| Summary of Significant Accounting Policies | Note
2 Summary of Significant
Accounting Policies
a) Use
of Estimates The
preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and
expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to accounting for research
and development costs, incentive income receivable, valuation and recoverability of deferred tax assets, asset impairment, stock-based
compensation and loss contingencies. The Company bases its estimates and assumptions on current facts, historical experience and
various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making
judgments about the book values of assets and liabilities and the accrual of costs and expenses that are not readily apparent
from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s
estimates. To the extent there are material differences between the estimates and the actual results, future results of operations
will be affected.
b) Principles
of Consolidation These
consolidated financial statements include the accounts of Anavex Life Sciences Corp. and its wholly-owned subsidiaries, Anavex
Australia Pty Limited. (“Anavex Australia”), a company incorporated under the laws of Australia, Anavex Germany GmbH,
a company incorporated under the laws of Germany, and Anavex Canada Ltd., a company incorporated under the laws of the Province
of Ontario, Canada. All inter-company transactions and balances have been eliminated.
c) Cash
and equivalents The
Company considers only those investments which are highly liquid, readily convertible to cash and that mature within three months
from the date of purchase to be cash equivalents.
d) Research
and Development Expenses Research
and development costs are expensed as incurred. These expenses are comprised of the costs of the Company’s proprietary research
and development efforts, including preclinical studies, clinical trials, manufacturing costs, employee salaries and benefits and
stock based compensation expense, contract services including external research and development expenses incurred under arrangements
with third parties such as contract research organizations (“CROs”), facilities costs, overhead costs and other related
expenses. Milestone payments made by the Company to third parties are expensed when the specific milestone has been achieved.
Manufacturing costs are expensed as incurred in accordance with Accounting Standard Codification (“ASC”) 730, Research
and Development, as these materials have no alternative future use outside of their intended use. Nonrefundable
advance payments for goods or services that will be used or rendered for future research and development activities are deferred
and amortized over the period that the goods are delivered, or the related services are performed, subject to an assessment of
recoverability. The Company makes estimates of costs incurred in relation to external CROs, and clinical site costs. The Company
analyzes the progress of clinical trials, including levels of patient enrollment, invoices received and contracted costs when
evaluating the adequacy of the amount expensed and the related prepaid asset and accrued liability. Significant judgments and
estimates must be made and used in determining the accrued balance and expense in any accounting period. The Company reviews and
accrues CRO expenses and clinical trial study expenses based on work performed and relies upon estimates of those costs applicable
to the stage of completion of a study. Accrued CRO costs are subject to revisions as such trials progress to completion. Revisions
are charged to expense in the period in which the facts that give rise to the revision become known. With respect to clinical
site costs, the financial terms of these agreements are subject to negotiation and vary from contract to contract. Payments under
these contracts may be uneven and depend on factors such as the achievement of certain events, the successful recruitment of patients,
the completion of portions of the clinical trial or similar conditions. The objective of our policy is to record expenses in our
financial statements based on the actual services received and efforts expended. As such, expense accruals related to clinical
site costs are recognized based on our estimate of the degree of completion of the event or events specified in the specific clinical
study or trial contract. In
addition, the Company incurs expenses in respect of intellectual property costs relating to patents and trademarks. The probability
of success and length of time to develop commercial applications of the compounds subject to the underlying patent and trademark costs
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 compounds subject to the underlying patents and trademarks will ever be successfully commercialized. Due
to these risks and uncertainties, the patent and trademark costs do not meet the definition of an asset and thus are expensed
as incurred within general and administrative expenses.
e) Research
and Development Incentive Income The
Company is eligible to obtain certain research and development tax credits, including the New York City Biotechnology Tax Credit
(“NYC Biotech credit”), and the Australian research and development tax incentive credit (the “Australia R&D
credit”) through a program administered through the Australian Tax Office (the “ATO”), which provides for a
cash refund based on a percentage of certain research and development activities undertaken in Australia by the Company’s
wholly owned subsidiary, Anavex Australia Pty Ltd. (“Anavex Australia”). The cash refund is available to eligible
companies with an annual aggregate revenue of less than $20.0 million Australian during the reimbursable period. The
tax incentives are available on the basis of specific criteria with which the Company must comply. Although the tax incentive
may be administered through the local tax authority, the Company has accounted for the incentives outside of the scope of ASC
Topic 740, Income Taxes (“ASC 740”), since the incentives are not linked to the Company’s taxable income and
can be realized regardless of whether the Company has generated taxable income in the respective jurisdictions. With
respect to the Australia R&D credit, Anavex Australia may be eligible to receive the cash refund for certain research and
development expenses incurred by Anavex Australia outside of Australia, to the extent such expenses are pre-approved by the Australian
authority pursuant to an advanced overseas finding application. The Company accrues for the amount of cash refund it expects to
receive in relation to research and development expenses outside of Australia only to the extent it has received advanced approval
from the Department of Industry, Innovation and Science in Australia, pursuant to an approved advanced overseas finding application. The
Company recognizes the amount of cash refund it expects to receive related to the NYC Biotech credit and Australian research and
development tax incentive program when there is reasonable assurance that the cash refund will be received, when the relevant
expenditures have been incurred, and when the amount can be reliably measured. This amount is included in Incentive and tax receivables
in the accompanying consolidated balance sheets. In
addition, Anavex Australia and Anavex Canada incur Goods and Services Tax (GST) on certain services provided by local vendors.
As a domestic entity in those jurisdictions, Anavex Australia and Anavex Canada are entitled to a refund of the GST paid. Similarly,
Anavex Germany incurs Value Added Tax (VAT) on certain services provided by local vendors, to which it is entitled to a refund
of such VAT paid. The Company’s estimate of the amount of cash refund it expects to receive related to GST and VAT incurred
is included in Incentive and tax receivables in the accompanying consolidated balance sheets.
f) Basic
and Diluted Loss per Share Basic
income/(loss) per common share is computed by dividing net income/(loss) available to common stockholders by the weighted average
number of common shares outstanding during the period. Diluted income/(loss) per common share is computed by dividing net income/(loss)
available to common stockholders by the sum of (1) the weighted-average number of common shares outstanding during the period,
(2) the dilutive effect of the assumed exercise of options and warrants using the treasury stock method and (3) the dilutive effect
of other potentially dilutive securities. For purposes of the diluted net loss per share calculation, options and warrants are
potentially dilutive securities and are excluded from the calculation of diluted net loss per share because their effect would
be anti-dilutive. As
of September 30, 2020, diluted loss per share excludes 10,576,266 8,812,933
g) Financial
Instruments The
book value of the Company’s financial instruments, consisting of cash and equivalents, incentive and tax receivables, and
accounts payable and accrued liabilities approximate their fair value due to the short-term maturity of such instruments. Unless
otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency or credit
risks arising from these financial instruments.
h) Foreign
Currency Translation The
functional currency of the Company is the US dollar. Monetary items denominated in a foreign currency are translated into US dollars
at exchange rates prevailing at the balance sheet date and non-monetary items are translated at exchange rates prevailing when
the assets were acquired, or obligations incurred. Foreign currency denominated expense items are translated at exchange rates
prevailing on the transaction date. Unrealized gains or losses arising from the translations are credited or charged to income
in the period in which they occur. The
Company has determined that the functional currency of Anavex Australia Pty Limited, Anavex Germany GmbH, and Anavex Canada Ltd.
is the US dollar.
i) Segment
and Geographic Reporting Operating
segments are defined as components of an enterprise for which separate discrete information is available for evaluation by the
chief operating decision maker or decision-making group, in deciding how to allocate resources and in assessing performance. The
Company views its operations and manages its business as one operating segment, which is the business of developing novel therapies
for the management of CNS diseases.
j) Grant
Income Grant
income is recognized at the fair value of the grant when it is received, and all substantive conditions have been satisfied. Grants
received from government and other agencies in advance of the specific research and development costs to which they relate are
deferred and recognized in the consolidated statement of operations in the period they are earned and when the related research
and development costs are incurred.
k) Income
Taxes The
Company follows the provisions of ASC 740, which requires the asset and liability method of accounting for income taxes. Under
the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable
to temporary differences between the financial statements carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled. The
Company follows the provisions of ASC 740 regarding accounting for uncertainty in income taxes. The Company initially recognizes
tax positions in the financial statements when it is more likely than not the position will be sustained upon examination by the
tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax benefit that is greater
than 50% likely of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and
all relevant facts. Application requires numerous estimates based on available information. The Company considers many factors
when evaluating and estimating its tax positions and tax benefits, and its recognized tax positions and tax benefits may not accurately
anticipate actual outcomes. As additional information is obtained, there may be a need to periodically adjust the recognized tax
positions and tax benefits. These periodic adjustments may have a material impact on the consolidated statements of operations. The
Company recognizes interest and penalties related to current income tax expense on the interest income, net line, in the accompanying
consolidated statement of operations. Accrued interest and penalties, if any, are included in accrued liabilities on the consolidated
balance sheets.
l) Stock-based
Compensation The
Company accounts for all stock-based payments and awards under the fair value method. The
Company accounts for the granting of share purchase options and warrants 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 and
warrants are expensed over their contractual vesting period, or over the expected performance period for only the portion of awards
expected to vest, in the case of milestone-based vesting, with a corresponding increase to additional paid-in capital. Share
purchase options and warrants issued to non-employees are measured at the fair value of the equity instruments issued. Compensation
expense for share purchase options and warrants issued to non-employees is recorded over the service performance period. Prior
to the Company’s adoption of ASU No. 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting on October 1, 2019, options and warrants subject to vesting were periodically re-measured until the counterparty
performance was complete, and any change therein was recognized over the vesting period of the award and in the same manner as
if the Company had paid cash instead of paying with or using equity based instruments. After the adoption of ASU No. 2018-07,
the Company measures equity-classified share-based payment awards issued to nonemployees on the grant date, rather than remeasuring
the awards through the performance completion date as previously required (see Note 2 n)). Compensation
costs for stock-based payments with graded vesting are recognized on a straight-line basis. The
Company uses the Black-Scholes option valuation model to calculate the fair value of share purchase options and warrants at the
date of the grant. Option pricing models require the input of highly subjective assumptions, including the expected price volatility.
Changes in these assumptions can materially affect the fair value estimates.
m) Fair
Value Measurements Fair
value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at
the measurement date. Assets and liabilities that are measured at fair value are reported using a three-level fair value hierarchy
that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and minimizes the
use of unobservable inputs. The three levels of inputs used to measure fair value are as follows: Level
1 - quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access
at the measurement date; Level
2 - observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices
for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable
or whose significant value drivers are observable; and Level
3 - assets and liabilities whose significant value drivers are unobservable by little or no market activity and that are significant
to the fair value of the assets or liabilities. At
September 30, 2020 and 2019, the Company did not have any Level 3 assets or liabilities.
n) Recent
Accounting Pronouncements Recently
Adopted Accounting Pronouncements In
February 2016, Topic 842, Leases was issued to replace the leases requirements in Topic 840, Leases. The main difference
between previous U.S. GAAP and Topic 842 is the recognition of lease assets and lease liabilities by lessees for those leases
classified as operating leases under previous U.S. GAAP. A lessee should recognize in the balance sheet a liability to make
lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the
lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class
of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize
lease expense for such leases generally on a straight-line basis over the lease term. The accounting applied by a lessor is
largely unchanged from that applied under previous U.S. GAAP. The Company elected the package of practical expedients
permitted under the transition guidance that allowed, among other things, the historical lease classifications to be carried
forward without reassessment. Further, the Company elected to not recognize lease assets and lease liabilities for leases
with a term of 12 months or less. The adoption of this standard on October 1, 2019 did not have any impact on the Company's
consolidated results of operations, financial condition, cash flows, and financial statement disclosures. In
June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting, which simplifies the accounting for share-based payments to nonemployees for goods and services by aligning
it with the accounting for share-based payments to employees, with certain exceptions. The new guidance was effective for the
Company beginning on October 1, 2019 and was required to be applied retrospectively with the cumulative effect recognized at the
date of initial application. The adoption of this standard on October 1, 2019 did not have any material impact on the Company's
consolidated results of operations, financial condition, cash flows, and financial statement disclosures. Recent
Accounting Pronouncements Not Yet Adopted In
December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes (ASC 740)", which is intended
to simplify various aspects related to accounting for income taxes by removing certain exceptions to the general principles in
Topic 740 and clarifying and amending existing guidance to improve consistent application. ASU 2019-12 is effective for the Company
on October 1, 2021. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on its consolidated
financial statements but does not expect such guidance to have a material impact. |
