Anavex Life Sciences 10Q 2014 Q1 Quarterly report

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

FORM 10-Q

(Mark One)

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

For the quarterly period ended:December 31, 2013

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

For the transition period from _____to _____

Commission File Number:000-51652

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

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

51 West 52^nd Street, 7^th Floor, New York, NY USA 10019
(Address of principal executive offices) (Zip Code)

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

N/A
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[X] Yes [ ] 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).
[X] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
37,640,098 shares of common stock outstanding as of February 14, 2014.

TABLE OF CONTENTS

iii

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

ANAVEX LIFE SCIENCES CORP.

(A Development Stage Company)

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2013

(Unaudited)

ANAVEX LIFE SCIENCES CORP.
(A Development Stage Company)
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2013 and September 30, 2013
(Unaudited)

ASSETS
		December 31,			September 30,
		2013			2013

Current
Cash	$	95,927		$	345,074
Prepaid expenses		52,825			48,375
		148,752			393,449
Equipment		2,135			-
	$	150,887		$	393,449	��

LIABILITIES

Current
Accounts payable and accrued liabilities	$	1,620,777		$	1,741,797
Promissory notes payable		200,364			210,863
		1,821,141			1,952,660
Derivative liability		-			904,000
		1,821,141			2,856,660


CAPITAL DEFICIT

Capital stock
Authorized:
150,000,000 common shares, par value $0.001 per share
Issued and outstanding:
37,640,098 common shares (September 30, 2013 - 37,237,588)		37,641			37,238
Additional paid-in capital		39,078,440			38,644,523
Share subscriptions received		60,000			60,000
Deficit accumulated during the development stage		(40,846,335	)		(41,204,972	)
		(1,670,254	)		(2,463,211	)
	$	150,887		$	393,449

SEE ACCOMPANYING NOTES

ANAVEX LIFE SCIENCES CORP.
(A Development Stage Company)
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
for the three months ended December 31, 2013 and 2012
and for the period from January 23, 2004 (Date of Inception) to December 31, 2013
(Unaudited)

								January 23, 2004
		Three months ended December 31,						(Date of Inception) to
		2013			2012			December 31, 2013
Expenses
Accounting and audit fees	$	73,325		$	67,000		$	872,197
Amortization and depreciation		192			465			5,823
Bank charges and interest		704			490			47,408
Consulting fees - Note 8 and 9		51,000			135,411			12,066,989
Insurance		16,125			-			91,246
Investor relations		26,991			18,600			987,273
Legal fees		32,818			57,544			879,161
Management fees - Note 8		-			-			14,625
Office and miscellaneous expense		2,310			-			154,013
Registration and filing fees		12,457			9,354			200,489
Rent and administration		12,000			-			248,670
Research and development - Note 9		5,180			127,003			12,827,976
Salaries and wages - Notes 8 and 9		64,482			-			1,131,776
Travel		12,024			-			772,874
Website design and maintenance		-			-			30,648

		(309,608	)		(415,867	)		(30,331,168	)

Other income (expenses)
Interest and financing fees		(3,287	)		(10,225	)		(680,649	)
Accretion of debt discount		-			-			(2,174,661	)
Change in fair value of derivative liability		683,000			-			234,726
Debt conversion expense		-			-			(504,160	)
Loss on settlement of accounts payable		-			-			(1,754,933	)
Loss on extinguishment of debt		-			-			(5,010,868	)
Foreign exchange loss		(11,468	)		(27,425	)		(73,818	)

Gain (loss) for the period	$	358,637		$	(453,517	)	$	(40,295,531	)

Income (loss) per share
Basic	$	0.01		$	(0.01	)
Diluted	$	(0.01	)	$	(0.01	)

Weighted average number of shares outstanding
Basic		37,484,793			30,240,687
Diluted		43,933,759			30,240,687

SEE ACCOMPANYING NOTES

ANAVEX LIFE SCIENCES CORP.
(A Development Stage Company)
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended December 31, 2013 and 2012
and for the period from January 23, 2004 (Date of Inception) to December 31, 2013
(Unaudited)
January 23, 2004

		Three months ended December 31,						(Date of Inception) to
		2013			2012			December 31, 2013

Cash Flows used in Operating Activities
Net gain (lossL for the period	$	358,637		$	(453,517	)	$	(40,295,531	)
Adjustments to reconcile net loss to net cash used in operations:
Amortization and depreciation		192			465			5,823
Accretion of debt discount		-			-			2,174,661
Stock-based compensation		-			-			5,845,047
Amortization of deferred financing charge		-			1,215			163,927
Change in fair value of derivative liability		(683,000	)		-			(234,726	)
Consulting expense recorded in exchange for shares to be issued		-			-			236,337
Common shares issued for consulting expenses		-			-			406,405
Promissory note issued for severance		-			-			71,500
Common shares issued for severance		-			-			415,600
Common shares issued for research and development expenses		-			-			800,000
Management fees contributed		-			-			14,625
Debt conversion expense		-			-			504,160
Loss on settlement of accounts payable		-			-			1,754,933
Loss on extinguishment of debt		-			-			5,010,868
Rent contributed		-			-			3,750
Unrealized foreign exchange		(10,499	)		-			(15,436	)
Changes in non-cash working capital balances related to operations:
VAT recoverable		-			-			-
Prepaid expenses		(20,449	)		-			(20,449	)
Accounts payable and accrued liabilities		(79,871	)		320,264			6,158,588
Net cash used in operating activities		(434,990	)		(131,573	)		(16,999,918	)

Cash Flows used in Investing Activities
Acquisition of equipment		(2,327	)		-			(7,958	)
Net cash used in investing activities		(2,327	)		-			(7,958	)

Cash Flows provided by Financing Activities
Issuance of common shares, net of share issue costs		188,170			-			11,236,288
Share subscriptions received		-			-			60,000
Proceeds from promissory notes		-			200,000			5,649,000
Financing fees		-			-			(108,150	)
Repayment of promissory note		-			-			(100,000	)
Due to related parties		-			-			33,665
Shareholder advances		-			-			333,000
Net cash provided by financing activities		188,170			200,000			17,103,803

Increase (decrease) in cash during the period		(249,147	)		68,427			95,927
Cash, beginning of period		345,074			11,362			-
Cash, end of period	$	95,927		$	79,789		$	95,927

Supplemental Cash Flow Information - Note 10

SEE ACCOMPANYING NOTES

AnavexLife SciencesCorp.
(A Development Stage Company)
Consolidated Statement of Changes in Capital Deficit
For the period from January 23, 2004 (Date of Inception) to December 31, 2013

									Deficit
	Common Stock								Accumulated
	Shares		Par Value		Additional		Common		During the
					Paid-in		Shares to be		Development
					Capital		Issued		Stage			Total

Capital stock issued for cash on January 23, 2004 - at $0.0033	12,000,000	$	12,000	$	28,000	$	-	$	-		$	40,000
Net loss from January 23, 2004 to September 30, 2004	-		-		-		-		(14,395	)		(14,395	)

Balance, September 30, 2004	12,000,000		12,000		28,000		-		(14,395	)		25,605
Capital stock issued for cash on December 31, 2004 - at $0.0033
	7,200,000		7,200		16,800		-		-			24,000
Management fees contributed	-		-		13,000		-		-			13,000
Rent contributed	-		-		3,000		-		-			3,000
Net loss for the year	-		-		-		-		(91,625	)		(91,625	)

Balance, September 30, 2005	19,200,000		19,200		60,800		-		(106,020	)		(26,020	)
Management fees contributed	-		-		1,625		-		-			1,625
Rent contributed	-		-		750		-		-			750
Debt forgiven by directors	-		-		33,666		-		-			33,666
Net loss for the year	-		-		-		-		(25,532	)		(25,532	)

Balance, September 30, 2006	19,200,000		19,200		96,841		-		(131,552	)		(15,511	)
Capital stock issued for research and development services on September 24, 2007 - at $3.60	222,222		222		799,778		-		-			800,000
Capital stock issued for settlement of loan payable on September 25, 2007 - at $3.60	92,500		93		332,907		-		-			333,000
Net loss for the year	-		-		-		-		(1,579,993	)		(1,579,993	)

Balance, September 30, 2007	19,514,722	$	19,515	$	1,229,526	$	-	$	(1,711,545	)	$	(462,504	)

SEE ACCOMPANYING NOTES

AnavexLife SciencesCorp.
(A Development Stage Company)
Consolidated Statement of Changes in Capital Deficit
For the period from January 23,2004 (Date of Inception) to December 31,2013

										Deficit
	Common Stock									Accumulated
	Shares		Par Value		Additional		Common			During the
					Paid-in		Shares to be			Development
					Capital		Issued			Stage			Total

Balance, September 30, 2007 - brought forward	19,514,722	$	19,515	$	1,229,526	$	-		$	(1,711,545	)	$	(462,504	)
Capital stock issued for cash on December 10, 2007 - at $3.50	150,000		150		524,850		-			-			525,000
Capital stock issued for consulting services on December 18, 2007 - at $3.86	50,000		50		192,950		-			-			193,000
Capital stock issued in settlement of debt on December 18, 2007 - at $4.50	10,000		10		44,990		-			-			45,000
Stock-based compensation for shares issued at a discount	-		-		65,000		-			-			65,000
Capital stock issued for severance on May 15, 2008 - at $5.24	65,000		65		340,535		-			-			340,600
Common shares to be issued for consulting services	-		-		-		252,599			-			252,599
Common stock issued for consulting services on August 19, 2008 - at $5.07	25,000		25		126,725		(126,750	)		-			-
Capital stock issued for cash on August 19, 2008 - at $4.25	142,698		142		606,325		-			-			606,467
Stock-based compensation	-		-		1,493,937		-			-			1,493,937
Net loss for the year	-		-		-		-			(5,351,269	)		(5,351,269	)

Balance, September 30, 2008	19,957,420	$	19,957	$	4,624,838	$	125,849		$	(7,062,814	)	$	(2,292,170	)

SEE ACCOMPANYING NOTES

AnavexLife SciencesCorp.
(A Development Stage Company)
Consolidated Statement of Changes in Capital Deficit
For the period from January 23,2004 (Date of Inception) to December 31,2013

													Deficit
	Common Stock												Accumulated
	Shares			Par Value			Additional			Common			During the
							Paid-in			Shares to be			Development
							Capital			Issued			Stage			Total

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

Balance, September 30, 2009	20,746,761		$	20,747		$	8,383,663		$	300,000		$	(12,562,233	)	$	(3,857,823	)

SEE ACCOMPANYING NOTES

AnavexLife SciencesCorp.
(A Development Stage Company)
Consolidated Statement of Changes in Capital Deficit
For the period from January 23, 2004 (Date of Inception) to December 31,2013

											Deficit
			Common Stock								Accumulated
	Shares		Par Value		Additional			Common			During the
					Paid-in			Shares to be			Development
					Capital			Issued			Stage			Total

Balance, September 30, 2009 - brought forward	20,746,761	$	20,747	$	8,383,663		$	300,000		$	(12,562,233	)	$	(3,857,823	)
Cumulative effect of accounting changes	-		-		(333,056	)		-			(550,804	)		(883,860	)
Capital stock issued for cash on October 2, 2009 - at $2.25	266,666		267		599,733			(300,000	)		-			300,000
Capital stock issued in settlement of promissory note on February 2, 2010 - at $2.02	49,505		49		99,951			-			-			100,000
Capital stock issued for cash on April 9, 2010 - at $2.60	92,499		93		240,405			-			-			240,498
Capital stock issued in settlement of debt on April 30, 2010 - at $2.85	9,825		9		27,991			-			-			28,000
Finders' fees paid in cash	-		-		(24,050	)		-			-			(24,050	)
Capital stock issued for cash on June 29, 2010 - at $2.50	941,000		941		2,351,559			-			-			2,352,500
Finders' fees paid in cash	-		-		(206,500	)		-			-			(206,500	)
Capital stock issued in settlement of debt on July 5, 2010 - at $2.50	400,000		400		999,600			-			-			1,000,000
Capital stock issued for cash on September 3, 2010 - at $2.75	163,000		163		448,087			-			-			448,250
Capital stock issued for finders' fees on September 3, 2010 - at $2.75	9,000		9		(9	)		-			-			-
Finders' fees paid in cash	-		-		(15,125	)		-			-			(15,125	)
Shares issud on conversion of promissory note on September 30, 2010 - at $2.25	328,058		328		737,802			-			-			738,130
Shares issud on conversion of promissory note on September 30, 2010 - at $2.35	510,638		511		1,199,489			-			-			1,200,000
Reclassification of dervative liability on modification of note	-		-		3,144,520			-			-			3,144,520
Settlementterms of accounts payable	-		-		444,000			-			-			444,000
Stock-based compensation	-		-		770,055			-			-			770,055
Equity component of convertible promissory note	-		-		44,220			-			-			44,220
Net loss for the year	-		-		-			-			(8,783,037	)		(8,783,037	)

Balance, September 30, 2010	23,516,952	$	23,517	$	18,912,335		$	-		$	(21,896,074	)	$	(2,960,222	)

SEE ACCOMPANYING NOTES

AnavexLife SciencesCorp.
(A Development Stage Company)
Consolidated Statement of Changes in Capital Deficit
For the period from January 23, 2004 (Date of Inception) to December 31,2013

										Deficit
	Common Stock									Accumulated
	Shares		Par Value		Additional			Common		During the
					Paid-in			Shares to be		Development
					Capital			Issued		Stage			Total

Balance, September 30, 2010 - brought forward	23,516,952	$	23,517	$	18,912,335		$	-	$	(21,896,074	)	$	(2,960,222	)
Capital stock issued for cash on November 18, 2010 - at $2.75	393,846		393		1,082,682			-		-			1,083,075
Less: Share issue costs	-		-		(65,363	)		-		-			(65,363	)
Capital stock issued for finders' fees on November 18, 2010 - at $2.75	3,636		4		(4	)		-		-			-
Shares issued on the conversion of promissory note on November 18, 2010 - at $2.25	853,075		853		1,918,565			-		-			1,919,418
Debt conversion expense	-		-		504,160			-		-			504,160
Shares issued on the conversion of a promissory note on November 18, 2010 - at $4.12	145,063		145		597,515			-		-			597,660
Capital stock issued in settlement of debt on November 18, 2010 - at $4.12	181,818		182		748,908			-		-			749,090
Capital stock issued for cash on November 25, 2010 - at $3.35	29,851		30		99,970			-		-			100,000
Capital stock issued for finders' fees on on November 25, 2010 - at $3.35	2,985		3		(3	)		-		-			-
Capital stock issued for cash on February 1, 2011 - at $3.75	61,014		61		228,739			-		-			228,800
Capital stock issued for cash on May 3, 2011 - at $3.00	33,334		34		99,966			-		-			100,000
Capital stock issued on exercise of warrants for cash on June 19, 2011 - at $2.25	700,000		700		1,574,300			-		-			1,575,000
Equity units issued in settlement of an account payable on September 28, 2011	650,000		650		1,059,313								1,059,963
Stock-based compensation	-		-		1,273,162			-		-			1,273,162
Net loss for the period	-		-		-			-		(7,307,147	)		(7,307,147	)

Balance, September 30, 2011	26,571,574	$	26,572	$	28,034,245		$	-	$	(29,203,221	)	$	(1,142,404	)

SEE ACCOMPANYING NOTES

AnavexLife SciencesCorp.
(A Development Stage Company)
Consolidated Statement of Changes in Capital Deficit
For the period from January 23, 2004 (Date of Inception) to December 31,2013

										Deficit
	Common Stock									Accumulated
	Shares		Par Value		Additional			Common		During the
					Paid-in			Shares to be		Development
					Capital			Issued		Stage			Total
Balance, September 30, 2011 - brought forward	26,571,574	$	26,572	$	28,034,245		$	-	$	(29,203,221	)	$	(1,142,404	)

Capital stock issued for cash on December 6, 2011 - at $1.25	615,600		616		768,884			-		-			769,500
Less: Share issue costs	-		-		(77,000	)		-		-			(77,000	)

Capital stock issued for cash on February 9, 2012 - at $1.25	270,000		270		337,230			-		-			337,500
Less: Share issue costs	-		-		(33,750	)		-		-			(33,750	)

Equity units issued for services on February 9, 2012 - at $1.99	8,000		8		15,888			-		-			15,896
Equity units issued for settlement of loans payable on May 31, 2012	2,700,513		2,700		5,176,884			-		-			5,179,584
Capital stock issued for services on July 12, 2012 - at $1.00	75,000		75		74,925			-		-			75,000
Stock-based compensation	-		-		302,208			-		-			302,208
Net loss for the period	-		-		-			-		(8,301,705	)		(8,301,705	)

Balance, September 30, 2012	30,240,687		30,241		34,599,514			-		(37,504,926	)		(2,875,171	)
Equity units issued for settlement of loans payable on July 5, 2013 - Note 5	4,208,910		4,209		2,563,011			-		-			2,567,220

Capital stock issued for cash on July 5, 2013 - at $0.40 - Note 6	2,196,133		2,196		563,257			-		-			565,453
Less: Share issue costs					(112,174	)		-		-			(112,174	)
Initial purchase shares issued under equity line on July 5, 2013 - at $0.40 - Note 7	591,858		592		99,750			-		-			100,342
Less: Share issue costs	-		-		(71,335	)		-		-			(71,335	)
Common stock to be issued for cash - at $0.50	-		-		-			60,000		-			60,000
Stock-based compensation	-		-		1,002,500								1,002,500
Net loss for the period	-		-		-			-		(3,700,046	)		(3,700,046	)

Balance, September 30, 2013	37,237,588	$	37,238	$	38,644,523		$	60,000	$	(41,204,972	)	$	(2,463,211	)

SEE ACCOMPANYING NOTES

AnavexLife SciencesCorp.
(A Development Stage Company)
Consolidated Statement of Changes in Capital Deficit
For the period from January 23,2004 (Date of Inception) to December 31,2013

										Deficit
	Common Stock									Accumulated
	Shares		Par Value		Additional			Common		During the
					Paid-in			Shares to be		Development
					Capital			Issued		Stage			Total

Balance, September 30, 2013 - brought forward	37,237,588		37,238		38,644,523			60,000		(41,204,972	)		(2,463,211	)
Equity units issued under equity line	400,000		400		187,770			-		-			188,170
Commitment shares issued under terms of equity line	2,510		3		(3	)		-		-			-
Recovery of share issue costs	-		-		25,150			-		-			25,150
Reclassification of derivative liability upon modification of warrant terms					221,000								221,000
Net gain for the period	-		-		-			-		358,637			358,637

Balance, December 31, 2013	37,640,098	$	37,641	$	39,078,440		$	60,000	$	(40,846,335	)	$	(1,670,254	)

SEE ACCOMPANYING NOTES

Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Interim Condensed Consolidated Financial Statements
December 31, 2013 and 2012
(Unaudited)

Note 1	Business Description, Basis of Presentation and Liquidity

	Business

	Anavex Life Sciences Corp. (the “Company”) is a pharmaceutical company engaged in the development of drug candidates.

	The Company’s lead compound, ANAVEX 2-73 is being developed to treat Alzheimer’s disease through disease modification.

	In pre-clinical studies conducted in France, and in Greece, ANAVEX 2-73 demonstrated anti- amnesic and neuroprotective properties. Based on these pre-clinical studies, the Company sponsored a Phase 1 single ascending dose study of ANAVEX 2-73, which was initiated and completed in 2011. This study was conducted in Germany in collaboration with ABX-CRO Advanced Pharmaceutical Services. The study indicated that ANAVEX 2-73 was well tolerated by study subjects in doses up to 55mg. During the three months ended December 31, 2013, clinical trials had been delayed due to lack of funding. On July 5, 2013, the Company completed the closing of a private placement offering and a $10,000,000 purchase agreement (Note 7), the proceeds from which the Company will use to further its business plan and clinical trials of ANAVEX 2-73.

	The Company plans to initiate a multiple ascending dose study of ANAVEX 2-73 and to identify and initiate discussions with potential 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.

	Basis of Presentation and Liquidity

	These interim condensed consolidated financial statements have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in the annual financial statements in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the disclosures are adequate to make the information presented not misleading.

	These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information contained herein. These interim condensed financial statements should be read in conjunction with the audited financial statements included in its annual report on Form 10-K for the year ended September 30, 2013. The Company follows the same accounting policies in the preparation of interim reports.

	Operating results for the three months ended December 31, 2013 are not necessarily indicative of the results that may be expected for the year ended September 30, 2014.

Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Interim Condensed Consolidated Financial Statements
December 31, 2013 and 2012
(Unaudited)

Note 1	Business Description, Basis of Presentation and Liquidity– (cont’d)

	These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis, which assumes that the Company will continue to realize its assets and discharge its obligations and commitments in the normal course of operations. Realization values may be substantially different from carrying values as shown, and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. At December 31, 2013, the Company had an accumulated deficit of $40,846,335 (September 30, 2013 - $41,204,972), had a working capital deficit of $1,672,389 and expects to incur further losses in the development of its business, all of which casts substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations as they come due. Management may attempt to raise funds by issuing equity or debt financing. Management expects the Company’s cash requirement over the next twelve months to be approximately $6,000,000. While the Company is attempting to raise funds, there is no assurance that such activity will be successful.

	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. Additionally, the numerator is also adjusted for changes in fair value of the warrant liability which is presumed to be share settled. For the three months ended December 31, 2013, loss per share excludes 9,023,966 (2012 – 4,697,847) potentially dilutive common shares (related to outstanding options and warrants) as their effect was anti-dilutive.

Note 2	Recent Accounting Pronouncements

	There are no new accounting pronouncements that the Company recently adopted or are pending the Company’s adoption that are expected to have a material impact on the Company’s results of operations, financial position or cash flows.

Note 3	Equipment

		December 31, 2013
				Accumulated
		Cost		Depreciation		Net

Computer equipment	$	2,327	$	192	$	2,135

		September 30, 2013
				Accumulated
		Cost		Depreciation		Net

Computer equipment	$	5,631	$	5,631	$	-

Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Interim Condensed Consolidated Financial Statements
December 31, 2013 and 2012
(Unaudited)

Note 4	Derivative Liabilities

	During the year ended September 30, 2013, the Company issued an aggregate of 6,448,966 common stock purchase warrants that were required to be accounted for as liabilities pursuant to ASC 815.

	At September 30, 2013, these common stock purchase warrants were still outstanding and were being accounted for pursuant to the guidance of ASC 815, whereby these derivative instruments are required to be recorded as liabilities on the balance sheet measured at fair value and were marked-to-market at each balance sheet date with the change in fair value being recorded in the consolidated statements of operations as other income or expense.

	Effective in the three months ended December 31, 2013, the common stock purchase warrants were amended. As of the modification date, these warrants are no longer required to be accounted for as liabilities.

	Pursuant to the guidance of ASC 815, the Company reclassified the fair value of these instruments on the date of modification into equity, with the change in fair value up to the date of modification being recorded on the consolidated statements of operations as other income.

	A summary of the Company’s derivative liabilities for the three months ended December 31, 2013 and for the year ended September 30, 2013 is as follows:

		December31,			September30,
		2013			2013

Balance, beginning of the period	$	904,000		$	-
Fair value at issuance of derivative liability		-			919,000
Change in fair value of derivative liability		(683,000	)		(15,000	)
Transfer to equity upon modification of warrant terms		(221,000	)		-
Balance, end of the period	$	-		$	904,000

Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Interim Condensed Consolidated Financial Statements
December 31, 2013 and 2012
(Unaudited)

Note 5

Promissory Notes Payable


		December 31,			September 30,
		2013			2013
Promissory note dated December 31, 2012 with a principal balance of $93,490 (CDN$100,000) bearing interest at 12% per annum, due on March 31, 2014		93,490			100,000

Promissory note dated January9, 2013 with a principal balance of $84,060 (CDN$86,677), bearing interest at 12% per annum, secured by all the present and future assets of the Company; due on demand		81,035			84,060

PromissorynotedatedJanuary9, 2013 with a principal balance of $26,803 (CDN$27,639), bearing interest at 12% per annum, secured by all the present and future assets of the Company; due on demand		25,839			26,803
		200,364			210,863
Less: current portion		(200,364	)		(210,863	)
	$	-		$	-

On December 31, 2012, the Company issued a promissory note having a principal balance of $93,490 (CDN$100,000) with terms that included interest at 12% per annum and matured on June 30, 2013, in exchange for an accounts payable owing with respect to unpaid consulting fees. This note was not repaid on June 30, 2013 and the maturity date has been extended to March 31, 2014.

Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Interim Condensed Consolidated Financial Statements
December 31, 2013 and 2012
(Unaudited)

Note 5	Promissory Notes Payable– (cont’d)


	On January 9, 2013, the Company issued two (2) promissory notes (the “Secured Notes”);

	a)	The Company issued a promissory note in the amount of $81,035 (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 is bearing interest at 12% per annum and was due June 30, 2013.

	b)	The Company issued a promissory note in the amount of $25,839 (CDN$27,639) to a former director of the Company (the “Director”) in exchange for unpaid consulting fees owing to the Director. The note is bearing interest at 12% per annum and was due June 30, 2013.

The Secured Notes are secured by a right to delay the transfer of any or all of the Company’s assets until the obligations of the Secured Notes are satisfied, including a restriction on the transfer of cash by the Company and a security interest over the intellectual property of the Company. The security interests of the Secured Notes is ranked senior to any and all security interests granted prior to the issuance of the notes and to all subsequent security interests granted, unless the holders agree in writing to other terms.

In addition, the Secured Notes contain a provision whereby if they are not repaid within 10 days of their maturity dates, they shall bear late fees in addition to interest accruing, at a rate of $100 per day per note. In an event of default by the Company, under the terms of the Secured Notes, the notes shall bear additional late fees of $500 per day per note.

Subsequent to the issuance of these Secured Notes, the President resigned as President, Secretary, Treasurer, CFO and director of the Company and the Director resigned as director of the Company.

The Company did not repay the notes on June 30, 2013. The Company has disputed the issuance and enforceability of the Secured Notes and should there be an attempt to enforce the Secured Notes or collection on them, the Company will consider a legal remedy. The Company has not accrued any late fees in connection with these Secured Notes as of December 31, 2013 or September 30, 2013, as the Company does not consider these amounts to be legally enforceable.

Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Interim Condensed Consolidated Financial Statements
December 31, 2013 and 2012
(Unaudited)

Note 6	Capital Stock

	On May 24, 2006, the board of directors approved a six (6) for one (1) forward split of the authorized issued and outstanding common stock. The Company’s authorized capital increased from 25,000,000 shares of common stock to 150,000,000 shares of common stock. On September 24, 2007, the Company issued 222,222 common shares at $3.60 per share for a total of $800,000 for research and development expenses. The common shares were recorded based upon the quoted market price of the Company’s common stock on the agreement date. On September 25, 2007, the Company settled a loan payable in the amount of $333,000 by issuing 92,500 common shares at $3.60 per share, being the quoted market price of the Company’s common stock on the settlement date. On December 10, 2007, the Company issued 150,000 units at $3.50 per unit for proceeds of $525,000. Each unit consisted of one common share and one common share purchase warrant entitling the holder to purchase an additional common share at $5.00 per share until December 10, 2009.

	On December 18, 2007, the Company issued 10,000 shares at $4.50 per share for a total of $45,000 pursuant to an agreement to settle a debt and issued 50,000 shares at $3.86 per share for a total of $193,000 pursuant to a consulting agreement. The Company recorded compensation expense of $65,000 in respect of these issuances based on the excess of the fair value of these shares over the balances at which they were recorded by the Company. On May 15, 2008, the Company issued 65,000 common shares at $5.24 per share for a total of $340,600 to its former CEO in accordance with the terms of a severance agreement upon the termination of his services. The common shares were recorded based upon the quoted market price of the Company’s common stock on the agreement date. On August 19, 2008, the Company issued 25,000 common shares at $5.07 per share for a total of $ 126,750 to a director of the Company pursuant to an agreement to provide consulting services. The common shares were recorded based upon the quoted market price of the Company’s common stock on the agreement date. On August 19, 2008, the Company issued 142,698 units at $4.25 per unit for proceeds of $606,467 pursuant to private placement agreements. Each unit consisted of one common share and one common share purchase warrant entitling the holder to purchase an additional common share at $5.00 per share until August 19, 2009.

	On November 20, 2008, the Company issued 25,000 common shares at $2.63 per share for a total of $65,750 to a director of the Company pursuant to an agreement to provide consulting services. The common shares were recorded based upon the quoted market price of the Company’s common stock on the issuance date. On February 20, 2009, the Company issued 25,000 common shares at $2.50 per share for a total of $62,500 to a director of the Company pursuant to an agreement to provide consulting services. The common shares were recorded based upon the quoted market price of the Company’s common stock on the issuance date.

Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Interim Condensed Consolidated Financial Statements
December 31, 2013 and 2012
(Unaudited)

Note 6

Capital Stock– (cont’d)

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

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

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

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

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

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

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

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

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

Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Interim Condensed Consolidated Financial Statements
December 31, 2013 and 2012
(Unaudited)

Note 6	Capital Stock– (cont’d)

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

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

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

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

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

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

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

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

Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Interim Condensed Consolidated Financial Statements
December 31, 2013 and 2012
(Unaudited)

Note 6	Capital Stock– (cont’d)

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

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

	On September 30, 2010, the Company issued 245,748 units at $2.25 per unit pursuant to the terms of convertible notes payable. 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 until September 30, 2012.

	On November 18, 2010, the Company issued 393,846 units at $2.75 per unit for proceeds of $1,083,075 pursuant to a private placement agreement. Each unit consisted of one common share and one-half common share purchase warrant entitling the holder to purchase additional common shares at $4.50 per share until May 18, 2012. The Company paid a finder’s fee totalling $65,363 in respect of this private placement.

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

	On November 18, 2010, the Company issued 853,075 units in the conversion of two notes payable originally convertible at $2.50. The Company recorded debt conversion expense of $504,160, related to the fair value of the additional units issued as a result of converting at the lower conversion price. Each unit consisted of one common share and one common share purchase warrant entitling the holder to purchase additional common shares at $3.00 per share until November 18, 2012. The fair value of the shares included in the units was determined with reference to their quoted market price and the value of the warrants was determined using the Black-Scholes model with the following assumptions: exercise price - $3.00, stock price - $4.12, expected volatility – 78.33%, expected life – 2.0 years, dividend yield – 0.00%, risk-free rate – 0.52%.

	On November 18, 2010, the Company issued 145,063 shares of common stock at their fair value of $4.12 per share based on their quoted market price pursuant to settling non-convertible interest bearing notes payable outstanding in the amount of $398,922, including accrued interest of $26,032. The Company recorded a loss on settlement of debt of $198,738 based on the difference between the carrying value of the debt settled and the fair value of the shares issued. On November 18, 2010, the Company issued 181,818 shares of common stock at their fair value of $4.12 per share based on the quoted value of units issued in a private placement on the same date to one creditor in settlement of $500,000 of debt owing. The Company recorded a loss on settlement of accounts payable of $249,090 based on the difference of the carrying value of the account payable and the fair value of the shares issued.

Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Interim Condensed Consolidated Financial Statements
December 31, 2013 and 2012
(Unaudited)

Note 6

Capital Stock– (cont’d)

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

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

On February 1, 2011, the Company issued 61,014 units at $3.75 per unit for proceeds of $228,800 pursuant to a private placement agreement. Each unit consisted of one common share and one-half common share purchase warrant entitling the holder to purchase additional common shares at $5.25 per share until August 1, 2012.

On May 3, 2011, the Company issued 33,334 units at $3.00 per unit for proceeds of $100,000 pursuant to a private placement agreement. Each unit consisted of one common share and one-half common share purchase warrant entitling the holder to purchase additional common shares at $4.00 per share until April 20, 2013.

On June 19, 2011, the Company issued 700,000 common shares at $2.25 per share for proceeds of $1,575,000 pursuant to the exercise of warrants.

On September 26, 2011, the Company issued 650,000 units in settlement of $975,000 of debt owing. Each unit consisted of one common share and one-half common share purchase warrant entitling the holder to purchase additional common shares at $2.00 per share until September 26, 2012. The Company recorded a loss on settlement of accounts payable in the amount of $84,963 based on the fair value of shares being $975,000 at their issuance and the fair value of the warrants determined to be $84,963. The fair value of the shares included in the units was determined with reference to their quoted market price and the value of the warrants was determined using the Black-Scholes model with the following assumptions: exercise price - $2.00, stock price - $1.50, expected volatility – 69%, expected life – 1.0 years, dividend yield – 0.00%, risk-free interest rate – 0.10% .

On December 6, 2011, the Company issued 615,600 units at $1.25 per unit for proceeds of $769,500 pursuant to private placement agreements. Each unit consisted of one common share and one-half common share purchase warrant entitling the holder to purchase additional common shares at $2.00 per share until December 6, 2012. The Company paid finder’s fees of $77,000 in connection with this private placement.

Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Interim Condensed Consolidated Financial Statements
December 31, 2013 and 2012
(Unaudited)

Note 6	Capital Stock– (cont’d)

	On February 9, 2012 the Company issued 8,000 units for service rendered by a director and officer of the Company. Each unit consisted of one common share and one-half common share purchase warrant entitling the holder to purchase additional common shares at $2.00 per share until February 9, 2013. The fair value of the units issued was determined to be $15,896 on the date they were issued and the Company recorded consulting fees of $15,896 on the statement of operations for the year ended September 30, 2012. The fair value of the shares included in the units was determined with reference to their quoted market price and the value of the warrants was determined using the Black-Scholes model with the following assumptions: exercise price - $2.00, stock price - $1.74, expected volatility – 84.88%, expected life – 1.0 years, risk free interest rate – 0.15%, dividend yield – 0.00%.

	On February 9, 2012, the Company issued 270,000 units at $1.25 per unit for proceeds of $337,500 pursuant to private placement agreements. Each unit consisted of one common share and one-half common share purchase warrant entitling the holder to purchase additional common shares at $2.00 per share until February 9, 2013. The Company paid a finder’s fee of $33,750 in connection with this private placement. During the three months ended December 31, 2013, the Company recorded a recovery of $25,150 in respect of these finder’s fees, which has been recorded as additional paid in capital.

	On May 31, 2012, the Company issued 2,700,513 units in settlement of $1,297,889 in promissory notes and $52,367 of accrued interest on these notes, which was included in accounts payable and accrued liabilities Each unit consisted of one common share and one common share purchase warrant entitling the holder to purchase additional common shares at $0.75 per share until November 30, 2013.

	On June 26, 2012, the Company agreed to issue 75,000 common shares to the former president of the Company for past services and in final settlement of a consulting agreement dated February 1, 2007. These shares were issued on July 12, 2012.

	On July 5, 2013, the Company issued 4,208,910 units in settlement of $549,000 in promissory notes, $26,058 of accrued interest on these notes, which was included in accounts payable and accrued liabilities, and $1,108,506 in other accounts payable and accrued liabilities. Each unit consisted of one common share and one common share purchase warrant entitling the holder to purchase additional common shares at $0.75 per share until July 5, 2018 (Note 5). On July 5, 2013, the Company issued 2,196,133 units at $0.40 per unit for gross proceeds of $878,453 pursuant to private placement agreements. Each unit consisted of one common share and one common share purchase warrant entitling the holder to purchase additional common shares at $0.75 per share until July 5, 2018. The Company paid finder’s fees of $89,680 and issued warrants to purchase 43,923 shares of common stock at $0.75 per share until July 5, 2018 in connection with this private placement. In addition, the Company incurred share issuance costs of $16,494.

Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Interim Condensed Consolidated Financial Statements
December 31, 2013 and 2012
(Unaudited)

Note 6	Capital Stock– (cont’d)

	All of the 6,448,966 warrant agreements issued on July 5, 2013 contain a contingent call provision whereby the Company may have the option to call for cancellation 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 $1.50 for a period of twenty consecutive trading days, subject to certain minimum volume restrictions and other restrictions as provided in the warrant agreements.

	Common stock to be issued

	During the year ended September 30, 2013, the Company received $60,000 in share subscriptions in respect of the issuance of 120,000 units at $0.50 per unit. Each unit consisted of one common share and one common share purchase warrant entitling the holder to purchase additional common shares at $1.00 per share for a period of five years from the date of issuance.

Note 7	Lincoln Park Purchase Agreement

	On July 5, 2013, the Company entered into a $10,000,000 purchase agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC, (“Lincoln Park”) an Illinois limited liability company (the “Financing”) pursuant to which the Company may sell and issue to Lincoln Park, and Lincoln Park is obligated to purchase, up to $10,000,000 in value of its shares of common stock from time to time over a 25 month period. In connection with the Financing, the Company also entered into a registration rights agreement with Lincoln Park whereby the Company agreed to file a registration statement with the Securities and Exchange Commission (the “SEC”) covering the shares of the Company’s common stock that may be issued to Lincoln Park under the Purchase Agreement.

Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Interim Condensed Consolidated Financial Statements
December 31, 2013 and 2012
(Unaudited)

Note 7	Lincoln Park Purchase Agreement – (Cont’d)

	The Company will determine, at its own discretion, the timing and amount of its sales of common stock, subject to certain conditions and limitations. The purchase price of the shares that may be sold to Lincoln Park under the Purchase Agreement will be based on the market price of the Company’s shares of common stock immediately preceding the time of sale without any fixed discount, provided that in no event will such shares be sold to Lincoln Park when the closing sale price is less than $0.50 per share. There are no upper limits on the per share price that Lincoln Park may pay to purchase such common stock. The purchase price will be equitably adjusted for any reorganization, recapitalization, non-cash dividend, stock split or similar transaction occurring during the business days used to compute such price.

	Pursuant to the Purchase Agreement, Lincoln Park initially purchased 250,000 shares of the Company’s common stock for $100,000. In consideration for entering into the Purchase Agreement, the Company issued to Lincoln Park 341,858 shares of common stock as a commitment fee and shall issue up to 133,409 shares pro rata, when and if, Lincoln Park purchases at the Company’s discretion the remaining $10,000,000 aggregate commitment. The Purchase Agreement may be terminated by the Company at any time at its discretion without any cost to the Company.

	On October 23, 2013, the registration statement was declared effective by the SEC.

	The Company incurred $71,335 in direct expenses in connection with the Purchase Agreement and registration statement. These were recorded as share issuance costs as a charge against additional paid in capital during the year ended September 30, 2013.

	During the three months ended December 31, 2013, the Company issued to Lincoln Park an aggregate of 402,510 shares of common stock under the Purchase Agreement, including 400,000 shares of common stock for an aggregate purchase price of $188,170 and 2,510 commitment shares.

Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Interim Condensed Consolidated Financial Statements
December 31, 2013 and 2012
(Unaudited)

Note 8	Related Party Transactions

	The following amounts have been donated to the Company by the directors:

						January23, 2004
		Three months ended December 31,				(Date of Inception)
		2013		2012		to September 30,2 013

Management fees	$	-	$	-	$	14,625
Rent		-		-		3,750
Debt for given by directors		-		-		33,666
	$	-	$	-	$	52,041

During the three months ended December 31, 2013, the Company was charged consulting fees totaling $Nil (2012: $70,418) by directors, officers and companies controlled by directors and officers of the Company.

As of December 31, 2013, included in accounts payable and accrued liabilities was $28,851 (September 30, 2013: $30,447) owing to directors and officers of the Company and a former director and officer of the Company.

During the year ended September 30, 2013, pursuant to an employment agreement with the President, Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer, and Director, of the Company, the Company:

	i)	granted 2,000,000 fully vested share purchase options exercisable at $0.40 per share until July 5, 2023. No stock based compensation expense has been recognized during the three months ended December 31, 2013 and 2012 in connection with these options. The Company recognized stock based compensation expense of $1,002,500 during the year ended September 30, 2013 in connection with these options.

	ii)	issued 4,000,000 shares of restricted common stock that vest as follows:

25% upon the Company starting a Phase Ib/IIb human study
25% upon the Company in-licensing additional assets in clinical or pre-clinical stage
25% upon the Company securing additional non-dilutive equity funding in 2013 of at least $5,000,000 with a share price higher than the previous funding.
25% upon the Company obtaining a listing on a major stock exchange.

No stock-based compensation has been recorded in connection with the issuance of these shares in the financial statements to December 31, 2013 as none of the performance conditions have yet been met.

Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Interim Condensed Consolidated Financial Statements
December 31, 2013 and 2012
(Unaudited)

Note 9	Commitments

	a) Share Purchase Warrants

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

				Weighted
				Average
				Exercise
	Number of Shares			Price

Balance,September30,2012	4,250,141		$	1.16
Expired	(1,549,628	)	$	2.56
Issued	6,448,966		$	0.75
Balance,September30,2013	9,149,479		$	0.75
Expired	(2,700,513	)	$	0.75
Balance,December31,2013	6,448,966		$	0.75

	At December 31, 2013, the Company had 6,448,966 share purchase warrants outstanding exercisable at $0.75 per share until July 5, 2018.

	b) Stock–based Compensation Plan

	In April, 2007, the Company adopted a stock option plan which provides for the granting of stock options to selected directors, officers, employees or consultants in an aggregate amount of up to 3,000,000 common shares of the Company and, in any case, the number of shares to be issued to any one individual pursuant to the exercise of options shall not exceed 10% of the issued and outstanding share capital. The granting of stock options, exercise prices and terms are determined by the Company's Board of Directors. If no vesting schedule is specified by the Board of Directors on the grant of options, then the options shall vest over a 4-year period with 25% of the options granted vesting each year commencing 1 year from the grant date. For stockholders who have greater than 10% of the outstanding common shares of the Company and who have granted options, the exercise price of their options shall not be less than 110% of the fair of the stock on grant date. Otherwise, options granted shall have an exercise price equal to their fair value on grant date.

	On February 2, 2011, the Company amended and restated the 2007 stock option plan to increase the number of options authorized to 4,000,000.

Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Interim Condensed Consolidated Financial Statements
December 31, 2013 and 2012
(Unaudited)

Note 9

Commitments– (cont’d)


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

	A summary of the status of Company’s outstanding stock purchase options for the year ended December 31, 2013 is presented below:

				Weighted		Weighted
				Average Exercise		Average Grant
	Number of Shares			Price		Date fair value
OutstandingatSeptember30,2012	1,775,000		$	2.94
Expired	(550,000	)	$	3.86
Forfeited	(150,000	)	$	3.72
Granted	2,000,000		$	0.40	$	0.50
OutstandingatSeptember30,2013	3,075,000		$	1.26
Expired	(500,000	)	$	2.50
OutstandingatDecember31,2013	2,575,000		$	1.02
ExercisableatDecember31,2013	2,305,000		$	0.79
ExercisableatSeptember30,2013	2,305,000		$	0.79

At December 31, 2013, the following stock options were outstanding:

Number of Shares						Aggregate	Remaining
	Number			Exercise		Intrinsic	Contractual
Total	Vested			Price	ExpiryDate	Value	Life(yrs)
150,000	150,000	(1)	$	3.10	June 30, 2014	-	0.50
5,000	5,000	(2)	$	2.50	March 2, 2014	-	0.17
50,000	50,000	(3)	$	3.50	June 30, 2014	-	0.50
100,000	100,000	(4)	$	3.67	March 30, 2016	-	2.25
270,000	-	(5)	$	3.00	February 8, 2017	-	3.11
2,000,000	2,000,000	(6)	$	0.40	July 5, 2023	-	9.52
2,575,000	2,305,000					-

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 December 31, 2013.

Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Interim Condensed Consolidated Financial Statements
December 31, 2013 and 2012
(Unaudited)

Note 9	Commitments– (cont’d)

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

	⁽¹⁾	As of December 31, 2013 and 2012, these options had fully vested. During the year ended September 30, 2012, the expiration date of these options were extended from June 3, 2013 to June 30, 2014. The fair value of this modification was determined to be $18,600 and was determined using the Black Scholes option pricing model using the following weighted average assumptions: risk-free interest rate: 0.31%, expected life: 2.0 years, annualized volatility: 84.74%, dividend rate: 0%. The Company did not recognize any stock-based compensation for these options during the three months ended December 31, 2013 (2012: $Nil).

	⁽²⁾	As of December 31, 2013 and 2012, these options had fully vested. The Company did not recognize any stock-based compensation for these options during the three months ended December 31, 2013 (2012: $nil).

	⁽³⁾	As of December 31, 2013 and 2012, these options had fully vested. The Company did not recognize any stock-based compensation during the three months ended December 31, 2013 (2012: $nil).

	⁽⁴⁾	As of December 31, 2013 and 2012, these options had fully vested. The fair value of these options at issuance was calculated to be $267,000. The Company did not recognize any stock-based compensation during the three months ended December 31, 2013 (2012: $Nil).

	⁽⁵⁾	As of December 31, 2013 and 2012, these options had not vested. The options vest upon one or more compounds: entering Phase II trial – 90,000 options; entering Phase III trial – 90,000 options; and receiving FDA approval – 90,000 options. No stock-based compensation has been recorded in the financial statements as none of the performance conditions have yet been met.

	⁽⁶⁾	As of December 31, 2013 and September 30, 2013 these options had fully vested. These options were granted during the year ended September 30, 2013 and vested immediately upon granting. The Company recognized stock based compensation expense of $Nil during the three months ended December 31, 2013 (2012: $Nil) in connection with these options.

	During the three months ended December 31, 2013, 500,000 options expired for which the Company had recognized stock-based compensation of $Nil (2012: $Nil) during the three months ended December 31, 2013.

Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Interim Condensed Consolidated Financial Statements
December 31, 2013 and 2012
(Unaudited)

Note 9	Commitments– (cont’d)

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

	At December 31, 2013, the following summarizes the unvested stock options:

				Weighted		Weighted
				Average		Average
	Number of			Exercise		Grant-Date
	Shares			Price		Fair Value
Unvested options at September 30, 2012	870,000		$	2.81	$	1.82
Granted	2,000,000		$	0.40	$	0.50
Expired	(100,000	)	$	3.86	$	2.49
Vested	(2,000,000	)	$	0.40	$	0.50
Unvested options at September 30, 2013	770,000		$	2.68	$	1.74
Expired	(500,000	)	$	2.50	$	1.48
Unvested options at December 31 ,2013	270,000		$	3.00	$	2.21

As of December 31, 2013, there was no unrecognized compensation cost associated with unvested share-based compensation awards that will become vested exclusive of achieving any performance milestones that is expected to be recognized in the current fiscal year.

There has been no stock-based compensation recognized in the financial statements for the three months ended December 31, 2013 (2012: $nil) for options that will vest upon the achievement of performance milestones because the Company has determined that satisfaction of the performance milestones was not probable. Compensation relating to stock options exercisable upon achieving performance milestones will be recognized in the period the milestones are achieved.

Note 10	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 three months ended December 31, 2013, the Company reclassified an amount of $221,000 into equity upon modification of the terms of certain derivative instruments.

	During the three months ended December 31, 2012, the Company issued a promissory note in the principal amount of $100,000 in exchange for accounts payable owing to one vendor in respect of unpaid consulting fees.

	These transactions have been excluded from the statements of cash flows.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward-Looking Statements

This Quarterly Report on Form 10-Q includes forward-looking statements. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, 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 the section entitled “Risk Factors.” These risks are not exhaustive. Other sections of this Quarterly Report on Form 10-Q 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 and Canada, we assume no obligation to update or supplement forward-looking statements.

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

Our Current Business

We are a pharmaceutical company engaged in the development of drug candidates. Our lead compounds ANAVEX 2-73 and ANAVEX PLUS, a combination of ANAVEX 2-73 with donepezil (Aricept®), are being developed to treat Alzheimer’s disease and potentially other central nervous system (CNS) diseases.

In pre-clinical studies conducted in France and in Greece, ANAVEX 2-73 demonstrated anti-amnesic and neuroprotective properties in various animal models including the transgenic mouse model Tg2576. Based on pre-clinical studies, we sponsored a Phase 1 single ascending dose study of ANAVEX 2-73, which was initiated and completed in 2011. This study was conducted in Germany in collaboration with ABX-CRO Advanced Pharmaceutical Services (ABX-CRO). The study indicated that ANAVEX 2-73 was well tolerated by study subjects in doses up to 55mg. As of the end of the period covered by this report, we have not yet continued our clinical trials due to a lack of funding.

The Company plans to continue human clinical trials, among them a multiple ascending dose study of ANAVEX 2-73 and ANAVEX PLUS, and a Phase 2 thereafter in the first half of fiscal year 2014. Additionally, we intend to identify and initiate discussions with potential 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.

Our Pipeline

Our pipeline includes one 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, including Alzheimer’s disease. When bound by the appropriate ligands, sigma receptors influence the functioning of multiple biochemical signals that are involved in the pathogenesis (origin or development) of disease.

Compounds that have been subjects of our research include the following:

ANAVEX 2-73

ANAVEX 2-73 may offer a disease-modifying approach in Alzheimer’s disease (AD) by using ligands that activate sigma-1 receptors.

In AD animal models, ANAVEX 2-73 has shown pharmacological, histological and behavioral evidence as a potential neuroprotective, anti-amnesic, anti-convulsive and anti-depressive therapeutic agent, due to its potent affinity to sigma-1 receptors and moderate affinities to M1-4 type muscarinic receptors. In addition, ANAVEX 2-73 has shown a potential dual mechanism which may impact both amyloid and tau pathology. In a transgenic AD animal model Tg2576 ANAVEX 2-73 induced a statistically significant neuroprotective effect against the development of oxidative stress in the mouse brain, as well as significantly increased the expression of functional and synaptic plasticity markers that is apparently amyloid-beta independent. It also statistically alleviated the learning and memory deficits developed over time in the animals, regardless of sex, both in terms of spatial working memory and long-term spatial reference memory.

Based on the results of pre-clinical testing, we initiated and completed a Phase 1 single ascending dose (SAD) clinical trial of ANAVEX 2-73 in 2011. In this Phase 1 SAD trial, the maximum tolerated single dose was defined per protocol as 55-60 mg. This dose is above the equivalent dose shown to have positive effects in mouse models of AD. There were no significant changes in laboratory or electrocardiogram (ECG) parameters. ANAVEX 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 central nervous system (CNS) conditions, including AD.

The ANAVEX 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.

ANAVEX PLUS

ANAVEX PLUS, a combination of ANAVEX 2-73 with donepezil (Aricept®) is a potential novel combination drug for Alzheimer’s disease. Aricept® (donepezil) is now generic. ANAVEX 2-73 showed in combination with donepezil an unexpected and clear synergic effect of memory improvement by up to 80% in animal models. A patent application was filed in the US for the combination of donepezil and ANAVEX 2-73 and if granted would give patent protection at least until 2033.

In a humanized calibrated cortical network computer model the unexpected pre-clinical synergy between ANAVEX 2-73 and donepezil was confirmed and ANAVEX PLUS showed an anticipated ADAS-Cog response of 7 points at 12 weeks and 5.5 points at 26 weeks, which represents more than 2x the ADAS-Cog of donepezil alone.

ANAVEX 19-144

ANAVEX 19-144 is the sole active metabolite of ANAVEX 2-73. Like ANAVEX 2-73, pre-clinical data reveals that ANAVEX 19-144 exhibits significant anti-amnesic, neuroprotective and anticonvulsant properties in a variety of in vitro systems and specialized animal models.

In animal models, ANAVEX 19-144 controls seizures and the epileptogenesis process. Moreover, its neuroprotective properties may prevent the process that causes long-term damage to tissue and cells as well as biochemical and physiological alterations to the brain from epileptic seizures.

ANAVEX 1-41

ANAVEX 1-41 is a sigma-1 agonist. Pre-clinical tests revealed significant neuroprotective benefits (i.e., protects nerve cells from degeneration or death) through the modulation of endoplasmic reticulum, mitochondrial and oxidative stress, which damages and destroys cells and is believed by some scientists to be a primary cause of AD. In addition, in animal models, ANAVEX 1-41 prevented the expression of caspase-3, an enzyme that plays a key role in apoptosis (programmed cell death) and loss of cells in the hippocampus, the part of the brain that regulates learning, emotion and memory. These activities involve both muscarinic and sigma-1 receptor systems through a novel mechanism of action.

ANAVEX 1037

ANAVEX 1037 is designed for the treatment of prostate cancer. It is a low molecular weight, synthetic compound exhibiting high affinity for sigma-1 receptors at nanomolar levels and moderate affinity for sigma-2 receptors and sodium channels at micromolar levels. In advanced pre-clinical studies, this compound revealed antitumor potential with no toxic side effects. It has also been shown to selectively kill human cancer cells without affecting normal/healthy cells and also to significantly suppress tumor growth in immune-deficient mice models. Scientific publications describe sigma receptor ligands positively, highlighting the possibility that these ligands may stop tumor growth and induce selective cell death in various tumor cell lines. Sigma receptors are highly expressed in different tumor cell types. Binding by appropriate sigma-1 and/or sigma-2 ligands can induce selective apoptosis. In addition, through tumor cell membrane reorganization and interactions with ion channels, our drug candidates may play an important role in inhibiting the processes of metastasis (spreading of cancer cells from the original site to other parts of the body), angiogenesis (the formation of new blood vessels) and tumor cell proliferation.

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 2012, 5 million Americans suffered from Alzheimer’s disease. The Alzheimer’s Association® reports that by 2025, 6.7 million Americans will be afflicted by the disease. Medications on the market today treat only the symptoms of AD and do not have the ability to stop its onset or its progression. There is an urgent and unmet need for a disease modifying cure for Alzheimer’s disease.
Depression - Depression is a major cause of morbidity worldwide according to the World Health Organization (WHO). 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. Our market research leads us to believe that the worldwide market for pharmaceutical treatment of depression exceeds $11 billion annually.
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 generations anti-epileptic drugs. Our market research leads us to believe the American market for pharmaceutical treatment of epilepsy exceeds $12 billion annually.

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. Our market research leads us to believe the worldwide market for pharmaceutical treatment of neuropathic pain exceeds $5 billion annually.
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. Our market research leads us to believe the worldwide market for the pharmaceutical treatment of malignant melanoma exceeds $200 million annually.
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. Our market research leads us to believe the worldwide market for the pharmaceutical treatment of prostate cancer exceeds $4 billion annually.
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. Our market research leads us to believe that the market for the pharmaceutical treatment of pancreatic cancer will exceed $1.2 billion by 2015.

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.

Expenses

Our expenses for the three and nine months ended December 31, 2013 and 2012 were as follows:

		Three months ended December31,				Change
		2013		2012		$		%
Accounting and audit fees	$	73,325	$	67,000	$	6,325		9.4%
Amortization		192		465		(273	)	(58.7	)
Bank charges and interest		704		490		214		43.7
Consulting		51,000		135,411		(84,411	)	(62.3	)
Insurance		16,125		-		16,125		N/A
Investor relations		26,991		18,600		8,391		45.1
Legal fees		32,818		57,544		(24,726	)	(43.0	)
Office and miscellaneous		2,310		-		2,310		N/A
Registration and filing fees		12,457		9,354		3,103		33.2
Rent and administration		12,000		-		12,000		N/A
Research and development		5,180		127,003		(121,823	)	(95.9	)
Salaries and wages		64,482		-		64,482		N/A
Travel		12,024		-		12,024		N/A
Total expenses	$	309,608	$	415,867	$	106,259		(25.6	)%

Three Months Ended December 31, 2013 and 2012

Expenses for the three months ended December 31, 2013 decreased by $106,259 over the same period in 2012.

Consulting fees decreased by $84,411 primarily as a result of decreased management infrastructure from the comparative period. In the comparative period, our two former executive officers, as well as our current executive officer, were compensated as consultants. In the current period, our executive officer is compensated as an employee pursuant to an employment agreement effective upon his appointment in July, 2013. Consequently, executive salaries are now included as a component of salaries and wages in the current period.

Insurance expenses have increased by $16,125 in the current period, from $Nil in the comparative period, as a result of the reinstatement of directors and officers liability insurance effective in the fourth quarter of fiscal 2013.

Legal fees decreased by $24,726 primarily as a result of the investigation of intellectual property matters in the comparative period.

Research and Development charges were $5,180 in the current period related to toxicology data analysis. We expect our research and development expenses to increase over the remaining quarters in the current fiscal year as funding is put in place and potential research partners are identified to further advance our clinical trials. In the comparative period, research and development expenses related to a one-time charge to accrue fees owing to former third party research consultants relating to clinical work performed on our behalf.

Travel expenses increased by $12,024 as a result of our Chief Executive Officer’s attendance at investment and biotechnology trade shows and conferences in the current period.

Other income (expenses)

The aggregate amount in the other income (expense) for the three month period ended December 31, 2013, amounted to $668,245 as compared to $(37,650) for the comparable three month period ended December 31, 2012. The largest single increase was as a result of a non-cash benefit related to a change in the calculated fair value over the period of stock purchase warrants being accounted for as derivative liabilities in accordance with US GAAP. These gains arose as a result of the requirement of generally accepted accounting principles in the United States to re-measure derivatives to their respective fair values each reporting period with the changes in fair value being reported as a non-operating item on the consolidated statement of operations.

On December 21, 2013, we entered into amendment agreements with all of the holders of these warrants such that these warrants are no longer required to be accounted for in this manner. As a result of the modification, we expect this type of non-operating income will not accrue in future periods.

Liquidity and Capital Resources

Working Capital

		December 31, 2013		September 30, 2013
Current Assets		148,752		393,449
Current Liabilities		1,821,141		1,952,660
Working Capital Deficiency	$	(1,672,389	)	(1,559,211	)

As of December 31, 2013, we had $95,927 in cash, a decrease of $249,147 from September 30, 2013. The principal reason for this decrease is due to cash used in operations.

We anticipate that we will require up to $6,000,000 for the 12 month period ending December 31, 2014 to implement our plan of operation of researching and developing our compounds, the related patents and any further intellectual property we may acquire. The majority of our capital resources requirement is needed to complete the next clinical trial for ANAVEX PLUS, and to perform work necessary to prepare for further clinical development. If we are not able to secure additional financing, we will not be able to implement and fund this work.

Cash Flows

		Three Month Period Ended December 31,
		2013			2012
Cash flows used in operating activities	$	(434,990	)	$	(131,573	)
Cash flows from financing activities		188,170			200,000
Cash flows from investing activities		(2,327	)		Nil
Decrease in cash	$	(249,147	)	$	68,427

Cash flow used in operating activities

Our cash used in operating activities for the three month period ended December 31, 2013 was $434,990 compared to $131,573 used in operating activities for the comparative three month period ended December 31, 2012. The increase in cash used in operating activities was primarily as a result of the repayment of current trade payables in the current period as a result of cash available from financings.

Cash flow provided by financing activities

Our cash provided by financing activities for the three month period ended December 31, 2013 was $188,170, attributable to cash received from the issuance of common shares under the Purchase Agreement with LPC (described underFuture Financing below). In the comparative period, we had cash inflows of $200,000 from activities related to the issuance of short term debt.

Cash used in investing activities

Cash used in investing activities was $2,327 in the current period as compared to $Nil in the comparative period. This is as a result of a small equipment purchase in the current period.

Going Concern

As of December 31, 2013, we had an accumulated deficit of $40,846,335 since our inception and we expect to incur further losses in the development of our business, which casts substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to generate future profitable operations and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. Our independent auditor included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern in its report on our annual financial statements for the fiscal year ended September 30, 2013.

Future Financing

We will require additional financing to fund our planned operations, including further strengthening our patents, securing patents for other compounds and any further intellectual property that we may acquire, and commencing clinical development.

On July 5, 2013, the Company entered into a Purchase Agreement (“Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”). Pursuant to the Purchase Agreement, Lincoln Park initially purchased 250,000 shares of the Company’s common stock for $100,000. The Company has 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. There are no upper limits on the per share price that Lincoln Park may pay to purchase such common stock. Furthermore, the Company controls the timing and amount of any future sales, if any, of shares of common stock to Lincoln Park except that, pursuant to the terms of the Purchase Agreement, we would be unable to sell shares to Lincoln Park if and when the closing sale price of our common stock is below $0.50 per share, subject to adjustment as set forth in the Purchase Agreement. Lincoln Park has no right to require any sales and is obligated to purchase common stock as directed by the Company.

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.

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

There is no assurance that we will be able to maintain operations at a level sufficient for investors to obtain a return on their investment in our common stock. Further, we may continue to be unprofitable.

Off-Balance Sheet Arrangements

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

Application of Critical Accounting Policies

Our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and assumptions are affected by management’s application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our 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, weather, politics, global economics, mechanical problems, general business conditions and other factors. Our significant estimates are related to the valuation of warrants and options.

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

Research and Development Expenses

Research and developments costs are expensed as incurred. These expenses are comprised of the costs of our proprietary research and development efforts, including salaries, facilities costs, overhead costs and other related expenses as well as costs incurred in connection with third-party collaboration efforts. Milestone payments 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. The cost of the stock-based payments to non-employees that are fully vested and non-forfeitable as at the grant date is measured and recognized at that date, unless there is a contractual term for services in which case such compensation would be amortized over the contractual term.

We account for the granting of share purchase options to employees using the fair value method whereby all awards to employees will be recorded at fair value on the date of the grant. The fair value of all share purchase options are expensed over their vesting period with a corresponding increase to additional capital surplus. Upon exercise of share purchase options, the consideration paid by the option holder, together with the amount previously recognized in additional capital surplus, is recorded as an increase to share capital.

We use the Black-Scholes option valuation model to calculate the fair value of share purchase options at the date of the grant. Option pricing models require the input of highly subjective assumptions, including the expected price volatility. Changes in assumptions can materially affect the fair value estimate and therefore the Black-Scholes model does not necessarily provide a reliable single measure of the fair value of our share purchase options.

Recent Accounting Pronouncements

There are no new accounting pronouncements that we recently adopted or are pending our adoption that are expected to have a material impact on the Company’s results of operations, financial position or cash flows.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide information under this item.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

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

Based on that evaluation, our management, with the participation of our principal executive officer and principal financial officer, concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were not effective. The ineffectiveness of our disclosure controls and procedures was due to the material weaknesses disclosed in our Annual Report on Form 10-Q filed on December 30, 2013.

We intend to take appropriate and reasonable steps to make the necessary improvements to remediate these deficiencies. However, due to our size and nature, segregation of all conflicting duties has not always been possible and may not be economically feasible.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the fiscal quarter ended December 31, 2013 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

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. In addition, we do not know of any such proceedings contemplated by any governmental authorities.

ITEM 1A. RISK FACTORS.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide information under this item. However, current and prospective investors are encouraged to review the risks set forth in Part I, Item 1A, “Risk Factors” in our most recent Annual Report on Form 10-K as filed with the Securities and Exchange Commission on December 30, 2013.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

Exhibit
Number	Description
(3)	Articles of Incorporation and Bylaws
3.1	Articles of Incorporation (incorporated by reference to an exhibit to our Registration Statement on Form SB-2 filed on January 13, 2005)
3.2	Bylaws (incorporated by reference to an exhibit to our 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)
(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	Form of Amendment No. 1 to Common Stock Purchase Warrant, entered into December 21, 2013 (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on February 10, 2013)
(31)	Section 302 Certifications
31.1*	Section 302 Certification of Christopher Missling, PhD.
(32)	Section 906 Certifications
32.1*	Section 906 Certification of Christopher Missling, PhD.
(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.

SIGNATURES

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

ANAVEX LIFE SCIENCES CORP.

/s/Christopher Missling, PhD

Christopher Missling, PhD
Chief Executive Officer and Chief Financial Officer
(Principal Executive, Financial and Accounting Officer)
Date: February 14, 2014

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Anavex Life Sciences (AVXL) 10-Q2014 Q1 Quarterly report

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