanding share purchase warrants, and cash received from the issuance of common shares under the Purchase Agreements with Lincoln Park Capital Fund, LLC (“Lincoln Park”).
Cash provided by financing activities for fiscal 2015 was primarily attributable to cash received pursuant to the exercise of outstanding share purchase warrants and cash from the issuance of common shares under a purchase agreement entered into with Lincoln Park on July 5, 2013, pursuant to which Lincoln Park initially purchased 250,000 shares of the Company’s common stock for $100,000 and the Company had the right, in its sole discretion over a 25-month period, to sell to Lincoln Park up to the additional aggregate commitment of $9.9 Million of shares of common stock.
In fiscal 2014 cash inflows from financing activities were primarily received from the issuance of Senior Secured Convertible debentures in that period.
Other Financings
$50 Million Lincoln Park Purchase Agreement
On October 21, 2015, we entered into a Purchase Agreement (the “Purchase Agreement”) with Lincoln Park, pursuant to which Lincoln Park committed to purchase up to $50,000,000 of our common stock. Concurrently with the execution of the Purchase Agreement, we issued 179,598 shares of our common stock to Lincoln Park as a fee for its commitment to purchase shares of our common stock under the Purchase Agreement. The purchase shares that may be sold pursuant to the Purchase Agreement may be sold by us to Lincoln Park at our discretion from time to time over a 36-month period commencing after the SEC declared effective the related registration statement.
| 25 |
The Company may direct Lincoln Park, at its sole discretion, and subject to certain conditions, to purchase up to 50,000 shares of common stock on any business day, provided that at least one business day has passed since the most recent purchase. The amount of a purchase may be increased under certain circumstances provided, however that Lincoln Park’s committed obligation under any single purchase shall not exceed $2,000,000. The purchase price of shares of common stock related to the future funding will be based on the then prevailing market prices of such shares at the time of sales as described in the Purchase Agreement.
Other than our rights related to the Lincoln Park financing, 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.
We expect that we will be able to continue to fund our operations through existing cash on hand and through equity and debt financing in the future. If we 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.
Contractual Obligations and Off-Balance Sheet Arrangements
The following table summarizes our contractual obligations as of September 30, 2016, excluding amounts related to uncertain tax positions, funding commitments, contingent development, regulatory and commercial milestone payments:
| Payments Due by Period | ||||||||||||||||||||
| Contractual Obligations | Total | Less than 1 year | 1-3 years | 4 - 5 years | After 5 years | |||||||||||||||
| Long-Term Debt | - | - | - | - | - | |||||||||||||||
| Capital Lease Obligations | - | - | - | - | - | |||||||||||||||
| Operating Leases | $ | 280,472 | $ | 112,189 | $ | 168,283 | - | - | ||||||||||||
| Unconditional Purchase Obligations | - | - | - | - | - | |||||||||||||||
| Other Long-Term Obligations | - | - | - | - | - | |||||||||||||||
| Total Contractual Cash Obligations | $ | 280,472 | $ | 112,189 | $ | 168,283 | - | - | ||||||||||||
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 financial statements.
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, politics, global economics, 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 and derivative liabilities.
| 26 |
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 made by us 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 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. Compensation costs for stock-based payments with graded vesting are recognized on a straight-line basis. The cost of the stock-based payments to non-employees that are fully vested and non-forfeitable at the grant date is measured and recognized at that date, unless there is a contractual term for services in which case such compensation would be amortized over the contractual term.
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.
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.
Derivative Liabilities
From time to time, we may issue warrants and convertible promissory notes with embedded conversion options which, dependent on their specific contractual terms or other conditions, may be required to be accounted for as separate derivative liabilities. These liabilities are required to be measured at fair value. These instruments are then adjusted to reflect fair value at each period end. Any increase or decrease in the fair value is recorded in results of operations as change in fair value of derivative liabilities. In determining the appropriate fair value, we use the binomial pricing model because these instruments are not quoted on an active market.
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 binomial model does not necessarily provide a reliable single measure of the fair value of these instruments.
| 27 |
Recent Accounting Pronouncements
In June 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period ("ASU 2014-12"). ASU 2014-12 requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. This standard is effective for the Company beginning on October 1, 2016. The adoption of this standard will not have a material impact for any period presented.
In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 will explicitly require management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. The new standard will be effective for all entities in the first annual period ending after December 15, 2016. The Company is currently evaluating the impact this guidance will have on its financial condition, results of operations and cash flows.
In May 2014, the FASB and the International Accounting Standards Board (IASB) issued a converged standard on revenue recognition from contracts with customers, ASU 2014-09 (Topic 606 and IFRS 15). This standard will supersede nearly all existing revenue recognition guidance. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The adoption of this standard is not expected to have a material impact for any period presented.
In April 2015, the FASB, issued the Accounting Standards Update 2015-03, Interest - Imputation of Interest (Subtopic 835-30) - Simplifying the Presentation of Debt Issuance Costs, that requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the debt liability rather than as an asset. For public business entities, the final guidance will be effective for fiscal years beginning after December 15, 2015, however, early adoption (including in interim periods) is permitted. Upon adoption, an entity must apply the new guidance retrospectively to all prior periods presented in the financial statements. An entity is also required in the year of adoption to provide certain disclosures about the change in accounting principle, including the nature of and reason for the change, the transition method, a description of the prior-period information that has been retrospectively adjusted and the effect of the change on the financial statement line items (that is, debt issuance cost asset and the debt liability). The adoption of this standard is not expected to have a material impact for any period presented.
In November 2015, FASB issued Accounting Standards Update No. 2015-17 Income Taxes: Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”). ASU 2015-17 eliminates the requirement to bifurcate deferred taxes between current and non-current on the balance sheet and requires that deferred tax liabilities and assets be classified as noncurrent on the balance sheet. ASU 2015-17 is effective for public entities in fiscal years beginning after December 15, 2016, and for interim periods within those fiscal years. The amendments for ASU-2015-17 can be applied retrospectively or prospectively and early adoption is permitted. The adoption of this standard is not expected to have a material impact for any period presented.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (“ASU 2016-02”). The guidance would require lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right –of-use assets. The guidance is effective for annual and interim reporting periods beginning on or after December 15, 2018. The Company is currently evaluating the impact this guidance will have on its financial condition, results of operations and cash flows.
In March 2016, the FASB issued ASC 2016-09, “Compensation – Stock Compensation (Topic 718) – Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). These amendments are intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. These amendments are effective for annual and interim reporting periods beginning on or after December 15, 2016. Early adoption is permitted. Entities have the option to apply the amendments on either a prospective basis or a modified retrospective basis. The Company is currently evaluating the impact this guidance will have on its financial condition, results of operations and cash flows.
Other than noted above, we do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to a variety of market risks, including interest rate risk, foreign currency exchange risk and equity price risk.
| 28 |
Interest Rate Risk
We invest a major portion of our cash surplus in bank deposits in the United States and, to a lesser extent, Australia. Since the bank deposits typically carry fixed interest rates, financial income over the holding period is not sensitive to changes in interest rates, but only the fair value of these instruments. However, our interest gains from future deposits could decline in the future as a result of changes in the financial markets. In any event, given the historic low levels of the interest rate, we estimate that a decline in the interest rate we are currently receiving will not result in a material adverse effect to our business.
Foreign Currency Exchange Risk
A significant portion of our expenditures, including clinical research expenses relate to our operations in Australia and a portion of our consultancy expenses are incurred in Euros. The cost of those expenses, as expressed in US dollars, is influenced by the exchange rate of these currencies against the US Dollar. If the US dollar declines in value in relation to these currencies, it will become more expensive for us to fund our operations. To limit this risk, the Company holds minimal cash reserves in Australian Dollars and Euros.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See pages F-1 through F-24 following the Exhibit Index of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL MATTERS
Not Applicable
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that material information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, our chief executive officer and our principal financial officer, to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective, as of September 30, 2016, because of a material weakness in our internal controls over financial reporting, as discussed below.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
| 29 |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Based on this evaluation, our management concluded that our internal controls over financial reporting were ineffective as of September 30, 2016. The ineffectiveness of our internal controls over financial reporting was due to the existence of a material weakness.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Our management identified the following material weakness:
| · | We had a lack of adequate oversight related to the development and performance of internal controls. Due to the limited number of personnel in the Company, there are inherent limitations to segregation of duties among the Company’s personnel to perform adequate oversight. |
To address this material weakness, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented
Remediation
Following the Audit Committee’s independent review, and in response to the material weakness discussed above, we plan on taking the following measures to improve internal control over financial reporting:
| · | Management will request the board of directors, including the audit committee, develop additional procedures to perform oversight of development and performance of internal controls. |
Management and our Audit Committee will monitor these remedial measures and the effectiveness of our internal controls and procedures.
BDO USA, LLP, an independent registered public accounting firm, has provided an attestation report on the Company’s internal control over financial reporting as of September 30, 2016, which is included herein.
Changes in Internal Control over Financial Reporting
During the quarter ended September 30, 2016, the Company made the following changes to its internal controls over financial reporting:
| (i) | We extensively updated written policies and procedures for our risk assessment, accounting and financial reporting processes using the framework in Internal Control — Integrated Framework (2013) issued by COSO; and |
| (ii) | We established an internal whistleblower hotline; and |
| (iii) | We updated our Code of Ethics and documented our corporate policies and procedures in an Employee Handbook. |
Other than such changes, there were no other changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Form 10-K that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
None.
| 30 |
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
Our directors are to be elected at our annual meeting and each director elected is to hold office until his or her successor is elected and qualified. Our board of directors may remove our officers at any time.
Our directors and executive officers, their age, positions held, and duration of such, are as follows:
| Name | Position | Age | Date first appointed | |||
| Christopher Missling, PhD | Director, President, Chief Executive Officer, Secretary | 51 | July 5, 2013 | |||
| Athanasios Skarpelos | Director | 50 | January 9, 2013 | |||
| Bernd Metzner, PhD | Director | 45 | May 7, 2014 | |||
| Elliot Favus, MD | Director | 42 | May 7, 2014 | |||
| Steffen Thomas, PhD | Director | 50 | June 15, 2015 | |||
| Sandra Boenisch | Principal Financial Officer, Treasurer | 35 | October 1, 2015 |
Business Experience
The following is a brief account of the education and business experience of directors and executive officers during at least the past five years, indicating their principal occupation during the period, and the name and principal business of the organization by which they were employed.
Christopher Missling, PhD. Christopher Missling has over twenty (20) years of healthcare industry experience in big pharmaceutical, biotech industry and investment banking. Most recently, from March 2007 until his appointment by our company, Mr. Missling served as the head of healthcare investment banking at Brimberg & Co. in New York, New York. Also, Mr. Missling served as the Chief Financial Officer of Curis, Inc. (NASDAQ:CRIS) and ImmunoGen, Inc. (NASDAQ:IMGN). Mr. Missling earned his MS and PhD from the University of Munich and an MBA from Northwestern University Kellogg School of Management and WHU Otto Beisheim School of Management.
Athanasios Skarpelos. Athanasios (Tom) Skarpelos is a self-employed investor with 18 years of experience working with private and public companies. For the past 10 years, he has been focused on biotechnology companies involved in drug discovery and drug development projects. Mr. Skarpelos was engaged as a consultant to our company for one year effective August 2, 2010. His experience has led to relationships with researchers at academic institutes in Europe and North America. Mr. Skarpelos is a founder of Anavex.
Bernd Metzner, PhD. Bernd Metzner is currently the Chief Financial Officer of the Stroeer Group. Previously, he was Chief Administration Officer and member of the Board of Management of Bayer Schering Pharma AG, the pharmaceutical division of $100+ billion market cap company Bayer AG. In this position, Dr. Metzner had worldwide financial responsibility for the Bayer Pharma Group. During his almost 10-years with Bayer AG, Dr. Metzner also held several senior international management positions in the corporate finance organization of Bayer AG, including Chief Financial Officer of Bayer S.p.A. Italy and heading the coordination of the successful spin-off of Lanxess, a specialty chemicals group. Dr. Metzner started his career at the law firm Flick Gocke Schaumburg and has a degree in business administration from the University of Siegen. After obtaining his doctorate, he became a chartered accountant.
| 31 |
Elliot Favus, MD. Elliot Favus is Chief Executive Officer of Favus Institutional Research, a healthcare research firm serving institutional investors. He has been a healthcare equity research analyst on Wall Street since 2006, starting at Lazard Capital Markets and subsequently at Och-Ziff Capital Management Group. Prior to working on Wall Street, Dr. Favus was an Instructor in medicine at Mount Sinai School of Medicine in New York. He attended the University of Michigan (BA, 1996), the University of Chicago Pritzker School of Medicine (MD, 2001) and the NYU-Bellevue Hospital Internal Medicine Residency Program (2004). He is board-certified in Internal Medicine (2004) and has 10 years of basic science laboratory experience working on human genetics projects at Harvard Medical School, the University of Chicago and the University of Pittsburgh.
Steffen Thomas, PhD Steffen Thomas, PhD, has over 15 years of experience as a European patent attorney and is currently practicing at Epping Hermann Fischer, a major intellectual property law firm in Europe. Previously, he worked for Japan-based Takeda Pharmaceutical Company, the largest pharmaceutical company in Asia and a top firm worldwide, as an in-house patent attorney. Prior to that, he worked for Nycomed Pharma, acquired by Takeda in 2011 for approximately USD $10 billion. Dr. Thomas’ legal practice covers drafting of patent applications, prosecuting patent applications before national and international patent offices, defending and challenging patents in opposition, appeal, and nullity proceedings, enforcing patents before the infringement courts, and preparing opinions on patentability and infringement in the technical field of chemistry. Dr. Thomas has particular expertise in small molecule pharmaceuticals. He holds MS and PhD degrees in Chemistry from the University of Munich.
Sandra Boenisch, CPA, CGA Ms. Boenisch is a Chartered Professional Accountant (CPA, CGA) with 14 years of accounting, audit, and financial reporting experience in a variety of industries, both in the United States and Canada. Ms. Boenisch has been an independent consultant, providing financial reporting services to a range of public companies in the United States and Canada since January 2012. From 2008 until 2012, Ms. Boenisch was employed at BDO Canada LLP (Vancouver, BC) where she was hired as a Senior Accountant and was later promoted to Manager, Audit Assurance. Ms. Boenisch specialized in managing assurance engagements for public companies in the United States and Canada. Prior to that, Ms. Boenisch worked for a public accounting firm beginning in 2001. As an independent consultant, Ms. Boenisch has acquired considerable experience in finance, governance, and regulatory compliance. She holds a BComm from Laurentian University.
Family Relationships
There are no family relationships between any director or executive officer.
Involvement in Certain Legal Proceedings
There are no material proceedings to which any director or executive officer or any associate of any such director or officer is a party adverse to our company or has a material interest adverse to our company.
No director or executive officer has been involved in any of the following events during the past ten years:
| 1. | any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; |
| 2. | any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences); |
| 3. | being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; |
| 4. | being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; |
| 32 |
| 5. | being the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: (i) any federal or state securities or commodities law or regulation; or (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease- and- desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
| 6. | being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors and persons who own more than 10% of our common stock to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common stock and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) reports that they file.
Based solely on the copies of such reports and amendments thereto received by us, or written representations that no filings were required, we believe that all Section 16(a) filing requirements applicable to our executive officers and directors and 10% stockholders were met for the year ended September 30, 2016, with the exception of the following: (i) Dr. Missling did not timely file one (1) Form 4 report in which one (1) transaction was reported, and (ii) Dr. Favus did not timely file three (3) Form 4 reports in which three (3) transactions were reported.
Code of Ethics
We have adopted a code of ethics that applies to our directors, principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and to all employees. We have posted our policy on our website at www.anavex.com.
Audit Committee and Audit Committee Financial Experts
The members of the Audit Committee are Bernd Metzner (Chairman), Athanasios Skarpelos and Steffen Thomas. Our board of directors has determined that Bernd Metzner is an “audit committee financial expert” as defined by applicable SEC and Nasdaq rules.
The Audit Committee oversees and reports to our board of directors on various auditing and accounting-related matters, including, among other things, the maintenance of the integrity of our financial statements, reporting process and internal controls; the selection, evaluation, compensation and retention of our independent registered public accounting firm; legal and regulatory compliance, including our disclosure controls and procedures; and oversight over our risk management policies and procedures.
The Audit Committee operates under a charter that was adopted by our board of directors.
| 33 |
Nominating and Corporate Governance Committee
The members of our Nominating and Corporate Governance Committee are Bernd Metzner (Chairman) and Steffen Thomas.
The Nominating and Corporate Governance Committee is appointed by the Board to oversee and evaluate the Board's performance and the company's compliance with corporate governance regulations, guidelines and principles, to identify individuals qualified to become Board members, to recommend to the Board proposed nominees for Board membership, and to recommend to the Board directors to serve on each standing committee.
Compensation Committee
The members of our Compensation Committee are Bernd Metzner (Chairman) and Steffen Thomas.
The Compensation Committee assists our board of directors in discharging its responsibilities relating to compensation of our directors and executive officers. Its responsibilities include, among other things, reviewing, approving and recommending compensation programs and arrangements applicable to our officers; determining the objectives of our executive officer compensation programs; overseeing the evaluation of our senior executives; administering our incentive compensation plans and equity-based plans, including reviewing and granting equity awards to our executive officers; and reviewing and approving director compensation and benefits. The Compensation Committee can delegate to other members of our board of directors, or an officer or officers of the Company, the authority to review and grant stock-based compensation for employees who are not executive officers.
The Compensation Committee has the responsibilities and authority designated by Nasdaq rules. Specifically, the Compensation Committee has the sole discretion to select and receive advice from a compensation consultant, legal counsel or other adviser and is directly responsible for oversight of their work. The Compensation Committee must also determine reasonable compensation to be paid to such advisors by us.
Prior to the formation of our Compensation Committee, our board of directors performed the functions that would have been handled by the Compensation Committee.
The Compensation Committee operates under a charter that was adopted by our board of directors.
ITEM 11. EXECUTIVE COMPENSATION
The Company’s compensation objectives are to offer our executive officers compensation and benefits that are competitive and meet our goals of attracting, retaining and motivating highly skilled, talented management, which is necessary for the Company to achieve its financial and strategic objectives and create long-term value for our stockholders.
A significant portion of the Company’s executive compensation opportunity is related to factors that directly and indirectly influence shareholder value, including long-term stock performance and operational performance. We believe the levels of compensation we provide should be competitive, reasonable and appropriate for our business needs and circumstances.
Our Executive Compensation Program and Philosophy
The intent of the Company’s compensation program is to attract and retain talent, to create incentives for and to reward excellent performance. We seek to compensate our executives in a manner that is competitive, rewards performance that creates shareholder value, recognizes individual contributions, and encourages long-term value creation.
| 34 |
The Compensation Committee meets at least twice per year to review and evaluate executive compensation and each executive officer’s performance. The Compensation Committee utilizes quantitative and qualitative factors, including the accomplishment of initiatives, attitude, and leadership and applies overall judgment to assess performance, taking into account the financial condition of the Company. Ultimately, the Compensation Committee seeks to evaluate, based on the achievement of financial and nonfinancial objectives, the variable compensation, including special awards, of executive officers of the Company and decide on the base salary and target discretionary bonus for such persons taking into account relevant benchmark data.
The Compensation Committee believes that a significant portion of each executive’s compensation opportunity should be tied to variable compensation and value creation for shareholders. The Compensation Committee believes this mix provides an appropriate balance between the financial security required to attract and retain qualified individuals, and the Compensation Committee’s goal of ensuring that executive compensation rewards performance that benefits shareholders over the long term.
Compensation Consultants
The Compensation Committee makes recommendations to the Board for all compensation for executives, including the structure and design of the compensation programs. The Compensation Committee is responsible for retaining and terminating compensation consultants and determining the terms and conditions of their engagement.
Annual Discretionary Cash Bonuses
The Company has an annual discretionary cash bonus program. The Compensation Committee, or board of directors works with the Chief Executive Officer to evaluate the Company’s financial performance and overall financial condition to determine if discretionary bonuses are to be paid.
Benefits
The Company’s executives are entitled to participate in employee benefit plans, programs and arrangements implemented by the Company and generally available to all salaried employees, such as medical, dental and insurance programs. Executives are also allowed to participate in the Company’s tax-qualified 401(k) Plan offered to all similarly situated full-time employees.
Summary Compensation
The particulars of compensation paid to the following persons for the last two completed fiscal years:
| a) | our principal executive officers; |
| b) | each of our two most highly compensated executive officers who were serving as executive officers at the end of the fiscal year ended September 30, 2016 who had total compensation exceeding $100,000; and |
| c) | up to two additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as our executive officer at the end of the most recently completed financial year, who we will collectively refer to as the named executive officers, for our fiscal years ended September 30, 2016 and 2015, are set out in the following summary compensation table: |
| 35 |
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Other Annual Compensation ($) | Total ($) | |||||||||||||||||||
| Christopher Missling, PhD(1) | 2016 | 305,000 | - | - | 8,495,900 | 2,290,340 | (2) | 11,091,240 | ||||||||||||||||||
| President, Chief Executive Officer, | 2015 | 240,000 | - | 1,220,000 | 1,151,309 | 1,128,064 | (2) | 3,739,373 | ||||||||||||||||||
| Chief Financial Officer and Director | 2014 | 240,000 | 400,000 | (3) | - | 127,800 | - | 767,800 | ||||||||||||||||||
| Sandra Boenisch(4) | 2016 | 58,000 | (5) | - | - | 407,400 | - | 465,419 | ||||||||||||||||||
| Principal Financial Officer | 2015 | - | - | - | - | - | - | |||||||||||||||||||
| 2014 | - | - | - | - | - | - | ||||||||||||||||||||
| (1) | Christopher Missling was appointed as director, President, Chief Executive Officer, Chief Financial Officer, and Secretary on July 5, 2013. |
| (2) | The compensation was recorded in connection with the Company’s payment of an income tax withholding obligation arising as a result of the vesting of restricted stock awards during the years ended September 30, 2016 and 2015, in accordance with the terms of Dr. Missling’s employment agreement dated July 5, 2013. |
| (3) | The bonus was a result of the successful financing in March 2014. |
| (4) | Ms. Boenisch’s employment became effective on October 1, 2015. |
| (5) | Compensation to Ms. Boenisch denominated in Canadian Dollars and has been translated to US dollars at an exchange rate of 0.7438 during the year ended September 30, 2016. |
Employment Agreements
Christopher Missling
The Company and Dr. Missling have entered into an employment agreement dated July 5, 2013, as amended and extended on July 5, 2016 and as amended and restated on July 18, 2016, whereby the Company agreed to pay to Dr. Missling an annual base salary of $500,000. In addition, Dr. Missling (i) is eligible to earn an annual cash bonus for each whole or partial calendar year of up to $100,000; (ii) is eligible to participate in the Company’s employee benefit plans; and (iii) the Company has agreed to indemnify Dr. Missling in connection with his provision of services to the Company.
During the year ended September 30, 2016 and in connection with the Amended and Restated First Amendment to the Employment Agreement with Dr. Missling in his continuing capacity as Chief Executive Officer of the Company, Dr. Missling was granted options with a value of Two Million Dollars ($2,000,000) to purchase shares of the Company’s common stock, which was equal to 379,625 options at an exercise price of $6.26 These options shall vest quarterly over a three year period, commencing on October 5, 2016. In addition, Dr. Missling was granted options to purchase 861,429 shares of the Company’s common stock at an exercise price of $7.06, which options will vest quarterly over a three-year period, commencing on October 18, 2016.
| 36 |
Sandra Boenisch
In connection with Ms. Boenisch’s appointment as Principal Financial Officer, the Company and Ms. Boenisch entered into an employment agreement, effective October 1, 2015, whereby: (a) the Company shall pay to Ms. Boenisch an annual base salary of Seventy-Eight Thousand and 00/100 Canadian Dollars ($78,000 CAD), with Ms. Boenisch being eligible for bonuses which are anticipated to be up to 25% of her annual base salary, and salary increases; (b) Ms. Boenisch received a sign-on stock option grant of 100,000 shares; and (c) Ms. Boenisch is able to participate in the Company’s employee benefit plans.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth for each named executive officer and director certain information concerning the outstanding equity awards as of September 30, 2016.
| 37 |
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||
| Name | Number of Securities Underlying Exercisable Options (#) | Number of Securities Underlying Unexercisable Options (#) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares of Units of Stock that have not Vested (#) | Market Value of Shares or Units of Stock that have not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that have not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that have not Vested ($) | |||||||||||||||||||||||||
| Christopher Missling | 500,000 | - | - | 1.60 | July 5, 2023 | - | - | - | - | |||||||||||||||||||||||||
| 62,500 | 62,500 | - | 1.32 | May 8, 2024 | ||||||||||||||||||||||||||||||
| 333,334 | 166,666 | - | 0.92 | April 2, 2025 | ||||||||||||||||||||||||||||||
| 62,500 | 125,000 | - | 5.04 | Sept 18, 2025 | ||||||||||||||||||||||||||||||
| - | 379,625 | - | 6.26 | July 5, 2026 | ||||||||||||||||||||||||||||||
| - | 861,429 | - | 7.06 | July 18, 2026 | ||||||||||||||||||||||||||||||
| 500,000 | - | - | 3.28 | Sept 22, 2026 | ||||||||||||||||||||||||||||||
| Athanasios Skarpelos | 33,334 | 16,666 | - | 0.92 | April 2, 2025 | - | - | - | - | |||||||||||||||||||||||||
| 100,000 | - | - | 3.28 | Sep 22, 2026 | ||||||||||||||||||||||||||||||
| Bernd Metzner | 25,000 | 12,500 | - | 1.20 | May 7, 2024 | - | - | - | - | |||||||||||||||||||||||||
| 33,334 | 16,666 | - | 0.92 | April 2, 2025 | ||||||||||||||||||||||||||||||
| 100,000 | - | - | 3.28 | Sept 22, 2026 | ||||||||||||||||||||||||||||||
| Elliot Favus | 25,000 | 12,500 | - | 1.20 | May 7, 2024 | - | - | - | - | |||||||||||||||||||||||||
| 33,334 | 16,666 | - | 0.92 | April 2, 2025 | ||||||||||||||||||||||||||||||
| 1,500 | - | - | 5.64 | Sept 30, 2025 | ||||||||||||||||||||||||||||||
| 1,500 | - | - | 5.57 | Dec 31, 2025 | ||||||||||||||||||||||||||||||
| - | 1,500 | - | 4.90 | Mar 31, 2026 | ||||||||||||||||||||||||||||||
| 1,500 | - | - | 5.66 | April 27, 2026 | ||||||||||||||||||||||||||||||
| - | 1,500 | - | 6.11 | June 30, 2026 | ||||||||||||||||||||||||||||||
| 100,000 | - | - | 3.28 | Sept 22, 2026 | ||||||||||||||||||||||||||||||
| Steffen Thomas | 16,667 | 33,333 | - | 1.76 | June 15, 2025 | - | - | - | - | |||||||||||||||||||||||||
| 100,000 | - | - | 3.28 | Sept 22, 2026 | ||||||||||||||||||||||||||||||
| Sandra Boenisch | 8,333 | 16,667 | - | 5.68 | Oct 2, 2026 | - | - | - | - | |||||||||||||||||||||||||
| 106,696 | - | - | 3.28 | Sept 22, 2026 | ||||||||||||||||||||||||||||||
| 38 |
Stock Option Plan
Our board of directors adopted an Omnibus Incentive Plan (the “2015 Plan”), which was approved by our board on September 18, 2015. The 2015 Plan provides for the grant of stock options and restricted stock awards to directors, officers, employees and consultants of the Company.
The maximum number of our common shares reserved for issue under the plan is 6,050,553 shares, subject to adjustment in the event of a change of the Company’s capitalization. As a result of the adoption of the 2015 Plan, no further option awards will be granted under any previously existing stock option plan. Stock option awards previously granted under previously existing stock option plans remain outstanding in accordance with their terms.
The 2015 Plan is administered by the board of directors, except that it may, in its discretion, delegate such responsibility to a committee of such board. The exercise price will be determined by the board of directors at the time of grant, and the exercise price of each option shall be at least the fair market value on the grant date; provided, however, that in the event that a grantee owns more than 10% of the Company’s common stock as of the date of grant, the exercise price of an option granted to such grantee that is intended to be an incentive stock option shall be not less than 110% of the fair market value on the date of grant. Stock options may be granted under the 2015 Plan for an exercise period of up to ten years from the date of grant of the option or such lesser periods as may be determined by the board, subject to earlier termination in accordance with the terms of the 2015 Plan.
Compensation of Directors
The table below shows the compensation of our directors who were not our named executive officers for the fiscal year ended September 30, 2016:
| Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||
| Athanasios Skarpelos | - | - | 274,150 | - | - | - | 274,150 | |||||||||||||||||||||
| Bernd Metzner | 15,500 | - | 274,150 | - | - | - | 289,650 | |||||||||||||||||||||
| Elliot Favus | - | - | 308,450 | - | - | - | 308,450 | |||||||||||||||||||||
| Steffen Thomas | - | - | 274,150 | - | - | - | 274,150 | |||||||||||||||||||||
We have agreed to compensate Bernd Metzner an amount of $4,000 per quarter for performing the functions of Chairman of the Company’s Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee.
In addition, directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors. Our board of directors may award further special remuneration to any director undertaking any special services on our behalf other than services ordinarily required of a director.
| 39 |
Retirement or Similar Benefit Plans
There are no arrangements or plans in which we provide retirement or similar benefits for our directors or executive officers.
Resignation, Retirement, Other Termination, or Change in Control Arrangements
Effective July 18, 2016 the Company entered into the Amended and Restated First Amendment to Employment Agreement with Dr. Missling (“Employment Agreement”) in his continuing capacity as Chief Executive Officer of the Company. The Amendment amends the First Amendment to Employment Agreement dated July 5, 2016, and the Employment Agreement by and between the Company and Dr. Missling, dated June 27, 2013 and filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 14, 2013. The Employment Agreement contains provisions regarding our obligations to Dr. Missling upon his termination and upon a change of control. In the event of a change of control, as such term is defined in the Employment Agreement, all of the restricted stock granted to Dr. Missling shall vest. Depending on the nature of the termination of Dr. Missling’s services, certain of his salary, bonus and granted securities shall vest in the amounts at such time as set forth in the Employment Agreement. A copy of the Employment Agreement is set forth in its entirety as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on July 22, 2016.
Our employment agreement with Sandra Boenisch contains provisions regarding our obligations to Ms. Boenisch upon a change of control. In the event of a change of control, as such term is defined in the employment agreement, all of the remaining unvested option shares granted to Ms. Boenisch will immediately vest with no restrictions on purchase or sales. A copy of the employment agreement is set forth in its entirety as an exhibit hereto.
Compensation Committee Interlocks and Insider Participation
None of our directors who currently serve as members of our compensation committee is, or has at any time during the past year been, one of our officers or employees. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any other entity that has one or more executive officers serving on our board of directors or compensation committee.
Compensation Committee Report
The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis and has recommended to the board of directors that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K for the year ended September 30, 2016.
The members of our Compensation Committee are Bernd Metzner (Chairman) and Steffen Thomas.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth, as of December 12, 2016, certain information with respect to the beneficial ownership of our common stock by each stockholder known by us to be the beneficial owner of more than 5% of our common stock and by each of our current directors and our named executive officers and by our current directors and executive officers as a group. We have determined the number and percentage of shares beneficially owned by such person in accordance with Rule 13d-3 under the Securities Exchange Act of 1934. This information does not necessarily indicate beneficial ownership for any other purpose.
| 40 |
| Title of class | Name and address of beneficial owner | Amount and nature of beneficial ownership | Percent of class (1) | |||||||
| Common Stock | Christopher Missling (CEO/Director) | 2,461,584 | (2) | 6.0 | % | |||||
| 51 W 52nd Street, | ||||||||||
| 7th floor | ||||||||||
| New York, NY 10019 | ||||||||||
| Common Stock | Athanasios Skarpelos (Director) | 1,439,792 | (3) | 3.6 | % | |||||
| 51 W 52nd Street, | ||||||||||
| 7th Floor | ||||||||||
| New York, NY 10019 | ||||||||||
| Common Stock | Bernd Metzner (Director) | 158,334 | (4) | 0.4 | % | |||||
| 51 W 52nd Street, | ||||||||||
| 7th Floor | ||||||||||
| New York, NY 10019 | ||||||||||
| Common Stock | Elliot Favus (Director) | 162,834 | (5) | 0.4 | % | |||||
| 51 W 52nd Street, | ||||||||||
| 7th Floor | ||||||||||
| New York, NY 10019 | ||||||||||
| Common Stock | Steffen Thomas (Director) | 116,667 | (6) | 0.3 | % | |||||
| 51 W 52nd Street, | ||||||||||
| 7th Floor | ||||||||||
| New York, NY 10019 | ||||||||||
| Common Stock | Sandra Boenisch (Principal Financial Officer) | 140,075 | (7) | 0.4 | % | |||||
| 51 W 52nd Street, | ||||||||||
| 7th Floor | ||||||||||
| New York, NY 10019 | ||||||||||
| Common Stock | Directors & Executive Officers as a group (6 persons) | 4,479,286 | 10.7 | % | ||||||
| (1) | Percentage of ownership is based on 39,610,967 shares of our common stock issued and outstanding as of December 12, 2016. Except as otherwise indicated, we believe that the beneficial owners of the common stock listed above, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage ownership of the person holding such option or warrants, but are not deemed outstanding for purposes of computing the percentage ownership of any other person. |
| 41 |
| (2) | Includes options to purchase 500,000 shares of our common stock at $1.60 per share, options to purchase 62,500 shares of our common stock at $1.32 per share, options to purchase 333,334 shares of our common stock at $0.92 per share, options to purchase 62,500 shares of our common stock at $5.04 per share, and options to purchase 500,000 shares of our common stock at $3.28 per share that have vested or are vesting within 60 days. Excludes options to purchase 62,500 shares of our common stock at $1.32 per share, options to purchase 166,666 shares of our common stock at $0.92 per share, options to purchase 125,000 shares of our common stock at $5.04 per share, options to purchase 379,625 shares of our common stock at $6.26 per share and options to purchase 861,429 shares of our common stock at $7.06 per share that do not vest within 60 days. |
| (3) | Includes options to purchase 33,334 shares of our common stock at $0.92 per share and options to purchase 100,000 shares of our common stock at $3.28 per share that have vested or are vesting within 60 days. Excludes options to purchase 16,666 shares of our common stock at $0.92 per share that do not vest within 60 days. |
| (4) | Includes options to purchase 25,000 shares of our common stock at $1.20 per share, options to purchase 33,334 shares of our common stock at $0.92 per share, and options to purchase 100,000 shares of our common stock at $3.28 per share that have vested or are vesting within 60 days. Excludes options to purchase 12,500 shares of our common stock at $1.20 per share and options to purchase 16,666 shares of our common stock at $0.92 per share that are not vesting within 60 days. |
| (5) | Includes options to purchase 25,000 shares of our common stock at $1.20 per share, options to purchase 33,334 shares of our common stock at $0.92 per share, options to purchase 1,500 shares of our common stock at $1.80 per share, options to purchase 1,500 shares of our common stock at $5.64 per share, options to purchase 1,500 shares of our common stock at $5.47 per share, options to purchase 1,500 shares of our common stock at $4.05, options to purchase 1,500 shares of our common stock at $6.11 per share, and options to purchase 100,000 shares of our common stock at $3.28 per share that have vested or are vesting within 60 days. Excludes options to purchase 12,500 shares of our common stock at $1.20 per share and options to purchase 16,666 shares of our common stock at $0.92 per share that are not vesting within 60 days. |
| (6) | Includes options to purchase 16,667 shares of our common stock at $1.68 per share and options to purchase 100,000 shares of our common stock at $3.28 per share that have vested or are vesting within 60 days. Excludes options to purchase 33,333 shares of our common stock at $1.68 per share that do not vest within 60 days. |
| (7) | Includes options to purchase 10,416 shares of our common stock at $5.68 per share and options to purchase 106,696 shares of our common stock at $3.28 per share that have vested or are vesting within 60 days. Excludes options to purchase 14,583 shares of our common stock at $5.68 per share that do not vest within 60 days. |
Change in Control
We are unaware of any contract or other arrangement the operation of which may at a subsequent date result in a change of control of our Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions with related persons
Our Code of Business Conduct and Audit Committee Charter set forth our policies and procedures for the review and approval of transactions with related persons, including transactions that would be required to be disclosed in this Annual Report on Form 10-K in accordance with SEC rules.
| 42 |
In circumstances where one of our directors or executive officers, or a family member, has a direct or indirect material interest in a transaction with the Company, our Corporate Governance Committee must review and approve all such proposed transactions. In determining whether to approve or ratify a transaction with a related person, among the factors the Audit Committee may consider (as applicable) are: the business purpose for entering into the transaction, the size and terms of the transaction, the availability of alternative sources of comparable products or services, whether the transaction could impair the judgment of the related person in performing his or her duties and whether the transaction would be consistent with NASDAQ’s requirements for independent directors, and any other factors the Audit Committee deems relevant.
There have been no other transactions, since October 1, 2015, or currently proposed transactions, in which we were or are to be a participant and the amount involved exceeds the lesser of $120,000, and in which any of the following persons had or will have a direct or indirect material interest.
| i. | any director or executive officer of our company; |
| ii. | any beneficial owner of shares carrying more than 5% of the voting rights attached to our outstanding shares of common stock; and |
| iii. | any member of the immediate family (including spouse, parents, children, siblings and in-laws) of any of the foregoing persons. |
Compensation of Named Executive Officers and Directors
For information regarding compensation of named executive officers and directors, please see “Item 11. Executive Compensation.”
Director Independence
We deem that Christopher Missling, PhD is not independent as that term is defined by NASDAQ 5605(a)(2) because Mr. Missling serves as our President, Chief Executive Officer, and Secretary.
We deem that Bernd Metzner, Elliot Favus, Athanasios Skarpelos and Steffen Thomas are independent as that term is defined by NASDAQ 5605(a)(2).
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Fees Paid to Our Independent Registered Public Accounting Firm
The following table sets forth the aggregate fees billed or expected to be billed to our company for professional services rendered by our independent registered public accounting firm, for the fiscal years ended September 30, 2016, 2015 and 2014:
| 2016 | 2015 | 2014 | ||||||||||
| Audit Fees | $ | 197,942 | $ | 120,848 | $ | 115,125 | ||||||
| Audit Related Fees | - | - | - | |||||||||
| Tax Fees | - | - | - | |||||||||
| All Other Fees | - | - | - | |||||||||
| Total Fees | $ | 197,942 | $ | 120,848 | $ | 115,125 | ||||||
Audit Fees. Consist of fees billed for professional services rendered for the audits of our financial statements, reviews of our interim financial statements included in quarterly reports, services performed in connection with regular filings with the Securities and Exchange Commission and other services that are normally provided by our independent registered public accounting firm for the fiscal years ended September 30, 2016, 2015 and 2014, in connection with statutory and regulatory filings or engagements.
| 43 |
Policy on Pre-Approval by Audit Committee of Services Performed by Independent Registered Public Accounting Firm
Our Audit Committee pre-approves all services provided by our independent registered public accounting firm. All of the above services and fees were reviewed and approved by our Audit Committee and board of directors before the respective services were rendered.
Our Audit Committee and board of directors has considered the nature and amount of fees billed or expected to be billed by BDO USA, LLP and believes that the provision of services for activities unrelated to the audit was compatible with maintaining BDO USA, LLP’s independence.
| 44 |
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
| 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 Current Report on Form 8-K filed on September 28, 2007) | |
| 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) | |
| 3.4 | Certificate of Change filed with the Secretary of State of Nevada on October 6, 2015 (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on October 6, 2015) | |
| (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 | Form of Stock Option Agreement (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on February 22, 2007) | |
| 10.3 | 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) | |
| 10.4 | 2007 Stock Option Plan (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on September 28, 2007) | |
| 10.5 | 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 | |
| 10.6 | Form of Convertible Loan Agreement (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on April 3, 2009) | |
| 10.7 | 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) | |
| 10.8 | 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) | |
| 10.9 | Form of Subscription Agreement (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on April 3, 2009) | |
| 10.10 | Form of Warrant Certificate (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on April 3, 2009) |
| 45 |
Exhibit |
Description | |
| 10.11 | 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) | |
| 10.12 | 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) | |
| 10.13 | 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) | |
| 10.14 | 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) | |
| 10.15 | 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) | |
| 10.16 | 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) | |
| 10.17 | 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) | |
| 10.19 | 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) | |
| 10.20 | 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) | |
| 10.21 | 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) | |
| 10.22 | Form of Subscription Agreement (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on November 24, 2009) | |
| 10.23 | Form of Warrant Certificate (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on August 12, 2009) | |
| 10.24 | 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) | |
| 10.25 | 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) | |
| 10.26 | 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) | |
| 10.27 | 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) | |
| 10.28 | Form of Subscription Agreement (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on April 9, 2010) | |
| 10.29 | Form of Warrant Certificate (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on April 9, 2010) | |
| 10.30 | Form of Convertible Loan Agreement (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on April 9, 2010) | |
| 10.31 | 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) | |
| 10.32 | 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) | |
| 10.33 | 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) | |
| 10.34 | 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) | |
| 10.35 | 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) | |
| 10.36 | 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) |
| 46 |
Exhibit |
Description | |
| 10.37 | 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) | |
| 10.38 | 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) | |
| 10.39 | 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) | |
| 10.40 | 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) | |
| 10.41 | 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) | |
| 10.42 | 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) | |
| 10.43 | 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) | |
| 10.44 | 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) | |
| 10.45 | 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) | |
| 10.46 | 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) | |
| 10.47 | 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) | |
| 10.48 | 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) | |
| 10.49 | 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) | |
| 10.50 | 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) | |
| 10.51 | 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) | |
| 10.52 | Form of Subscription Agreement (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on November 30, 2010) | |
| 10.53 | 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) | |
| 10.54 | 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) | |
| 10.55 | 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) | |
| 10.56 | 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) | |
| 10.57 | 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) | |
| 10.58 | 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) |
| 47 |
Exhibit |
Description | |
| 10.59 | 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) | |
| 10.60 | 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) | |
| 10.61 | Form of Advisory Board Consulting Agreement (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on February 28, 2011) | |
| 10.62 | Consulting Agreement dated March 30, 2011 with Shackleton Consulting Corp. (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on April 13, 2011) | |
| 10.63 | Form of subscription agreement for convertible debenture (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on April 26, 2011) | |
| 10.64 | Form of subscription agreement for convertible debenture (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on May 9, 2011) | |
| 10.65 | Form of warrant certificate (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on May 9, 2011) | |
| 10.66 | Amended Stock Option Agreement dated September 16, 2011 with Cameron Durrant (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on September 21, 2011) | |
| 10.67 | Consulting Agreement dated effective October 10, 2011, with George Tidmarsh (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on October 14, 2011) | |
| 10.68 | Form of subscription agreement for services (US purchaser) (incorporated by reference to our current report on Form 8-K filed on February 10, 2012) | |
| 10.69 | Form of subscription agreement for units (Offshore purchasers) (incorporated by reference to our current report on Form 8-K filed on February 10, 2012) | |
| 10.70 | Unsecured Promissory Note dated April 20, 2012 issued to Georgia Georgopoulou (incorporated by reference to our quarterly report on Form 10-Q filed on May 15, 2012) | |
| 10.71 | Form of subscription agreements for convertible debenture and promissory notes (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on June 7, 2012) | |
| 10.72 | Promissory Note dated October 17, 2012 issued to Akira International Limited (incorporated by reference to an exhibit to our Annual Report on Form 10-K filed on December 31, 2012) | |
| 10.73 | Promissory Note dated November 12, 2012 issued to Akira International Limited (incorporated by reference to an exhibit to our Annual Report on Form 10-K filed on December 31, 2012) | |
| 10.74 | Form of SPA (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on July 8, 2013) | |
| 10.75 | Form of Exchange Agreement (incorporated by reference to an exhibit to our Current Report on Form 8- K filed on July 8, 2013) | |
| 10.76 | Form of Warrant (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on July 8, 2013) | |
| 10.77 | Form of Registration Rights Agreement (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on July 8, 2013) | |
| 10.78 | Purchase Agreement, dated as of July 5, 2013, by and between the Company and Lincoln Park Capital Fund, LLC (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on July 8, 2013) | |
| 10.79 | Registration Rights Agreement, dated as of July 5, 2013, by and between the Company and Lincoln Park Capital Fund, LLC (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on July 8, 2013) | |
| 10.80 | Employment Agreement, dated as of July 5, 2013, by and between the Company and Christopher Missling, PhD (incorporated by reference to an exhibit to our Quarterly Report on Form 10-Q filed on August 14, 2013) |
| 48 |
Exhibit |
Description | |
| 10.81 | 2012 Addendum to the Contract for the Transfer of a Patent Invention and Scientific Collaboration dated January 11, 2013 (incorporated by reference to an exhibit to our Annual Report on Form 10-K filed on December 30, 2013) | |
| 10.82 | Appendix A to the 2012 Addendum to the Contract for the Transfer of a Patent Invention and Scientific Collaboration dated January 11, 2013 (incorporated by reference to an exhibit to our Annual Report on Form 10-K filed on December 30, 2013) | |
| 10.83 | Form of Amendment No. 1 to Common Stock Securities Purchase Warrant, entered into December 21, 2013 Agreement, dated March 13, 2014, by and among the Company and the Purchasers named therein (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on March 19, 2014) | |
| 10.84 | Form of Registration Rights Agreement, dated March 13, 2014, by and among the Company and the parties identified therein (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on March 19, 2014) | |
| 10.85 | Form of Senior Convertible Debenture (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on March 19, 2014) | |
| 10.86 | Form of Series A/B Warrant (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on March 19, 2014) | |
| 10.87 | Form of Amendment No. 1 to Registration Rights Agreement (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on August 25, 2014 | |
| 10.88 | Securities Purchase Agreement, dated October 22, 2014, by and between the Company and Lincoln Park Capital Fund, LLC (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on October 23, 2014) | |
| 10.89 | Form of Series A Common Stock Purchase Warrant (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on October 23, 2014) | |
| 10.90 | Form of Series B Common Stock Purchase Warrant (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on October 23, 2014) | |
| 10.91 | 2015 Omnibus Incentive Plan (incorporated by reference to an exhibit to our Annual Report on Form 10-K filed on December 29, 2015) | |
| 10.92 | Employment Agreement, dated as of October 1, 2015, by and between the Company and Sandra Boenisch (incorporated by reference to an exhibit to our Annual Report on Form 10-K filed on December 29, 2015) | |
| 10.93 | Purchase Agreement, dated as of October 21, 2015, by and between the Company and Lincoln Park Capital Fund, LLC (incorporated by reference to our Current Report on Form 8-K filed on October 26, 2015) | |
| 10.94 | Registration Rights Agreement, dated as of October 21, 2015, by and between the Company and Lincoln Park Capital Fund, LLC (incorporated by reference to our Current Report on Form 8-K filed on October 26, 2015) | |
| 10.95 | First Amendment To Employment Agreement, dated as of July 5, 2016, by and between the Company and Christopher Missling, PhD (incorporated by reference to our Current Report on Form 8-K filed on July 7, 2016) | |
| 10.96 | Amended and Restated First Amendment to Employment Agreement, dated as of July 18, 2016, by and between the Company and Christopher Missling, PhD (incorporated by reference to our Current Report on Form 8-K filed on July 22, 2016) |
| 49 |
|
Exhibit |
Description | |
| 14 | Code of Ethics | |
| 14.1* | Code of Ethics Adopted on September 13, 2016 | |
| (21) | Subsidiaries | |
| 21.1 | Anavex Australia Pty Limited, a company incorporated under the laws of Australia | |
| (23) | Consent | |
23.1* |
Consent of Independent Registered Public Accounting Firm | |
| (31) | Section 302 Certifications | |
| 31.1* | Section 302 Certification of Christopher Missling, PhD. | |
| 31.2* | Section 302 Certification of Sandra Boenisch | |
| (32) | Section 906 Certifications | |
| 32.1* | Section 906 Certification of Christopher Missling, PhD and Sandra Boenisch | |
| (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) | |
| (101) | XBRL | |
| 101.INS* | XBRL INSTANCE DOCUMENT | |
| 101.SCH* | XBRL TAXONOMY EXTENSION SCHEMA | |
| 101.CAL* | XBRL TAXONOMY EXTENSION CALCULATION LINKBASE | |
| 101.DEF* | XBRL TAXONOMY EXTENSION DEFINITION LINKBASE | |
| 101.LAB* | XBRL TAXONOMY EXTENSION LABEL LINKBASE | |
| 101.PRE* | XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE |
* Filed herewith.
| 50 |
ANAVEX LIFE SCIENCES CORP.
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Anavex Life Sciences Corp.
New York, NY
We have audited the accompanying consolidated balance sheets of Anavex Life Sciences Corp. as of September 30, 2016 and 2015 and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended September 30, 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Anavex Life Sciences Corp. at September 30, 2016 and 2015, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2016, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Anavex Life Sciences Corp.’s internal control over financial reporting as of September 30, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated December 14, 2016 expressed an adverse opinion thereon.
/s/ BDO USA, LLP
New York, NY
December 14, 2016
| F-1 |
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Anavex Life Sciences Corp.
New York, NY
We have audited Anavex Life Sciences Corp.’s internal control over financial reporting as of September 30, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Anavex Life Sciences Corp.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A, Management’s Report on Internal Control Over Financial Reporting”. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
| F-2 |
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness regarding lack of adequate oversight related to the development and performance of internal controls has been identified and described in management’s assessment. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the September 30, 2016 financial statements, and this report does not affect our report dated December 14, 2016 on those financial statements.
In our opinion, Anavex Life Sciences Corp. did not maintain, in all material respects, effective internal control over financial reporting as of September 30, 2016, based on the COSO criteria.
We do not express an opinion or any other form of assurance on management’s statements referring to any corrective actions taken by the company after the date of management’s assessment.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Anavex Life Sciences Corp. as of September 30, 2016 and 2015, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended September 30, 2016 and our report dated December 14, 2016 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
New York, New York
December 14, 2016
| F-3 |
ANAVEX LIFE SCIENCES CORP.
CONSOLIDATED BALANCE SHEETS
| September 30, | September 30, | |||||||
| 2016 | 2015 | |||||||
| Current | ||||||||
| Cash | $ | 9,186,814 | $ | 15,290,976 | ||||
| Sales Tax Recoverable | 79,347 | 76,840 | ||||||
| Prepaid expenses | 180,124 | 100,845 | ||||||
| 9,446,285 | 15,468,661 | |||||||
| Deposits | 52,396 | - | ||||||
| Equipment | - | 1,252 | ||||||
| $ | 9,498,681 | $ | 15,469,913 | |||||
| Current | ||||||||
| Accounts payable and accrued liabilities | $ | 3,119,993 | $ | 2,503,726 | ||||
| Deferred grant income | 70,532 | 71,614 | ||||||
| Promissory notes payable | - | 85,238 | ||||||
| 3,190,525 | 2,660,578 | |||||||
| Senior Convertible Debentures | - | 332 | ||||||
| 3,190,525 | 2,660,910 | |||||||
| Commitments - Note 9 | ||||||||
| Capital stock | ||||||||
| Authorized: | ||||||||
| 100,000,000 common shares, par value $0.001 per share | ||||||||
| Issued and outstanding: | ||||||||
| 36,168,299 common shares (September 30, 2015 - 32,044,213) | 36,169 | 32,044 | ||||||
| Additional paid-in capital | 84,290,140 | 74,060,999 | ||||||
| Common stock to be issued | - | 1,997,415 | ||||||
| Accumulated deficit | (78,018,153 | ) | (63,281,455 | ) | ||||
| 6,308,156 | 12,809,003 | |||||||
| $ | 9,498,681 | $ | 15,469,913 | |||||
See Accompanying Notes to Consolidated Financial Statements
| F-4 |
ANAVEX LIFE SCIENCES CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
| Years ended September 30, | ||||||||||||
| 2016 | 2015 | 2014 | ||||||||||
| Operating expenses | ||||||||||||
| General and administrative | $ | 8,334,740 | $ | 4,836,978 | $ | 2,236,580 | ||||||
| Research and development | 7,254,303 | 2,271,736 | 732,395 | |||||||||
| Total operating expenses | (15,589,043 | ) | (7,108,714 | ) | (2,968,975 | ) | ||||||
| Other income (expenses) | ||||||||||||
| Grant income | 712,288 | - | - | |||||||||
| Interest income (expense), net | 11,322 | (71,825 | ) | (7,089 | ) | |||||||
| Gain on settlement of accounts payable | 151,402 | - | 199,655 | |||||||||
| Gain on settlement of debt | 61,205 | - | - | |||||||||
| Financing related charges and adjustments | (5,812 | ) | (4,998,145 | ) | (8,624,986 | ) | ||||||
| Foreign exchange (loss) gain | (48,445 | ) | 70,554 | 33,042 | ||||||||
| Total other income (expenses), net | 881,960 | (4,999,416 | ) | (8,399,378 | ) | |||||||
| Net loss before provision for income taxes | (14,707,083 | ) | (12,108,130 | ) | (11,368,353 | ) | ||||||
| Income tax expense - current | (29,615 | ) | - | - | ||||||||
| Income tax benefit - deferred | - | - | 1,400,000 | |||||||||
| Net loss and comprehensive loss | $ | (14,736,698 | ) | $ | (12,108,130 | ) | $ | (9,968,353 | ) | |||
| Loss per share | ||||||||||||
| Basic | $ | (0.42 | ) | $ | (0.65 | ) | $ | (1.02 | ) | |||
| Diluted | $ | (0.42 | ) | $ | (0.65 | ) | $ | (1.02 | ) | |||
| Weighted average number of shares outstanding | ||||||||||||
| Basic | 35,153,426 | 18,584,820 | 9,804,539 | |||||||||
| Diluted | 35,153,426 | 18,584,820 | 9,804,539 | |||||||||
See Accompanying Notes to Consolidated Financial Statements
| F-5 |
ANAVEX LIFE SCIENCES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Years ended September 30, | ||||||||||||
| 2016 | 2015 | 2014 | ||||||||||
| Cash Flows used in Operating Activities | ||||||||||||
| Net loss | $ | (14,736,698 | ) | $ | (12,108,130 | ) | $ | (9,968,353 | ) | |||
| Adjustments to reconcile net loss to net cash used in operations: | ||||||||||||
| Amortization and depreciation | 1,252 | 995 | 768 | |||||||||
| Accretion of debt discount | 5,830 | 4,515,987 | 1,917,615 | |||||||||
| Stock-based compensation | 5,062,267 | 1,633,979 | 637,925 | |||||||||
| Amortization of deferred financing charge | - | - | 1,123,612 | |||||||||
| Non-cash financing related charges | - | 29,000 | - | |||||||||
| Deferred income tax benefit | - | - | (1,400,000 | ) | ||||||||
| Change in fair value of derivative financial instruments | - | 567,000 | (2,956,000 | ) | ||||||||
| Loss (gain) on extinguishment of debt | (61,205 | ) | (84,842 | ) | 8,539,759 | |||||||
| Gain on settlement of accounts payable | (151,402 | ) | - | (199,655 | ) | |||||||
| Unrealized foreign exchange | 3,065 | (18,683 | ) | (18,798 | ) | |||||||
| Changes in non-cash working capital balances related to operations: | ||||||||||||
| Sales tax recoverable | (2,507 | ) | (76,840 | ) | - | |||||||
| Prepaid expenses and deposits | (79,279 | ) | (67,692 | ) | (33,234 | ) | ||||||
| Deposits | (52,396 | ) | - | - | ||||||||
| Accounts payable and accrued liabilities | 775,332 | 1,310,606 | (303,018 | ) | ||||||||
| Deferred grant income | (1,082 | ) | 71,614 | - | ||||||||
| Net cash used in operating activities | (9,236,823 | ) | (4,227,006 | ) | (2,659,379 | ) | ||||||
| Cash Flows used in Investing Activities | ||||||||||||
| Acquisition of equipment | - | - | (3,015 | ) | ||||||||
| Net cash used in investing activities | - | - | (3,015 | ) | ||||||||
| Cash Flows provided by Financing Activities | ||||||||||||
| Issuance of common shares, net of share issue costs | 3,167,420 | 12,343,988 | 368,170 | |||||||||
| Financing fees paid | - | - | (788,712 | ) | ||||||||
| Repayment of promissory notes | (34,759 | ) | (88,144 | ) | - | |||||||
| Proceeds from the issuance of convertible debentures | - | - | 10,000,000 | |||||||||
| Net cash provided by financing activities | 3,132,661 | 12,255,844 | 9,579,458 | |||||||||
| (Decrease) increase in cash during the period | (6,104,162 | ) | 8,028,838 | 6,917,064 | ||||||||
| Cash, beginning of period | 15,290,976 | 7,262,138 | 345,074 | |||||||||
| Cash, end of period | $ | 9,186,814 | $ | 15,290,976 | $ | 7,262,138 | ||||||
Supplemental Cash Flow Information - Note 11
See Accompanying Notes to Consolidated Financial Statements
| F-6 |
ANAVEX LIFE SCIENCES CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the years ended September 30, 2016, 2015 and 2014
| Common Stock | ||||||||||||||||||||||||
| Additional | Common | |||||||||||||||||||||||
| Paid-in | Shares to be | Accumulated | ||||||||||||||||||||||
| Shares | Par Value | Capital | Issued | Deficit | Total | |||||||||||||||||||
| Balance, October 1, 2013 | 9,309,400 | $ | 9,309 | $ | 38,672,452 | $ | 60,000 | $ | (41,204,972 | ) | $ | (2,463,211 | ) | |||||||||||
| Equity units issued under Purchase Agreement | 100,000 | 100.00 | 188,070 | - | - | 188,170 | ||||||||||||||||||
| Commitment shares issued under terms of Purchase Agreement | 628 | 1 | (1 | ) | - | - | - | |||||||||||||||||
| Capital stock issued for cash - at $2.00 | 30,000 | 30 | 59,970 | (60,000 | ) | - | ||||||||||||||||||
| Capital stock issued for cash - at $1.20 | 125,000 | 125 | 149,875 | 30,000 | 180,000 | |||||||||||||||||||
| Share issue costs, net of recovery | - | - | (2,452 | ) | - | - | (2,452 | ) | ||||||||||||||||
| Issuance of detachable warrants | - | - | 5,989,900 | - | - | 5,989,900 | ||||||||||||||||||
| Agent's warrants issued in connection with convertible debentures | - | - | 334,900 | - | - | 334,900 | ||||||||||||||||||
| Beneficial conversion feature on convertible debentures issued, net of deferred income tax | - | - | 2,610,100 | - | - | 2,610,100 | ||||||||||||||||||
| Reclassification of derivative financial instruments upon modification of warrant terms | - | - | 221,000 | - | - | 221,000 | ||||||||||||||||||
| Capital stock issued pursuant to debt conversions - at $1.20 | 1,594,607 | 1,595 | 1,911,932 | - | - | 1,913,527 | ||||||||||||||||||
| Capital stock issued pursuant to debt conversions - at $1.00 | 640,428 | 640 | 550,480 | - | - | 551,120 | ||||||||||||||||||
| Stock based compensation | - | - | 27,925 | 610,000 | - | 637,925 | ||||||||||||||||||
| Net loss | - | - | - | - | (9,968,353 | ) | (9,968,353 | ) | ||||||||||||||||
| Balance, September 30, 2014 | 11,800,063 | $ | 11,800 | $ | 50,714,151 | $ | 640,000 | $ | (51,173,325 | ) | $ | 192,626 | ||||||||||||
| Equity units issued under Purchase Agreement | 1,825,000 | 1,825 | 8,125,440 | - | - | 8,127,265 | ||||||||||||||||||
| Commitment shares issued under terms of Purchase Agreement | 27,144 | 27 | (27 | ) | - | - | - | |||||||||||||||||
| Capital stock issued pursuant to debt conversions - at $1.00 | 7,272,487 | 7,272 | 6,587,850 | 167,415 | - | 6,762,537 | ||||||||||||||||||
| Capital stock issued for cash - at $1.00 | 500,000 | 500 | 1,500 | - | - | 2,000 | ||||||||||||||||||
| Capital stock issued pursuant to subscriptions received - at $1.20 | 25,000 | 25 | 29,975 | (30,000 | ) | - | ||||||||||||||||||
| Shares issued pursuant to the exercise of warrants - at $1.20 | 3,097,275 | 3,097 | 3,713,629 | - | - | 3,716,726 | ||||||||||||||||||
| Shares issued pursuant to the exercise of warrants - cashless | 6,838,632 | 6,839 | (6,839 | ) | - | - | - | |||||||||||||||||
| Shares issued pursuant to favored nations provision | 658,612 | 659 | (659 | ) | - | - | - | |||||||||||||||||
| Reclassification of derivative liability | - | - | 4,482,000 | - | - | 4,482,000 | ||||||||||||||||||
| Stock based compensation | - | - | 413,979 | 1,220,000 | - | 1,633,979 | ||||||||||||||||||
| Net loss | - | - | - | - | (12,108,130 | ) | (12,108,130 | ) | ||||||||||||||||
| Balance, September 30, 2015 | 32,044,213 | $ | 32,044 | $ | 74,060,999 | $ | 1,997,415 | $ | (63,281,455 | ) | $ | 12,809,003 | ||||||||||||
| Equity units issued under Purchase Agreements | 740,523 | 741 | 3,041,619 | - | - | 3,042,360 | ||||||||||||||||||
| Commitment shares issued under terms of Purchase Agreements | 187,616 | 188 | (188 | ) | - | - | - | |||||||||||||||||
| Capital stock issued pursuant to debt conversions - at $1.00 | 173,577 | 173 | 173,404 | (167,415 | ) | - | 6,162 | |||||||||||||||||
| Shares issued pursuant to the exercise of warrants | 41,687 | 42 | 125,020 | - | - | 125,062 | ||||||||||||||||||
| Shares issued pursuant to the exercise of warrants - cashless | 1,979,246 | 1,979 | (1,979 | ) | - | - | - | |||||||||||||||||
| Shares issued pursuant to employment agreement | 1,000,000 | 1,000 | 2,439,000 | (1,830,000 | ) | - | 610,000 | |||||||||||||||||
| Shares issued for rounding in connection with 4:1 reverse stock split | 1,437 | 2 | (2 | ) | - | - | - | |||||||||||||||||
| Stock based compensation | - | - | 4,452,267 | - | - | 4,452,267 | ||||||||||||||||||
| Net loss | - | - | - | - | (14,736,698 | ) | (14,736,698 | ) | ||||||||||||||||
| Balance, September 30, 2016 | 36,168,299 | $ | 36,169 | $ | 84,290,140 | $ | - | $ | (78,018,153 | ) | $ | 6,308,156 | ||||||||||||
See Accompanying Notes to Consolidated Financial Statements
| F-7 |
Anavex Life Sciences Corp.
Notes to the Consolidated Financial Statements
September 30, 2016 – Page 1
| Note 1 | Business Description and Basis of Presentation |
Business
Anavex Life Sciences Corp. (the “Company”) is a clinical stage biopharmaceutical company engaged in the development of differentiated therapeutics for the treatment of neurodegenerative and neurodevelopmental diseases including drug candidates to treat Alzheimer’s disease, other central nervous system (CNS) diseases, pain and various types of cancer. The Company’s lead compound ANAVEX 2-73 is being developed to treat Alzheimer’s disease, Parkinson’s disease and potentially other CNS diseases, including rare diseases, such as Rett syndrome.
Reverse Stock Split
Effective October 7, 2015, the Company effected a reverse stock split on the basis of 1:4. As such, the Company’s authorized capital was decreased from 400,000,000 shares of common stock, par value $0.001 to 100,000,000 shares of common stock, par value $0.001 and all shares of common stock issued and outstanding were decreased on the basis of one new share for each four old shares. These condensed consolidated financial statements give retroactive effect to such reverse split and all share and per share amounts have been adjusted accordingly.
Basis of Presentation
These consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America and the instructions to Form 10-K.
| Note 2 | Summary of Significant Accounting Policies |
| a) | Use of Estimates |
The preparation of financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to deferred income tax asset valuations, asset impairment, conversion features embedded in convertible notes payable, derivative valuations, stock based compensation and loss contingencies. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
| b) | Principles of Consolidation |
These consolidated financial statements include the accounts of Anavex Life Sciences Corp. and its wholly-owned subsidiary, Anavex Australia Pty Limited, a company incorporated under the laws of Australia. All inter-company transactions and balances have been eliminated.
| c) | Equipment |
Equipment is recorded at cost and is depreciated at 33% per annum on the straight-line basis.
| F-8 |
Anavex Life Sciences Corp.
Notes to the Consolidated Financial Statements
September 30, 2016 – Page 2
| Note 2 | Summary of Significant Accounting Policies – (continued) |
| d) | Financial Instruments |
The carrying value of the Company’s financial instruments, consisting of cash and accounts payable and accrued liabilities approximate their fair value due to the short-term maturity of such instruments. Based on borrowing rates currently available to the Company for similar terms and based on the short term duration of the debt instruments, the carrying value of the promissory notes payable approximate their fair value. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments.
| e) | Foreign Currency Translation |
The functional currency of the Company is the US dollar. Monetary items denominated in a foreign currency are translated into US dollars at exchange rates prevailing at the balance sheet date and non-monetary items are translated at exchange rates prevailing when the assets were acquired or obligations incurred. Foreign currency denominated expense items are translated at exchange rates prevailing at the transaction date. Unrealized gains or losses arising from the translations are credited or charged to income in the period in which they occur.
The Company has determined that the functional currency of Anavex Australia Pty Limited is the US dollar.
| f) | Research and Development Expenses |
Research and developments costs are expensed as incurred. These expenses are comprised of the costs of the Company’s proprietary research and development efforts, including salaries, facilities costs, overhead costs and other related expenses, as well as costs incurred in connection with third-party collaboration efforts. Milestone payments made by the Company to third parties are expensed when the specific milestone has been achieved.
In addition, the Company incurs expenses in respect of the acquisition of intellectual property relating to patents and trademarks. The probability of success and length of time to develop commercial applications of the drugs subject to the acquired patents and trademarks is difficult to determine and numerous risks and uncertainties exist with respect to the timely completion of the development projects. There is no assurance the acquired patents and trademarks will ever be successfully commercialized. Due to these risks and uncertainties, the acquisition of patents and trademarks does not meet the definition of an asset and thus are expensed as incurred within general and administrative expenses.
| F-9 |
Anavex Life Sciences Corp.
Notes to the Consolidated Financial Statements
September 30, 2016 – Page 3
| Note 2 | Summary of Significant Accounting Policies – (continued) |
| f) | Research and Development Expenses – (continued) |
The Company is eligible to obtain a research and development tax credit from the Australian Tax Authority (ATO) for certain research and development activities undertaken in Australia. The tax incentive is available on the basis of specific criteria with which the Company must comply. Although the tax incentive is administered through the ATO, the Company has accounted for the tax incentive outside of the scope of ASC Topic 740, Income Taxes since the incentive is not linked to the Company’s income tax liability and can be realized regardless of whether the Company has generated taxable income in Australia. Research and development incentive income is recognized when eligible research and development activities have been undertaken and we have completed our assessment of whether such activities meet the relevant qualifying criteria.
| g) | Grant Income |
Research and development incentive income is recognized when the research and development activities have been undertaken and the Company has completed its assessment of whether such activities meet the relevant qualifying criteria. The Company recognizes such income at the fair value of the grant when it is received and all substantive conditions have been satisfied. Grants received from government and other agencies in advance of the specific research and development costs to which they relate are deferred and recognized in the consolidated statement of operations in the period they are earned and when the related research and development costs are incurred.
| h) | Income Taxes |
The Company has adopted the provisions of FASB ASC 740 "Income Taxes" (“ASC 740”) which requires the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The Company follows the provisions of ASC 740 regarding accounting for uncertainty in income taxes. The Company initially recognizes tax positions in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and all relevant facts. Application requires numerous estimates based on available information. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, and its recognized tax positions and tax benefits may not accurately anticipate actual outcomes. As additional information is obtained, there may be a need to periodically adjust the recognized tax positions and tax benefits. These periodic adjustments may have a material impact on the consolidated statements of operations.
| F-10 |
Anavex Life Sciences Corp.
Notes to the Consolidated Financial Statements
September 30, 2016 – Page 4
| Note 2 | Summary of Significant Accounting Policies – (cont’d) |
| i) | Basic and Diluted Loss per Share |
The basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.
For the year ended September 30, 2016, loss per share excludes 6,008,309 (2015 – 6,101,534) potentially dilutive common shares related to outstanding options, warrants, and convertible debentures as their effect was anti-dilutive.
| j) | Stock-based Compensation |
The Company accounts for all stock-based payments and awards under the fair value method.
Stock-based payments to non-employees are measured at the fair value of the consideration received, or the fair value of the equity instruments issued, or liabilities incurred, whichever is more reliably measurable. The fair value of stock-based payments to non-employees is periodically re-measured until the counterparty performance is complete, and any change therein is recognized over the vesting period of the award and in the same manner as if the Company had paid cash instead of paying with or using equity based instruments. Compensation costs for stock-based payments with graded vesting are recognized on a straight-line basis. The cost of the stock-based payments to non-employees that are fully vested and non-forfeitable at the grant date is measured and recognized at that date, unless there is a contractual term for services in which case such compensation would be amortized over the contractual term.
The Company accounts for the granting of share purchase options to employees using the fair value method whereby all awards to employees will be recorded at fair value on the date of the grant. The fair value of all share purchase options are expensed over their vesting period with a corresponding increase to additional paid-in capital.
The Company uses the Black-Scholes option valuation model to calculate the fair value of share purchase options at the date of the grant. Option pricing models require the input of highly subjective assumptions, including the expected price volatility. Changes in these assumptions can materially affect the fair value estimates.
| F-11 |
Anavex Life Sciences Corp.
Notes to the Consolidated Financial Statements
September 30, 2016 – Page 5
| Note 2 | Summary of Significant Accounting Policies – (cont’d) |
| k) | Fair Value Measurements |
The fair value hierarchy under GAAP is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
Level 1 -quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 - observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and
Level 3 - assets and liabilities whose significant value drivers are unobservable by little or no market activity and that are significant to the fair value of the assets or liabilities.
The book value of accounts payable and accrued liabilities approximate their fair values due to the short term maturity of those instruments. Based on borrowing rates currently available to the Company under similar terms, the book value of promissory notes payable approximates their fair values. The Company’s promissory notes payable are based on Level 2 inputs in the ASC 820 fair value hierarchy.
At September 30, 2016 and 2015, the Company did not have any Level 3 assets or liabilities.
Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). There were no assets or liabilities measured at fair value on a nonrecurring basis during the periods ended September 30, 2016 and 2015.
| F-12 |
Anavex Life Sciences Corp.
Notes to the Consolidated Financial Statements
September 30, 2016 – Page 6
| Note 2 | Summary of Significant Accounting Policies – (cont’d) |
| l) | Derivative Liabilities |
The Company evaluates its financial instruments and other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 815. The result of this accounting treatment is that the fair value of the embedded derivative is marked- to-market at each balance sheet date and recorded as a liability and the change in fair value is recorded in the consolidated statements of operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Derivative instruments that become subject to reclassification are reclassified at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified in the balance sheet as current or non-current based on whether or not settlement of the derivative instrument is expected within 12 months of the balance sheet date.
From time to time, certain of the Company’s embedded conversion features on debt and outstanding warrants have been treated as derivative liabilities for accounting purposes under ASC 815 due to insufficient authorized shares to fully settle conversion features of the instruments if exercised. In this case, the Company utilized the latest inception date sequencing method to reclassify outstanding instruments as derivative instruments. These contracts were recognized at fair value with changes in fair value recognized in earnings until such time as the conditions giving rise to such derivative liability classification were settled.
These derivative instruments did not trade in an active securities market. The Company used a binomial option pricing model to value derivative liabilities. This model used Level 3 inputs in the fair value hierarchy established by ASC 820 Fair Value Measurement.
| F-13 |
Anavex Life Sciences Corp.
Notes to the Consolidated Financial Statements
September 30, 2016 – Page 7
| Note 2 | Summary of Significant Accounting Policies – (cont’d) |
| m) | Recent Accounting Pronouncements |
Recent Accounting Pronouncements Not Yet Adopted
In June 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period ("ASU 2014-12"). ASU 2014-12 requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. This standard is effective for the Company beginning on October 1, 2016. The adoption of this standard is not expected to have a material impact for any period presented.
In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 will explicitly require management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. The new standard will be effective for all entities in the first annual period ending after December 15, 2016. The Company is currently evaluating the impact this guidance will have on its financial condition, results of operations and cash flows.
In May 2014, the FASB and the International Accounting Standards Board (IASB) issued a converged standard on revenue recognition from contracts with customers, ASU 2014-09 (Topic 606 and IFRS 15). This standard will supersede nearly all existing revenue recognition guidance. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The adoption of this standard is not expected to have a material impact for any period presented.
In April 2015, the FASB, issued the Accounting Standards Update 2015-03, Interest - Imputation of Interest (Subtopic 835-30) - Simplifying the Presentation of Debt Issuance Costs, that requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the debt liability rather than as an asset. For public business entities, the final guidance will be effective for fiscal years beginning after December 15, 2015, however, early adoption (including in interim periods) is permitted. Upon adoption, an entity must apply the new guidance retrospectively to all prior periods presented in the financial statements. An entity is also required in the year of adoption to provide certain disclosures about the change in accounting principle, including the nature of and reason for the change, the transition method, a description of the prior-period information that has been retrospectively adjusted and the effect of the change on the financial statement line items (that is, debt issuance cost asset and the debt liability). The adoption of this standard is not expected to have a material impact for any period presented.
| F-14 |
Anavex Life Sciences Corp.
Notes to the Consolidated Financial Statements
September 30, 2016 – Page 8
| Note 2 | Summary of Significant Accounting Policies – (cont’d) |
| m) | Recent Accounting Pronouncements – (cont’d) |
Recent Accounting Pronouncements Not Yet Adopted – (cont’d)
In November 2015, FASB issued Accounting Standards Update No. 2015-17 Income Taxes: Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”). ASU 2015-17 eliminates the requirement to bifurcate deferred taxes between current and non-current on the balance sheet and requires that deferred tax liabilities and assets be classified as noncurrent on the balance sheet. ASU 2015-17 is effective for public entities in fiscal years beginning after December 15, 2016, and for interim periods within those fiscal years. The amendments for ASU-2015-17 can be applied retrospectively or prospectively and early adoption is permitted. The adoption of this standard is not expected to have a material impact for any period presented.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (“ASU 2016-02”). The guidance would require lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right –of-use assets. The guidance is effective for annual and interim reporting periods beginning on or after December 15, 2018. The Company is currently evaluating the impact this guidance will have on its financial condition, results of operations and cash flows.
In March 2016, the FASB issued ASC 2016-09, “Compensation – Stock Compensation (Topic 718) – Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). These amendments are intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. These amendments are effective for annual and interim reporting periods beginning on or after December 15, 2016. Early adoption is permitted. Entities have the option to apply the amendments on either a prospective basis or a modified retrospective basis. The Company is currently evaluating the impact this guidance will have on its financial condition, results of operations and cash flows.
Other than noted above, the Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on its results of operations, financial position or cash flow.
| F-15 |
Anavex Life Sciences Corp.
Notes to the Consolidated Financial Statements
September 30, 2016 – Page 9
| Note 3 | Promissory Notes Payable |
| 2016 | 2015 | |||||||
| Promissory note dated January 9, 2013 with a principal balance of CDN$86,677, bearing interest at 12% per annum, secured by all the present and future assets of the Company; due on demand (a) | $ | - | $ | 64,630 | ||||
| Promissory note dated January 9, 2013 with a principal balance of CDN$27,639, bearing interest at 12% per annum, secured by all the present and future assets of the Company; due on demand (b) | - | 20,608 | ||||||
| $ | - | $ | 85,238 | |||||
| a) | During the year ended September 30, 2013, the Company issued a promissory note in the amount of $64,630 (CDN$86,677) to the former President, Secretary, Treasurer, CFO and director of the Company (the “President”) in exchange for unpaid consulting fees owing to the President. The note was bearing interest at 12% per annum and was due June 30, 2013. |
| b) | During the year ended September 30, 2013, the Company issued a promissory note in the amount of $20,608 (CDN$27,639) to a former director of the Company (the “Director”) in exchange for unpaid consulting fees owing to the Director. The note was bearing interest at 12% per annum and was due June 30, 2013. |
The Notes were secured by a right to delay the transfer of any or all of the Company’s assets until the obligations of the Notes were satisfied, including a restriction on the transfer of cash by the Company and a security interest over the intellectual property of the Company.
During the year ended September 30, 2016, the Company settled the remaining principal and interest owed under the Notes of $95,964 (CDN$124,237) with cash payments totaling $34,759 (CDN$45,000) to the former officer and director, resulting in a gain on settlement of debt of $61,205 (CDN$79,237).
| F-16 |
Anavex Life Sciences Corp.
Notes to the Consolidated Financial Statements
September 30, 2016 – Page 10
| Note 4 | Deferred Grant Income |
During the year ended September 30, 2015, the Company was awarded grant funding in the amount of $286,455, of which the Company received $143,222 during the year ended September 30, 2016 (2015 - $71,614) and the remainder will be received in equal semi-annual instalments over the remainder of the commitment through January 2017. The grant was received in exchange for a commitment to provide research and development for preclinical validation of Sigma-1 receptor agonism as potential treatment for Parkinsons disease.
The grant income was deferred and is being amortized as an increase to other income over a two-year period as the related research and development expenditures are incurred. During the year ended September 30, 2016, the Company recognized $141,195 (2015: $0, 2014: $0) of this grant on its statement of operations within grant income.
During the year ended September 30, 2016, the Company recognized other grant income of $571,093 in respect of a research and development incentive program offered by the Australian government. This grant income is included on its statement of operations within grant income.
| Note 5 | Senior Convertible Debentures |
| 2016 | 2015 | |||||||
| Senior Convertible Debentures, non-interest bearing, unsecured, due March 18, 2044 | $ | - | $ | 6,162 | ||||
| Less: Debt Discount | - | (5,830 | ) | |||||
| Total carrying value | - | 332 | ||||||
| Less: current portion | - | - | ||||||
| Long term liability | $ | - | $ | 332 | ||||
On March 13, 2014, the Company entered into a Securities Purchase Agreement with certain purchasers, pursuant to which the Company issued senior convertible debentures in the aggregate principal amount of $10,000,000 (the “Debentures”).
The Debentures were unsecured, non-interest bearing and were due on March 18, 2044. The Debentures were originally convertible, in whole or in part, at the option of the holder into common shares of the Company at $1.20 per share (“the Conversion Price”). The Conversion Price of the debenture will be adjusted in the event of common stock dividend, split or consolidation. The Conversion Price was later amended to $1.00 per share.
At September 30, 2016, all of the principal and amount of the Debentures had been converted to shares of common stock and, as a result, no amounts were owing under the terms of the Debentures (2015: $6,162 in principal amount of these Debentures remained outstanding).
During the year ended September 30, 2016, the Company issued an aggregate of 6,162 shares of common stock based on a conversion price of $1.00 per share pursuant to the conversion of $6,162 in outstanding principal amounts due under the Debentures.
The Company recorded a debt discount in connection with the issuance and amendment of the Debentures during the year ended September 30, 2014, which was being amortized using the effective interest method over the term of the Debentures. During the year ended September 30, 2016, the Company recorded $5,830 (2015: $4,515,987, 2014: $1,917,615) in respect of the amortization of this discount.
| F-17 |
Anavex Life Sciences Corp.
Notes to the Consolidated Financial Statements
September 30, 2016 – Page 11
| Note 6 | Capital Stock |
Effective October 7, 2015, the Company effected a reverse stock split on the basis of 1:4. As such, the Company’s authorized capital was decreased from 400,000,000 shares of common stock, par value $0.001 to 100,000,000 shares of common stock, par value $0.001 and all shares of common stock issued and outstanding were decreased on the basis of one new share for each four old shares. These condensed consolidated financial statements give retroactive effect to such reverse split and all share and per share amounts have been adjusted accordingly.
Authorized
100,000,000 shares of common stock.
Equity Transactions
Year ended September 30, 2016
During the year ended September 30, 2016, the Company issued 167,415 shares of common stock pursuant to the application of an incorrect conversion price for conversion notices received in respect of the Debentures, during the year ended September 30, 2015.
During the year ended September 30, 2016, the Company issued 1,000,000 shares of common stock to a director and officer of the Company pursuant to the terms of a 2013 employment agreement with that director and officer.
Year ended September 30, 2015
On October 22, 2014, the Company entered into a Securities Purchase Agreement (the “10/14 Purchase Agreement”) with one investor for an equity investment of $500,000 at a price of $1.00 per unit. Pursuant to the terms of the 10/14 Purchase Agreement, the Company agreed to sell, and the Investor agreed to purchase, 500,000 shares of common stock. In addition, the Company agreed to issue an aggregate of 1,000,000 stock purchase warrants, of which 500,000 were exercisable at $1.20 per share and 500,000 were exercisable at $1.68 per share, each for a period of five years, subject to normal adjustment for stock splits, combinations, and reclassification events.
The warrants issued were required to be accounted for as derivative liabilities at their date of issuance, pursuant to the guidance of ASC 815. Consequently, the Company allocated the proceeds from the issuance of the units first to the warrants, at their fair value of $527,000 with an amount of $2,000 being allocated to equity at par value on the date of the transaction. The $29,000 excess of the sum of fair value and par value over the proceeds received of $500,000 was recorded as a component of financing related charges and adjustments on the statement of operations during the year ended September 30, 2015. The fair value of the warrants was determined based on the binomial option pricing model using the following weighted average assumptions: risk-free interest rate: 1.46%, expected life: 5 years, expected volatility: 100.21%, dividend yield: 0%.
The Company paid a finder’s fee of $50,000 in connection with the 10/14 Purchase Agreement. This amount was expensed as a component of financing related charges and adjustments during the year ended September 30, 2015.
| F-18 |
Anavex Life Sciences Corp.
Notes to the Consolidated Financial Statements
September 30, 2016 – Page 12
| Note 6 | Capital Stock |
Equity Transactions – (cont’d)
On March 16, 2015, pursuant to an anti-dilution provision contained in private placement subscription agreements dated May 31, 2012, the Company adjusted the price of 658,612 shares of common stock from $2.00 to $1.00 per share. Consequently, the Company issued 658,612 shares of common stock for no additional consideration.
Year ended September 30, 2014
On February 24, 2014, the Company issued 30,000 units at $2.00 per unit for gross proceeds of $60,000, which was received during the year ended September 30, 2013. Each unit consisted of one common share and one common share purchase warrant entitling the holder to purchase additional common shares at $4.00 per share for a period of five years from the date of issuance.
On February 24, 2014, the Company issued 125,000 units at $1.20 per unit for gross proceeds of $150,000. Each unit consisted of one common share and one common share purchase warrant entitling the holder to purchase additional common shares at $3.00 per share for a period of five years from the date of issuance.
On February 28, 2014, the Company received $30,000 in share subscriptions in respect of the issuance of 25,000 units at $1.20 per unit. Each unit consisted of one common share and one common share purchase warrant entitling the holder to purchase additional common shares at $3.00 per share for a period of five years from the date of issuance. These shares were issued during the year ended September 30, 2015.
| Note 7 | Lincoln Park Purchase Agreement |
2013 Purchase Agreement
On July 5, 2013, the Company entered into a $10,000,000 purchase agreement (the “2013 Purchase Agreement”) with Lincoln Park Capital Fund, LLC, (“Lincoln Park”) an Illinois limited liability company (the “Financing”) pursuant to which the Company sold and issued to Lincoln Park, and Lincoln Park purchased $10,000,000 in value of its shares of common stock from time to time over a 25-month period.
During the year ended September 30, 2016, the Company issued to Lincoln Park an aggregate of 296,104 (2015: 1,852,144, 2014: 100,628) shares of common stock under the 2013 Purchase Agreement, including 290,523 (2015: 1,825,000, 2014: 100,000) shares of common stock for an aggregate purchase price of $1,684,560 (2015: $8,127,265, 2014: $188,170) and 5,581 (2015: 27,144, 2014: 628) commitment shares. At September 30, 2016, all remaining purchase amounts available under the 2013 Purchase Agreement have been utilized. As such, no further shares will be sold under the 2013 Purchase Agreement.
| F-19 |
Anavex Life Sciences Corp.
Notes to the Consolidated Financial Statements
September 30, 2016 – Page 13
| Note 7 | Lincoln Park Purchase Agreement |
2015 Purchase Agreement
On October 21, 2015, the Company entered into a $50,000,000 purchase agreement (the “2015 Purchase Agreement”) with Lincoln Park pursuant to which the Company may sell and issue to Lincoln Park, and Lincoln Park is obligated to purchase, up to $50,000,000 in value of its shares of common stock from time to time over a 36-month period. In connection with the 2015 Purchase Agreement, the Company also entered into a registration rights agreement with Lincoln Park whereby the Company agreed to file a registration statement with the SEC covering the shares of the Company’s common stock that may be issued to Lincoln Park under the 2015 Purchase Agreement.
The Company may direct Lincoln Park, at its sole discretion, and subject to certain conditions set forth in the 2015 Purchase Agreement, to purchase up to 50,000 shares of common stock on any business day, provided that at least one business day has passed since the most recent purchase. The amount of a purchase may be increased under certain circumstances provided, however that Lincoln Park’s committed obligation under any single purchase shall not exceed $2,000,000. The purchase price of shares of common stock related to the future funding will be based on the then prevailing market prices of such shares at the time of sales as described in the 2015 Purchase Agreement.
In consideration for entering into the 2015 Purchase Agreement, the Company issued to Lincoln Park 179,598 shares of common stock as an initial commitment fee. Under the terms of the 2015 Purchase Agreement, the Company shall issue up to 89,799 shares pro rata, when and if, Lincoln Park purchases at the Company’s discretion, the $50,000,000 aggregate commitment.
During the year ended September 30, 2016, the Company issued to Lincoln Park an aggregate of 452,437 shares of common stock under the 2015 Purchase Agreement, including 450,000 shares of common stock for an aggregate purchase price of $1,357,800 and 2,437 commitment shares.
| Note 8 | Related Party Transactions |
As at September 30, 2016, included in accounts payable and accrued liabilities was $59,264 (2015: $33,000) owing to directors and officers of the Company for director fees and reimbursable expenses, and a former director and officer of the Company for unpaid fees. See also Note 3.
| Note 9 | Commitments and Contingencies |
| a) | Lease Commitment |
On September 30, 2015, the Company entered into a sublease agreement commencing October 1, 2015 and expiring August 31, 2016. On August 22, 2016 the sublease agreement was amended and extended to March 31, 2019. The Company is committed to lease payments as follows:
| Fiscal year ending September 30, | Amount | |||
| 2017 | $ | 112,189 | ||
| 2018 | 112,189 | |||
| 2019 | 56,094 | |||
| $ | 280,472 | |||
| b) | Litigation |
The Company is subject to claims and legal proceedings that arise in the ordinary course of business. Such matters are inherently uncertain, and there can be no guarantee that the outcome of any such matter will be decided favorably to the Company or that the resolution of any such matter will not have a material adverse effect upon the Company's consolidated financial statements. The Company does not believe that any of such pending claims and legal proceedings will have a material adverse effect on its consolidated financial statements.
| F-20 |
Anavex Life Sciences Corp.
Notes to the Consolidated Financial Statements
September 30, 2016 – Page 14
| Note 9 | Commitments and Contingencies – (cont’d) |
| c) | Share Purchase Warrants |
A summary of the Company’s share purchase warrants outstanding is presented below:
| Number of Shares | Weighted Average Exercise Price | |||||||
| Balance, October 1, 2014 | 18,728,910 | $ | 1.59 | |||||
| Expired | (62,500 | ) | $ | 1.40 | ||||
| Exercised | (15,468,520 | ) | $ | 1.43 | ||||
| Issued | 1,075,000 | $ | 0.76 | |||||
| Balance, September 30, 2015 | 4,272,890 | $ | 2.11 | |||||
| Exercised | (2,463,581 | ) | $ | 1.67 | ||||
| Balance, September 30, 2016 | 1,809,309 | $ | 2.70 | |||||
During the year ended September 30, 2016, the Company issued 1,979,246 shares of common stock pursuant to the exercise of 2,421,894 share purchase warrants on a cashless basis, and 41,687 shares of common stock pursuant to the exercise of warrants for cash.
At September 30, 2016, the Company had 1,809,309 currently exercisable share purchase warrants outstanding as follows:
| Number | Exercise Price | Expiry Date | ||||||
| 1,462,180 | $ | 3.00 | July 5, 2018 | |||||
| 30,000 | $ | 4.00 | February 24, 2019 | |||||
| 277,127 | $ | 1.20 | March 13, 2019 | |||||
| 1,252 | $ | 1.68 | March 13, 2019 | |||||
| 31,250 | $ | 1.24 | May 31, 2019 | |||||
| 7,500 | $ | 1.04 | May 31, 2019 | |||||
| 1,809,309 | ||||||||
All of the warrants expiring on July 5, 2018 contain a contingent call provision whereby the Company may have the option to call for cancellation of all or any portion of the warrants for consideration equal to $0.001 per share, provided the quoted market price of the Company’s common stock exceeds $6.00 for a period of twenty consecutive trading days, subject to certain minimum volume restrictions and other restrictions as provided in the warrant agreements.
| F-21 |
Anavex Life Sciences Corp.
Notes to the Consolidated Financial Statements
September 30, 2016 – Page 15
| Note 9 | Commitments and Contingencies – (cont’d) |
| d) | Stock–based Compensation Plan |
2015 Stock Option Plan
On September 18, 2015, the Company’s board of directors approved a 2015 Omnibus Incentive Plan (the “2015 Plan”), which provides for the grant of stock options and restricted stock awards to directors, officers, employees and consultants of the Company.
The maximum number of our common shares reserved for issue under the plan is 6,050,553 shares subject to adjustment in the event of a change of the Company’s capitalization. As a result of the adoption of the 2015 Plan, no further option awards will be granted under any previously existing stock option plan. Stock option awards previously granted under previously existing stock option plans remain outstanding in accordance with their terms.
The 2015 Plan is administered by the board of directors, except that it may, in its discretion, delegate such responsibility to a committee of such board. The exercise price will be determined by the board of directors at the time of grant, and the exercise price of each option shall be at least the fair market value on the grant date; provided, however, that in the event that a grantee owns more than 10% of the Company’s common stock as of the date of grant, the exercise price of an option granted to such grantee that is intended to be an incentive stock option shall be not less than 110% of the fair market value on the date of grant. Stock options may be granted under the 2015 Plan for an exercise period of up to ten years from the date of grant of the option or such lesser periods as may be determined by the board, subject to earlier termination in accordance with the terms of the 2015 Plan.
A summary of the status of Company’s outstanding stock purchase options for the years ended September 30, 2016 and 2015 is presented below:
| Number of Shares | Weighted Average Exercise Price | Weighted Average Grant Date fair value | ||||||||||
| Outstanding at October 1, 2014 | 792,500 | $ | 2.82 | |||||||||
| Forfeited | (67,500 | ) | $ | 12.00 | ||||||||
| Granted | 1,097,500 | $ | 2.02 | $ | 1.66 | |||||||
| Outstanding at September 30, 2015 | 1,822,500 | $ | 2.00 | |||||||||
| Forfeited | - | $ | - | |||||||||
| Granted | 2,401,500 | $ | 5.22 | $ | 4.38 | |||||||
| Expired | (25,000 | ) | $ | 14.68 | ||||||||
| Outstanding at September 30, 2016 | 4,199,000 | $ | 3.76 | |||||||||
| Exercisable at September 30, 2016 | 2,290,716 | $ | 2.41 | |||||||||
| Exercisable at September 30, 2015 | 825,002 | $ | 1.78 | |||||||||
| F-22 |
Anavex Life Sciences Corp.
Notes to the Consolidated Financial Statements
September 30, 2016 – Page 16
| Note 9 | Commitments and Contingencies – (cont’d) |
| d) | Stock–based Compensation Plan – (cont’d) |
At September 30, 2016, the following stock options were outstanding:
| Number of Shares | Aggregate | Remaining | ||||||||||||||||||
| Number | Exercise | Intrinsic | Contractual | |||||||||||||||||
| Total | Vested | Price | Expiry Date | Value | Life (yrs) | |||||||||||||||
| 500,000 | 500,000 | $ | 1.60 | July 5, 2023 | 1,015,000 | 6.76 | ||||||||||||||
| 75,000 | 50,000 | $ | 1.20 | May 7, 2024 | 182,250 | 7.60 | ||||||||||||||
| 125,000 | 62,500 | $ | 1.32 | May 8, 2024 | 288,750 | 7.60 | ||||||||||||||
| 718,750 | 479,170 | $ | 0.92 | April 2, 2025 | 1,947,813 | 8.50 | ||||||||||||||
| 50,000 | 20,834 | $ | 1.44 | June 8, 2025 | 109,500 | 8.69 | ||||||||||||||
| 50,000 | 16,667 | $ | 1.76 | June 15, 2025 | 93,500 | 8.71 | ||||||||||||||
| 278,750 | 116,146 | $ | 5.04 | September 18, 2025 | - | 8.97 | ||||||||||||||
| 1,500 | 1,500 | $ | 5.64 | September 30, 2025 | - | 9.00 | ||||||||||||||
| 31,250 | 10,416 | $ | 5.68 | October 2, 2025 | - | 9.00 | ||||||||||||||
| 25,000 | 8,333 | $ | 8.98 | October 16, 2025 | - | 9.04 | ||||||||||||||
| 1,500 | 1,500 | $ | 5.57 | December 31, 2025 | - | 9.25 | ||||||||||||||
| 1,500 | - | $ | 4.90 | March 31, 2026 | - | 9.50 | ||||||||||||||
| 1,500 | 1,500 | $ | 5.66 | April 27, 2026 | - | 9.57 | ||||||||||||||
| 50,000 | 12,121 | $ | 4.09 | May 18, 2026 | - | 9.63 | ||||||||||||||
| 1,500 | - | $ | 6.11 | June 30, 2026 | - | 9.75 | ||||||||||||||
| 379,625 | - | $ | 6.26 | July 5, 2026 | - | 9.76 | ||||||||||||||
| 861,429 | - | $ | 7.06 | July 18, 2026 | - | 9.80 | ||||||||||||||
| 40,000 | 3,333 | $ | 3.06 | September 7, 2026 | 22,800 | 9.94 | ||||||||||||||
| 1,006,696 | 1,006,696 | $ | 3.28 | September 22, 2026 | 352,344 | 9.98 | ||||||||||||||
| 4,199,000 | 2,290,716 | $ | 4,011,956 | |||||||||||||||||
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted market price of the Company’s stock for the options that were in-the-money at September 30, 2016.
| F-23 |
Anavex Life Sciences Corp.
Notes to the Consolidated Financial Statements
September 30, 2016 – Page 17
| Note 9 | Commitments and Contingencies – (cont’d) |
| d) | Stock–based Compensation Plan – (cont’d) |
The Company recognized stock based compensation expense of $4,452,267 during the year ended September 30, 2016 (2015: $413,979; 2014: $27,925) in connection with the issuance and vesting of stock options in exchange for services. These amounts have been included in general and administrative expenses and research and development expenses on the Company’s statement of operations as follows:
| 2016 | 2015 | 2014 | ||||||||||
| General and administrative | $ | 2,903,220 | $ | 413,979 | $ | 27,925 | ||||||
| Research and development | 1,549,047 | - | - | |||||||||
| $ | 4,452,267 | $ | 413,979 | $ | 27,925 | |||||||
An amount of $7,741,573 in stock based compensation is expected to be recorded over the remaining term of such options through December 31, 2018.
The fair value of each option award is estimated on the date of grant using the Black Scholes option pricing model based on the following weighted average assumptions:
| 2016 | 2015 | 2014 | ||||||||||
| Risk-free interest rate | 1.28 | % | 1.63 | % | 2.27 | % | ||||||
| Expected life of options (years) | 5.88 | 6.30 | 6.81 | |||||||||
| Annualized volatility | 114.75 | % | 98.41 | 89.19 | ||||||||
| Dividend rate | 0.00 | % | 0.00 | % | 0.00 | % | ||||||
| Note 10 | Income Taxes |
The tax effects of the temporary differences that give rise to the Company’s estimated deferred tax assets and liabilities are as follows:
| 2016 | 2015 | |||||||
| Assumed Tax rate | 34% | 34% | ||||||
| Net operating loss carryforwards | $ | 11,223,000 | $ | 9,177,000 | ||||
| Research and development tax credits | 1,036,000 | 794,000 | ||||||
| Foreign exchange | (25,000 | ) | (10,000 | ) | ||||
| Unpaid charges | 152,000 | 832,000 | ||||||
| Intangible asset costs | 57,000 | 64,000 | ||||||
| Stock-based compensation | 2,004,000 | 581,000 | ||||||
| Valuation allowance for deferred tax assets | (14,447,000 | ) | (11,438,000 | ) | ||||
| Net deferred tax assets | $ | - | $ | - | ||||
| F-24 |
Anavex Life Sciences Corp.
Notes to the Consolidated Financial Statements
September 30, 2016 – Page 18
| Note 10 | Income Taxes – (cont’d) |
The provision for income taxes differ from the amount established using the statutory income tax rate as follows:
| 2016 | 2015 | 2014 | ||||||||||
| Income benefit at statutory rate of 34% | $ | (5,010,000 | ) | $ | (4,117,000 | ) | $ | (3,865,000 | ) | |||
| Foreign income taxed at other rates | 132,000 | 80,000 | 13,000 | |||||||||
| Permanent differences | ||||||||||||
| Effect of stock based compensation | - | - | 202,000 | |||||||||
| Debt extinguishment | - | (29,000 | ) | 2,736,000 | ||||||||
| Mark-to-market deriative liability adjustment | - | 193,000 | (994,000 | ) | ||||||||
| Non-deductible finance and accretion expenses | 5,000 | 1,511,000 | 808,000 | |||||||||
| Non-deductible compensation costs | 738,000 | |||||||||||
| Other permanent differences | - | (5,000 | ) | (16,000 | ) | |||||||
| Research and development tax credit | 628,000 | 502,000 | (26,000 | ) | ||||||||
| Expiry of foreign net operating loss carryforwards | 333,000 | - | - | |||||||||
| Adjustment and true up to prior years' tax provision | 176,000 | 100,000 | 14,000 | |||||||||
| Effect of foreign exchange and other | (11,000 | ) | - | - | ||||||||
| Change in valuation allowance related to current year provision | 3,009,000 | 1,765,000 | 2,528,000 | |||||||||
| Income Tax Recovery | $ | - | $ | - | $ | 1,400,000 | ||||||
As of September 30, 2016, the Company had net operating loss carry-forwards of approximately $33,000,000 (2015: $25,000,000) in the United States and approximately $250,000 (2015: $Nil) in Australia, available to offset future taxable income in those jurisdictions. The carry-forwards will begin to expire in 2027.
The Company evaluates its valuation allowance requirements based on projected future operations. When circumstances change and this causes a change in management’s judgment about the recoverability of deferred tax assets, the impact of the change on the valuation allowance is reflected in current income. Because management of the Company does not currently believe that it is more likely than not that the Company will receive the benefit of these assets, a valuation allowance equal to the deferred tax asset has been established at both September 30, 2016 and 2015.
Uncertain Tax Positions
The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company’s tax returns are subject to tax examinations by U.S. federal and state tax authorities, or examinations by foreign tax authorities until the respective statutes of limitation expire. The Company is subject to tax examinations by tax authorities for all taxation years commencing on or after 2008.
The Company’s net operating loss carryforwards of approximately $33,000,000 in the United States may be subject to limitations by Section 382 of the Internal Revenue Code with respect to the amount utilizable each year. This limitation reduces the Company’s ability to utilize net operating loss carry-forwards, under certain circumstances. The Company completed a Section 382 analysis through the fiscal year ended September 30, 2016 and currently does not believe Section 382 will apply to limit the utilization of these tax losses.
| F-25 |
Anavex Life Sciences Corp.
Notes to the Consolidated Financial Statements
September 30, 2016 – Page 19
| Note 11 | Supplemental Cash Flow Information |
Investing and financing activities that do not have a direct impact on current cash flows are excluded from the statement of cash flows.
During the year ended September 30, 2016;
| i) | the Company issued 6,162 shares of common stock upon conversion of $6,162 in principal amount of convertible debentures at a conversion price of $1.00 per share and 167,415 shares of common stock pursuant to the application of an incorrect conversion price for conversion notices received during the year ended September 30, 2015; |
During the year ended September 30, 2015;
| i) | the Company issued 7,272,487 shares of common stock and an additional 167,415 shares of common stock became issuable upon conversion of $7,439,900 in principal amount of convertible debentures at a conversion price of $1.00 per share; |
| ii) | the Company reclassified an amount of $4,482,000 into equity upon modification of the terms of certain derivative instruments. |
| iii) | the Company adjusted the price of 658,612 shares of common stock from $2.00 to $1.00 per share pursuant to an anti-dilution provision contained in private placement subscription agreements dated May 31, 2012. Consequently, the Company issued 658,612 shares of common stock for no consideration. |
During the year ended September 30, 2014;
| i) | the Company reclassified an amount of $221,000 into equity upon modification of the terms of certain derivative instruments. |
| ii) | the Company issued 1,594,607 shares of common stock of the Company pursuant to the conversion of $1,913,528 face value of convertible debentures at $1.20 per share; |
| iii) | the Company issued 640,428 shares of common stock of the Company at a fair value of $551,120 pursuant to the conversion of convertible debentures at a conversion price of $1.00 per share. |
| Note 12 | Subsequent Events |
Subsequent to September 30, 2016, the Company received proceeds of $11,039,022 through the issuance of 3,442,668 shares of common stock at various prices
| F-26 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
| Date: December 14, 2016 | ANAVEX LIFE SCIENCES CORP. | |||||
| By: |
/s/ Christopher Missling, PhD | |||||
| Name: | Christopher Missling, PhD | |||||
| Title: | Chief Executive Officer (Principal Executive Officer) | |||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
Signatures |
Title(s) |
Date | ||
|
/s/ Christopher Missling, PhD |
December 14, 2016 | |||
| Christopher Missling, PhD | Chief Executive Officer (Principal Executive Officer) | |||
|
/s/ Sandra Boenisch |
December 14, 2016 | |||
| Sandra Boenisch | Principal Financial Officer and Treasurer (Principal Accounting Officer) | |||
|
/s/ Athanasios Skarpelos |
December 14, 2016 | |||
| Athanasios Skarpelos | Director | |||
|
/s/ Bernd Metzner, PhD |
December 14, 2016 | |||
| Bernd Metzner, PhD | Director | |||
|
/s/ Elliot Favus, MD |
December 14, 2016 | |||
| Elliot Favus, MD | Director | |||
|
/s/ Steffen Thomas, PhD |
December 14, 2016 | |||
| Steffen Thomas, PhD | Director |
| 51 |