10-Q/A 1 form10qa.htm FORM 10-Q/A

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

FORM 10-Q/A
Amendment No.1

(Mark One)

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

For the quarterly period ended: March 31, 2014

or

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

For the transition period from _____ to _____

Commission File Number: 000-51652

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

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

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

1-844-689-3939
(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:
38,260,097 shares of common stock outstanding as of May 14, 2014.

ii

EXPLANATORY NOTE

This Amendment No. 1 (this “Amendment”) to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 of Anavex Life Sciences Corp. (“Anavex”) filed on May 14, 2014 (the “Original Filing”), is being filed for the sole purpose of filing Exhibit 101 which was unintentionally omitted from the Original Filing due to a vendor filing error. Exhibit 101 consists of the following materials from our Form 10-Q, formatted in XBRL (eXtensible Business Reporting Language):

(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

Other than as expressly set forth above, this Amendment does not, and does not purport to, update or restate the information in any Item of the Original Filing or reflect any events that have occurred after the Original Filing was filed. The filing of this Amendment shall not be deemed an admission that the Form 10-Q, when made, included any known, untrue statement of material fact or knowingly omitted to state a material fact necessary to make a statement not misleading.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION | 1
ITEM 1. FINANCIAL STATEMENTS. | 1
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. | 2
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS. | 9
ITEM 4. CONTROLS AND PROCEDURES. | 9
PART II – OTHER INFORMATION | 10
ITEM 1. LEGAL PROCEEDINGS. | 10
ITEM 1A. RISK FACTORS. | 10
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. | 10
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. | 10
ITEM 4. MINE SAFETY DISCLOSURES | 10
ITEM 5. OTHER INFORMATION. | 10
ITEM 6. EXHIBITS. | 11
SIGNATURES | 12

iii

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

1

ANAVEX LIFE SCIENCES CORP.

(A Development Stage Company)

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014

(Unaudited)

ANAVEX LIFE SCIENCES CORP.
(A Development Stage Company)
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2014 and September 30, 2013
(Unaudited)

ASSETS |  |  |  |  |  |
|  | March 31, |  |  | September 30, |
|  | 2014 |  |  | 2013 |
Current |  |  |  |  |  |
Cash | $ | 9,193,558 |  | $ | 345,074 |
Prepaid expenses |  | 28,478 |  |  | 48,375 |
|  | 9,222,036 |  |  | 393,449 |
Deferred financing charges |  | 1,068,541 |  |  | - |
Equipment |  | 1,943 |  |  | - |
| $ | 10,292,520 |  | $ | 393,449 |
LIABILITIES |  |  |  |  |  |
Current |  |  |  |  |  |
Accounts payable and accrued liabilities | $ | 1,689,605 |  |  | 1,741,797 |
Promissory notes payable |  | 193,720 |  | $ | 210,863 |
|  | 1,883,325 |  |  | 1,952,660 |
Derivative financial instruments - warrants |  | - |  |  | 904,000 |
Convertible debentures, net of debt discounts |  | 1,011 |  |  | - |
|  | 1,884,336 |  |  | 2,856,660 |
CAPITAL DEFICIT |  |  |  |  |  |
Capital stock |  |  |  |  |  |
Authorized: 150,000,000 common shares, par value $0.001 per share Issued and outstanding: 38,260,098 common shares (September 30, 2013 - 37,237,588) |  | 38,261 |  |  | 37,238 |
Additional paid-in capital |  | 49,595,118 |  |  | 38,644,523 |
Common stock to be issued |  | 640,000 |  |  | 60,000 |
Deficit accumulated during the development stage |  | (41,865,195 | ) |  | (41,204,972 | )
|  | 8,408,184 |  |  | (2,463,211 | )
| $ | 10,292,520 |  | $ | 393,449 |

SEE ACCOMPANYING NOTES

ANAVEX LIFE SCIENCES CORP.
(A Development Stage Company)
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
for the three and six months ended March 31, 2014 and 2013
and for the period from January 23, 2004 (Date of Inception) to March 31, 2014
(Unaudited)

|  |  |  |  |  |  |  |  |  |  |  |  |  | January 23, 2004 |
|  | Three months ended March 31, |  |  | Six months ended March 31, |  |  | (Date of Inception) |
|  | 2014 |  |  | 2013 |  |  | 2014 |  |  | 2013 |  |  | to March 31, 2014 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
General and administrative - Notes 9 and 10 | $ | 903,015 |  | $ | 126,551 |  | $ | 1,207,443 |  | $ | 415,415 |  | $ | 18,406,207 |
Research and development |  | 118,152 |  |  | 560 |  |  | 123,332 |  |  | 127,563 |  |  | 12,946,128 |
Total operating expenses |  | (1,021,167 | ) |  | (127,111 | ) |  | (1,330,775 | ) |  | (542,978 | ) |  | (31,352,335 | )
Other income (expenses) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest and finance expenses, net |  | (5,079 | ) |  | (16,558 | ) |  | (8,366 | ) |  | (26,783 | ) |  | (685,728 | )
Accretion of debt discounts |  | (1,011 | ) |  | - |  |  | (1,011 | ) |  | - |  |  | (2,175,672 | )
Change in fair value of derivative financial instruments |  | - |  |  | - |  |  | 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 gain (loss) |  | 8,397 |  |  | 37,569 |  |  | (3,071 | ) |  | 10,144 |  |  | (65,421 | )
Total other income (expenses), net |  | 2,307 |  |  | 21,011 |  |  | 670,552 |  |  | (16,639 | ) |  | (9,962,056 | )
Net loss and comprehensive loss for the period | $ | (1,018,860 | ) | $ | (106,100 | ) | $ | (660,223 | ) | $ | (559,617 | ) | $ | (41,314,391 | )
Loss per share |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic | $ | (0.03 | ) | $ | (0.00 | ) | $ | (0.02 | ) | $ | (0.02 | ) |  |  |
Diluted | $ | (0.03 | ) | $ | (0.00 | ) | $ | (0.04 | ) | $ | (0.02 | ) |  |  |
Weighted average number of shares outstanding |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | 37,881,209 |  |  | 30,240,687 |  |  | 37,680,823 |  |  | 30,240,687 |  |  |  |
Diluted |  | 37,881,209 |  |  | 30,240,687 |  |  | 37,680,823 |  |  | 30,240,687 |  |  |  |

SEE ACCOMPANYING NOTES

ANAVEX LIFE SCIENCES CORP.
(A Development Stage Company)
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the six months ended March 31, 2014 and 2013
and for the period from January 23, 2004 (Date of Inception) to March 31, 2014
(Unaudited)

|  |  |  |  |  |  |  | January 23, 2004 |
|  | Six months ended March 31, |  |  | (Date of Inception) |
|  | 2014 |  |  | 2013 |  |  | to March 31, 2014 |
Cash Flows used in Operating Activities |  |  |  |  |  |  |  |  |
Net loss for the period | $ | (660,223 | ) | $ | (559,617 | ) | $ | (41,314,391 | )
Adjustments to reconcile net loss to net cash used in operations: |  |  |  |  |  |  |  |  |
Amortization and depreciation |  | 384 |  |  | 576 |  |  | 6,015 |
Accretion of debt discount |  | 1,011 |  |  | - |  |  | 2,175,672 |
Stock-based compensation |  | - |  |  | - |  |  | 5,845,047 |
Common shares to be issued for services |  | 610,000 |  |  | - |  |  | 610,000 |
Amortization of deferred financing charge |  | 1,199 |  |  | 1,215 |  |  | 165,126 |
Change in fair value of derivative financial instruments |  | (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 |  | (17,143 | ) |  | (3,590 | ) |  | (22,080 | )
Changes in non-cash working capital balances related to operations: |  |  |  |  |  |  |  |  |
VAT recoverable |  | - |  |  | - |  |  | - |
Prepaid expenses |  | (12,253 | ) |  | - |  |  | (12,253 | )
Accounts payable and accrued liabilities |  | (22,494 | ) |  | 300,541 |  |  | 6,215,965 |
Net cash used in operating activities |  | (782,519 | ) |  | (260,875 | ) |  | (17,347,447 | )
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 |  | 398,170 |  |  | - |  |  | 11,446,288 |
Share subscriptions received |  | (30,000 | ) |  | - |  |  | 30,000 |
Proceeds from promissory notes |  | - |  |  | 250,000 |  |  | 5,649,000 |
Financing fees |  | (734,840 | ) |  | - |  |  | (842,990 | )
Repayment of promissory note |  | - |  |  | - |  |  | (100,000 | )
Issuance of convertible debentures |  | 10,000,000 |  |  |  |  |  | 10,000,000 |
Due to related parties |  | - |  |  | - |  |  | 33,665 |
Shareholder advances |  | - |  |  | - |  |  | 333,000 |
Net cash provided by financing activities |  | 9,633,330 |  |  | 250,000 |  |  | 26,548,963 |
Increase (decrease) in cash during the period |  | 8,848,484 |  |  | (10,875 | ) |  | 9,193,558 |
Cash, beginning of period |  | 345,074 |  |  | 11,362 |  |  | - |
Cash, end of period | $ | 9,193,558 |  | $ | 487 |  | $ | 9,193,558 |
Supplemental Cash Flow Information - Note 11 |  |  |  |  |  |  |  |  |

SEE ACCOMPANYING NOTES

Anavex Life Sciences Corp.
(A Development Stage Company)
Consolidated Statement of Changes in Capital Deficit
For the period from January 23, 2004 (Date of Inception) to March 31, 2014

|  |  |  |  |  |  |  |  |  |  |  |  |  | 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

Anavex Life Sciences Corp.
(A Development Stage Company)
Consolidated Statement of Changes in Capital Deficit
For the period from January 23, 2004 (Date of Inception) to March 31, 2014

|  |  |  |  |  |  |  |  |  |  |  |  |  | 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

Anavex Life Sciences Corp.
(A Development Stage Company)
Consolidated Statement of Changes in Capital Deficit
For the period from January 23, 2004 (Date of Inception) to March 31, 2014

|  |  |  |  |  |  |  |  |  |  |  |  |  | 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 |  | - |  |  | - |  |  | - |  |  | 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

Anavex Life Sciences Corp.
(A Development Stage Company)
Consolidated Statement of Changes in Capital Deficit
For the period from January 23, 2004 (Date of Inception) to March 31, 2014

|  |  |  |  |  |  |  |  |  |  |  |  |  | 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

Anavex Life Sciences Corp.
(A Development Stage Company)
Consolidated Statement of Changes in Capital Deficit
For the period from January 23, 2004 (Date of Inception) to March 31, 2014

|  |  |  |  |  |  |  |  |  |  |  |  |  | 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

Anavex Life Sciences Corp.
(A Development Stage Company)
Consolidated Statement of Changes in Capital Deficit
For the period from January 23, 2004 (Date of Inception) to March 31, 2014

|  |  |  |  |  |  |  |  |  |  |  |  |  | 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 |  | 4,208,910 |  |  | 4,209 |  |  | 2,563,011 |  |  | - |  |  | - |  |  | 2,567,220 |
Capital stock issued for cash on July 5, 2013 - at $0.40 |  | 2,196,133 |  |  | 2,196 |  |  | 563,257 |  |  | - |  |  | - |  |  | 565,453 |
Less: Share issue costs |  |  |  |  |  |  |  | (112,174 | ) |  | - |  |  | - |  |  | (112,174 | )
Initial purchase shares issued under Purchase Agreement on July 5, 2013 - at $0.40 |  | 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 - brought forward |  | 37,237,588 |  | $ | 37,238 |  | $ | 38,644,523 |  | $ | 60,000 |  | $ | (41,204,972 | ) | $ | (2,463,211 | )

SEE ACCOMPANYING NOTES

Anavex Life Sciences Corp.
(A Development Stage Company)
Consolidated Statement of Changes in Capital Deficit
For the period from January 23, 2004 (Date of Inception) to March 31, 2014

|  |  |  |  |  |  |  |  |  |  |  |  |  | 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 Purchase Agreement |  | 400,000 |  |  | 400 |  |  | 187,770 |  |  | - |  |  | - |  |  | 188,170 |
Commitment shares issued under terms of Purchase Agreement |  | 2,510 |  |  | 3 |  |  | (3 | ) |  | - |  |  | - |  |  | - |
Capital stock issued for cash - at $0.50 |  | 120,000 |  |  | 120 |  |  | 59,880 |  |  | (60,000 | ) |  |  |  |  | - |
Capital stock issued for cash - at $0.30 |  | 500,000 |  |  | 500 |  |  | 149,500 |  |  | 30,000 |  |  |  |  |  | 180,000 |
Share issue costs, net of recovery |  | - |  |  | - |  |  | (2,452 | ) |  | - |  |  | - |  |  | (2,452 | )
Issuance of detachable warrants |  | - |  |  | - |  |  | 5,989,900 |  |  | - |  |  | - |  |  | 5,989,900 |
Agent's warrants issued in connection with convertible debentures |  | - |  |  | - |  |  | 334,900 |  |  | - |  |  | - |  |  | 334,900 |
Beneficial conversion feature on convertible debentures issued |  | - |  |  | - |  |  | 4,010,100 |  |  | - |  |  | - |  |  | 4,010,100 |
Reclassification of derivative financial instruments upon modification of warrant terms |  | - |  |  | - |  |  | 221,000 |  |  | - |  |  | - |  |  | 221,000 |
Capital stock to be issued pursuant to employment agreement |  | - |  |  | - |  |  | - |  |  | 610,000 |  |  | - |  |  | 610,000 |
Net loss for the period |  | - |  |  | - |  |  | - |  |  | - |  |  | (660,223 | ) |  | (660,223 | )
Balance, March 31, 2014 |  | 38,260,098 |  | $ | 38,261 |  | $ | 49,595,118 |  | $ | 640,000 |  | $ | (41,865,195 | ) | $ | 8,408,184 |

SEE ACCOMPANYING NOTES

Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Interim Condensed Consolidated Financial Statements
March 31, 2014 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. Clinical trials had been delayed due to lack of funding. During the six months ended March 31, 2014, the Company completed the closing of a securities purchase agreement in the aggregate principal amount of $10,000,000 (Note 6), the proceeds from which the Company intends to use to further its business plan and clinical trials of ANAVEX 2-73 and ANAVEX PLUS.
| The Company plans to continue human clinical trials, among them a prospective Phase 1b/2a study of ANAVEX 2-73 and ANAVEX PLUS, and a Phase 2 trial thereafter and to identify and initiate discussions with potential partners in the next 12 months. Further, the Company may acquire or develop new intellectual property and assign, license, or otherwise transfer our intellectual property to further its 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.
| Certain amounts for the prior periods have been reclassified to conform to the current period’s presentation. These reclassifications did not impact reported results or earnings per share.

Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Interim Condensed Consolidated Financial Statements
March 31, 2014 and 2013
Unaudited – Page 2

Note 1 | Business Description, Basis of Presentation and Liquidity – (cont’d)
| Operating results for the six months ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ended September 30, 2014.
| 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 six months ended March 31, 2014, loss per share excludes 77,305,632 (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

|  |  |  |  |  | March 31, 2014 |  |  |  |
|  |  |  |  |  | Accumulated |  |  |  |
|  |  | Cost |  |  | Depreciation |  |  | Net |
| Computer equipment | $ | 2,327 |  | $ | 384 |  | $ | 1,943 |

|  |  |  |  |  | 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
March 31, 2014 and 2013
Unaudited – Page 3

Note 4 | Derivative Financial Instruments
| 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 six months ended March 31, 2014, 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 March 31, 2014 and for the year ended September 30, 2013 is as follows:

|  |  | March 31, |  |  | September 30, |
|  |  | 2014 |  |  | 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
March 31, 2014 and 2013
Unaudited – Page 4

Note 5 | Promissory Notes Payable

|  |  | March 31, |  |  | September 30, |
|  |  | 2014 |  |  | 2013 |
| Promissory note dated December 31, 2012 with a principal balance of $90,390 (CDN$100,000) bearing interest at 12% per annum, due on June 30, 2014 |  | 90,390 |  |  | 100,000 |
| Promissory note dated January 9, 2013 with a principal balance of $78,348 (CDN$86,677), bearing interest at 12% per annum, secured by all the present and future assets of the Company; due on demand |  | 78,348 |  |  | 84,060 |
| Promissory note dated January 9, 2013 with a principal balance of $24,982 (CDN$27,639), bearing interest at 12% per annum, secured by all the present and future assets of the Company; due on demand |  | 24,982 |  |  | 26,803 |
|  |  | 193,720 |  |  | 210,863 |
| Less: current portion |  | (193,720 | ) |  | (210,863 | )
|  | $ | - |  | $ | - |

On December 31, 2012, the Company issued a promissory note having a principal balance of $90,390 (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 June 30, 2014.

Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Interim Condensed Consolidated Financial Statements
March 31, 2014 and 2013
Unaudited – Page 5

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 $78,348 (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 $24,982 (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 former President resigned as President, Secretary, Treasurer, CFO and director of the Company and the former 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 March 31, 2014 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
March 31, 2014 and 2013
Unaudited – Page 6

Note 6 | Senior Convertible Debentures

|  |  | March 31, |  |  | September 30, |
|  |  | 2014 |  |  | 2013 |
| Senior Convertible Debentures, non-interest bearing, unsecured, due March 18, 2044 |  | 10,000,000 |  |  | - |
| Less: Debt Discount |  | (9,998,989 | ) |  | - |
|  |  | 1,011 |  |  | - |
| Less: current portion |  | (1,011 | ) |  | - |
|  | $ | - |  | $ | - |

On March 13, 2014, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain purchasers (the “Purchasers”) pursuant to which the Company issued senior convertible debentures in the aggregate principal amount of $10,000,000 (the “Debentures”).

In connection with the issuance of the Debentures, the Company issued an aggregate of 67,666,666 share purchase warrants as follows:

|  |  |  |  | Non- |  |  |  |
|  | Purchasers |  |  | purchasers |  |  | Total |
Series A Warrants |  | 33,333,333 |  |  | 500,000 |  |  | 33,833,333 |
Series B Warrants |  | 33,333,333 |  |  | 500,000 |  |  | 33,833,333 |
|  | 66,666,666 |  |  | 1,000,000 |  |  | 67,666,666 |

Each Series A warrant is exercisable into one common share of the Company at $0.30 per share until March 18, 2019.

Each Series B warrant is exercisable into one common share of the Company at $0.42 per share until March 18, 2019

The Debentures are unsecured, non-interest bearing and are due on March 18, 2044. At any time, the Purchasers are entitled to convert the Debentures, in whole or in part, into common shares of the Company at $0.30 per share (“the Conversion Price”). The Conversion Price of the debenture will be adjusted in the event of common stock dividend, split or consolidation.

Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Interim Condensed Consolidated Financial Statements
March 31, 2014 and 2013
Unaudited – Page 7

Note 6 | Senior Secured Convertible Debentures
| Pursuant to the guidance of ASC 470-20 Debt with Conversion and Other Options, the Company allocated the proceeds from the issuance of the Debentures between the Debentures and the detachable Purchaser warrants using the relative fair value method. The fair value of the Purchaser warrants of $22,326,200 at issuance resulted in a debt discount at issuance of $5,989,900.
| The Company recorded a beneficial conversion feature discount of $4,010,100 in respect of the Debentures issued, based on the intrinsic value of the conversion feature limited to a maximum of the total proceeds of the Debentures allocated to the Debentures.
| The total debt discount at issuance of $10,000,000 is being amortized using the effective interest method over the term of the Debentures. During the six months ended March 31, 2014, the Company recorded accretion expense of $1,011 (2013: $Nil) in respect of the accretion of this discount.
| In consideration for the Debentures issued, the Company issued an aggregate of 1,000,000 share purchase warrants to non-lenders as described above. The fair value of the Non- Purchaser Warrants of $334,900, along with finder’s fees and other financing costs directly associated with the issuance of the Debentures in the amount of $734,840, was recorded as a deferred financing charge and is being amortized to income over the term of the Debentures using the effective interest method. During the six months ended March 31, 2014, the Company had recorded financing expense of $1,199 (2013: $Nil) in respect of the amortization of these charges. Accumulated amortization as at March 31, 2014 was $1,199 (2013: $Nil).
| The fair value of the Purchaser and Non-Purchaser warrants at issuance was determined using the Black Scholes option pricing model with the following weighted average assumptions:

Risk-free interest rate | 1.56%
Expected life (years) | 5.00
Expected volatility | 97.16%
Dividend yields | 0.00%

In connection with the Purchase Agreement, the Company also entered into a registration rights agreement with each Purchaser whereby the Company agreed to file a registration statement with the Securities and Exchange Commission (the “SEC”) covering the resale of the shares of the Company’s common stock issuable upon conversion of the Debentures and upon exercise of the Purchaser warrants.

The Registration Statement was filed with the SEC on April 11, 2014.

Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Interim Condensed Consolidated Financial Statements
March 31, 2014 and 2013
Unaudited – Page 8

Note 7 | 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
March 31, 2014 and 2013
Unaudited – Page 9

Note 7 | 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
March 31, 2014 and 2013
Unaudited – Page 10

Note 7 | 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
March 31, 2014 and 2013
Unaudited – Page 11

Note 7 | 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
March 31, 2014 and 2013
Unaudited – Page 12

Note 7 | 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
March 31, 2014 and 2013
Unaudited – Page 13

Note 7 | 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 six months ended March 31, 2014, 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.
| 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
March 31, 2014 and 2013
Unaudited – Page 14

Note 7 | 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.
| On February 24, 2014, the Company issued 120,000 units at $0.50 per unit for gross proceeds of $60,000, which was received during the year ended September 30, 2013. Each unit consisted of one common share and one common share purchase warrant entitling the holder to purchase additional common shares at $1.00 per share for a period of five years from the date of issuance.
| On February 24, 2014, the Company issued 500,000 units at $0.30 per unit for gross proceeds of $150,000. Each unit consisted of one common share and one common share purchase warrant entitling the holder to purchase additional common shares at $0.75 per share for a period of five years from the date of issuance.
| Common stock to be issued
| On February 28, 2014, the Company received $30,000 in share subscriptions in respect of the issuance of 100,000 units at $0.30 per unit. 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 for a period of five years from the date of issuance.
Note 8 | 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
March 31, 2014 and 2013
Unaudited – Page 15

Note 8 | 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 $98,939 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 and during the six months ended March 31, 2014.
| During the six months ended March 31, 2014, 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
March 31, 2014 and 2013
Unaudited – Page 16

Note 9 | Related Party Transactions
| During the three and six months ended March 31, 2014, the Company was charged consulting fees totaling $Nil and $Nil, respectively (2013: $10,654 and $81,072, respectively) by directors, officers of the Company.
| As of March 31, 2014, included in accounts payable and accrued liabilities was $23,196 (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 March 31, 2014 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 (vested during the six months ended March 31, 2014)
| • | 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

Included in operating results for the three and six months ended March 31, 2014 is an amount of $610,000 relating to the vesting of 1,000,000 shares of restricted common stock upon the achievement of certain performance conditions. The fair value of $0.61 per share was determined with reference to the quoted market price of the Company's shares on the commitment date. This amount has been included in common stock to be issued at March 31, 2014.

Included in operating results for the period from January 23, 2004 (Date of inception) to March 31, 2014 is $18,375 in general and administrative expenses donated to the Company by the directors and $33,666 in debts forgiven by the directors of the Company.

Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Interim Condensed Consolidated Financial Statements
March 31, 2014 and 2013
Unaudited – Page 17

Note 10 | 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, September 30, 2012 |  | 4,250,141 |  | $ | 1.16 |
Expired |  | (1,549,628 | ) | $ | 2.56 |
Issued |  | 6,448,966 |  | $ | 0.75 |
Balance, September 30, 2013 |  | 9,149,479 |  | $ | 0.75 |
Expired |  | (2,700,513 | ) | $ | 0.75 |
Issued |  | 68,286,666 |  | $ | 0.36 |
Balance, March 31, 2014 |  | 74,735,632 |  | $ | 0.40 |

At March 31, 2014, the Company had 74,735,632 share purchase warrants outstanding as follows:

Number |  |  | Exercise Price |  |  | Expiry Date |
6,448,966 |  | $ | 0.75 |  |  | July 5, 2018 |
500,000 |  | $ | 0.75 |  |  | February 14, 2019 |
120,000 |  | $ | 1.00 |  |  | February 24, 2019 |
33,833,333 |  | $ | 0.30 |  |  | March 13, 2019 |
33,833,333 |  | $ | 0.42 |  |  | March 13, 2019 |
74,735,632 |  |  |  |  |  |  |

All of the 6,448,966 warrants expiring on July 5, 2018 and the 500,000 warrants expiring February 14, 2019 contain a contingent call provision whereby the Company may have the option to call for cancellation of all or any portion of the warrants for consideration equal to $0.001 per share, provided the quoted market price of the Company’s common stock exceeds $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.

Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Interim Condensed Consolidated Financial Statements
March 31, 2014 and 2013
Unaudited – Page 18

Note 10 | Commitments – (cont’d)

| 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.
|  | A summary of the status of Company’s outstanding stock purchase options for the year ended March 31, 2014 is presented below:

|  |  |  |  |  | Weighted |  |  |  |
|  |  |  |  |  | Average |  |  | Weighted Average |
|  |  | Number of |  |  | Exercise |  |  | Grant Date fair |
|  |  | Shares |  |  | Price |  |  | value |
| Outstanding at September 30, 2012 |  | 1,775,000 |  | $ | 2.94 |  |  |  |
| Expired |  | (550,000 | ) | $ | 3.86 |  |  |  |
| Forfeited |  | (150,000 | ) | $ | 3.72 |  |  |  |
| Granted |  | 2,000,000 |  | $ | 0.40 |  | $ | 0.50 |
| Outstanding at September 30, 2013 |  | 3,075,000 |  | $ | 1.26 |  |  |  |
| Expired |  | (505,000 | ) | $ | 2.50 |  |  |  |
| Outstanding at March 31, 2014 |  | 2,570,000 |  | $ | 1.02 |  |  |  |
| Exercisable at March 31, 2014 |  | 2,300,000 |  | $ | 0.79 |  |  |  |
| Exercisable at September 30, 2013 |  | 2,305,000 |  | $ | 0.79 |  |  |  |

Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Interim Condensed Consolidated Financial Statements
March 31, 2014 and 2013
Unaudited – Page 19

Note 10 | Commitments – (cont’d)

| b) | Stock–based Compensation Plan – (cont’d)
|  | At March 31, 2014, the following stock options were outstanding:

Number of Shares |  |  |  |  |  |  |  |  |  |  |  | Aggregate |  |  | Remaining |
|  |  |  |  | Number |  |  | Exercise |  |  |  |  |  | Intrinsic |  |  | Contractual |
Total |  |  |  |  | Vested |  |  | Price |  |  | Expiry Date |  |  | Value |  |  | Life (yrs) |
150,000 |  | (1 | ) |  | 150,000 |  | $ | 3.10 |  |  | June 30, 2014 |  |  | - |  |  | 0.25 |
50,000 |  | (2 | ) |  | 50,000 |  | $ | 3.50 |  |  | June 30, 2014 |  |  | - |  |  | 0.25 |
100,000 |  | (3 | ) |  | 100,000 |  | $ | 3.67 |  |  | March 30, 2016 |  |  | - |  |  | 2.00 |
270,000 |  | (4 | ) |  | - |  | $ | 3.00 |  |  | February 8, 2017 |  |  | - |  |  | 2.86 |
2,000,000 |  | (5 | ) |  | 2,000,000 |  | $ | 0.40 |  |  | July 5, 2023 |  |  | - |  |  | 9.27 |
2,570,000 |  |  |  |  | 2,300,000 |  |  |  |  |  |  |  |  | - |  |  |  |

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 March 31, 2014.

| (1) | As of March 31, 2014 and September 30, 2013, these options had fully vested. The Company did not recognize any stock-based compensation for these options during the six months ended March 31, 2014 (2013: $Nil).
| (2) | As of March 31, 2014 and September 30, 2013, these options had fully vested. The Company did not recognize any stock-based compensation during the six months ended March 31, 2014 (2013: $nil).
| (3) | As of March 31, 2014 and September 30, 2013, 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 March 31, 2014 (2013: $Nil).
| (4) | As of March 31, 2014 and September 30, 2013, 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.
| (5) | As of March 31, 2014 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 six months ended March 31, 2014 (2013: $Nil) in connection with these options.

During the six months ended March 31, 2014, 505,000 options expired for which the Company had recognized stock-based compensation of $Nil (2013: $Nil) during the three months ended March 31, 2014.

Anavex Life Sciences Corp.
(A Development Stage Company)
Notes to the Interim Condensed Consolidated Financial Statements
March 31, 2014 and 2013
Unaudited – Page 20

Note 10 | Commitments – (cont’d)

| b) | Stock–based Compensation Plan – (cont’d)
|  | At March 31, 2014, 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 March 31, 2014 |  | 270,000 |  | $ | 3.00 |  | $ | 2.21 |

As of March 31, 2014, 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 six months ended March 31, 2014 (2013: $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 11 | Supplemental Cash Flow Information
| Investing and financing activities that do not have a direct impact on current cash flows are excluded from the statement of cash flows.
| During the six months ended March 31, 2014, the Company reclassified an amount of $221,000 into equity upon modification of the terms of certain derivative instruments.
| During the six months ended March 31, 2013, the Company issued three promissory notes in the aggregate principal amount of $212,292 in exchange for accounts payable owing to three vendors in respect of unpaid consulting fees.
| These transactions have been excluded from the statements of cash flows.
Note 12 | Subsequent Events
| On May 6, 2014, in favor of new directors Bernd Metzner, PhD and Elliot Favus, MD, the Company’s board of directors (the “Board”) approved the grant to each of options to purchase one hundred fifty thousand (150,000) shares of Company common stock at the closing market price for the common stock as of May 7, 2014 ($0.30), with said options to vest annually over a three year period commencing on the first anniversary of the date of each director’s appointment, as applicable.
| On May 9, 2014, the Board approved a cash bonus in the amount of $400,000 to the Company’s President and CEO, Christopher Missling, related to the Company’s success in securing $10,000,000 in financing under the March 13, 2014 Securities Purchase Agreement (the “March Financing”). Additionally, the Board granted to Mr. Missling 500,000 options to purchase shares of the Company’s common stock at a price per share equal to the common stock’s closing price on May 8, 2014 ($0.33). The Board determined that the March Financing constituted the achievement of certain milestones under Mr. Missling employment agreement, entitling Mr. Missling to receive the applicable distributions and benefits thereunder.

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. The Company plans to continue human clinical trials, among them a prospective Phase 1b/2a study of ANAVEX 2-73 and ANAVEX PLUS, and a Phase 2 trial thereafter in 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.

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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.

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ANAVEX 3-71

ANAVEX 3-71, previously named AF710B is a preclinical drug candidate with a novel mechanism of action via sigma-1 receptor activation and M1 muscarinic allosteric modulation, which has shown to enhance neuroprotection and cognition in Alzheimer's disease. ANAVEX 3-71 is a CNS-penetrable mono-therapy that bridges treatment of both cognitive impairments with disease modifications. It is highly effective in very small doses against the major Alzheimer's hallmarks in transgenic (3xTg-AD) mice, including cognitive deficits, amyloid and tau pathologies, and also has beneficial effects on inflammation and mitochondrial dysfunctions. ANAVEX 3-71 indicates extensive therapeutic advantages in Alzheimer's and other protein-aggregation-related diseases given its ability to enhance neuroprotection and cognition via sigma-1 receptor activation and M1 muscarinic allosteric modulation.

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 2014, an estimated 5.2 million Americans are suffering from Alzheimer’s disease. The Alzheimer’s Association® reports that by 2025, 7.1 million Americans will be afflicted by the disease, a 40 percent increase from currently affected patients. Medications on the market today treat only the symptoms of AD and do not have the ability to stop its onset or its progression. There is an urgent and unmet need for both a disease modifying cure for Alzheimer’s disease as well as for better symptomatic treatments.

- 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.

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- Epilepsy - Epilepsy is a common chronic neurological disorder characterized by recurrent unprovoked seizures. These seizures are transient signs and/or symptoms of abnormal, excessive or synchronous neuronal activity in the brain. According to the Centers for Disease Control and Prevention, epilepsy affects 2.2 million Americans. Today, epilepsy is often controlled, but not cured, with medication that is categorized as older traditional anti-epileptic drugs and second generation anti epileptic drugs. Because epilepsy afflicts sufferers in different ways, there is a need for drugs used in combination with both traditional anti-epileptic drugs and second generations anti-epileptic drugs. Decision Resources, one of the world’s leading research and advisory firms for pharmaceutical and healthcare issues, finds that the epilepsy market will increase from $2.9 billion in 2011 to nearly $3.7 billion in 2016.
- 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. According to IMS Health the worldwide Malignant Melanoma market is expected to grow from about $900 million in 2012 to $4.4 billion by 2022.
- Prostate Cancer – Specific to men, prostate cancer is a form of cancer that develops in the prostate, a gland in the male reproductive system. The cancer cells may metastasize from the prostate to other parts of the body, particularly the bones and lymph nodes. Drug therapeutics for Prostate Cancer are expected to increase from $8.1 billion in 2012 to nearly $18.6 billion in 2017 according to BCC Research.
- Pancreatic Cancer - Pancreatic cancer is a malignant neoplasm of the pancreas. In the United States approximately 45,000 new cases of pancreatic cancer will be diagnosed this year and approximately 38,000 patients will die as a result of their cancer. Our market research leads us to believe that the market for the pharmaceutical treatment of pancreatic cancer will exceed $1.2 billion by 2015.

Recent Corporate Developments

Since the commencement of our second quarter ended March 31, 2014, we have experienced the following significant corporate developments:

- March 13, 2014, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with the Selling Security Holders pursuant to which the Company agreed to sell, and the Selling Security Holders agreed to purchase, Senior Convertible Debentures due March 18, 2044 (the “Debentures”) in the aggregate principal amount of $10,000,000. In addition to the Debentures, we agreed to issue to the Selling Security Holders two (2) series of warrants representing the right to purchase up to an aggregate of 67,666,666 shares of the Company’s common stock (the “Warrants” and together with the Debentures, the “Securities”). The purchase and sale of the Securities was consummated on March 18, 2014, and resulted in gross proceeds to the Company in the amount of $10,000,000, before deducting agent fees and other transaction-related expenses.
- In March, 2014, we agreed with Lincoln Park to issue up to $500,000 worth of common stock at $0.30 per share and that with such investment, Lincoln Park will receive a Series A Warrant with an exercise price of $0.30 and a Series B Warrant with an exercise price of $0.42, each respectively representing the right to purchase up to an aggregate of 1,666,667 shares of the Company’s common stock.
- On May 6, 2014, in favor of new directors Bernd Metzner, PhD and Elliot Favus, MD, our board of directors (the “Board”) approved the grant to each of options to purchase one hundred fifty thousand (150,000) shares of our company’s common stock at the closing market price for the common stock as of May 7, 2014 ($0.30), with said options to vest annually over a three year period commencing on the first anniversary of the date of each director’s appointment, as applicable.
- On May 9, 2014, the Board approved a cash bonus in the amount of $400,000 to our company’s President and CEO, Christopher Missling, related to our company’s success in securing $10,000,000 in financing under the March 13, 2014 Securities Purchase Agreement (the “March Financing”). Additionally, the Board granted to Mr. Missling 500,000 options to purchase shares of our company’s common stock at a price per share equal to the common stock’s closing price on May 8, 2014 ($0.33). The Board determined that the March Financing constituted the achievement of certain milestones under Mr. Missling employment agreement, entitling Mr. Missling to receive the applicable distributions and benefits thereunder.

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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.

Operating Expenses

Three months ended March 31, 2014 compared to three months ended March 31, 2013

Our operating expenses for the three months ended March 31, 2014 were $1,021,167, which represents an increase of $894,056, or 703.4% compared to $127,111 for the three month period ended March 31, 2013. The increase was mainly attributable to (i) the non-cash compensation of $610,000 relating to the vesting of common stock under our President’s employment agreement, pursuant to performance conditions met during the period; and (ii) an increase in research and development expenses in the current period and an increase in investor relations expense and other professional fees as a result of our capital raising efforts. We expect our research and development expenses will continue to increase over the remaining quarters in the current fiscal year as a result of funding secured during the current period. We continue to target potential research partners to further advance our clinical trials.

Other income (expenses)

The aggregate amount in the other income (expense) for the three month period ended March 31, 2014, amounted to $2,307 as compared to $21,011 for the comparable three month period ended March 31, 2013. The largest single decrease was as a result of a decrease in interest expense in the current period as a result of the settlement of various promissory notes during the fourth quarter of fiscal 2013.

Six months ended March 31, 2014 compared to six months ended March 31, 2013

Our operating expenses for the six months ended March 31, 2014 were $1,330,775, which represents an increase of $787,797, or 145.1% compared to $542,978 for the six month period ended March 31, 2013. The increase was mainly attributable to (i) the non-cash compensation of $610,000 relating to the vesting of common stock under our President’s employment agreement, pursuant to performance conditions met during the period; and (ii) an increase in investor relations expenses and other professional fees and incidentals as a result of our capital raising efforts.

Other income (expenses)

The aggregate amount in the other income (expense) for the six month period ended March 31, 2014, amounted to $670,552 as compared to $(16,639) for the comparable three month period ended March 31, 2013. The largest single increase was as a result of a non-cash benefit related to a change in the calculated fair value during 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 be incurred in future periods.

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Liquidity and Capital Resources

Working Capital

|  | March 31, 2014 |  |  | September 30, 2013 |
Current Assets |  | 9,222,036 |  |  | 393,449 |
Current Liabilities |  | 1,883,325 |  |  | 1,952,660 |
Working Capital (Deficiency) | $ | 7,338,711 |  |  | (1,559,211 | )

As of March 31, 2014, we had $9,193,558 in cash, an increase of $8,848,484 from September 30, 2013. The principal reason for this increase is due to cash received in respect of the issuance of senior convertible debentures in the aggregate principal amount of $10,000,000 that were issued in the current period. We intend to use the funds from these debentures to implement our plan of operation of researching and developing our compounds, the related patents and any further intellectual property we may acquire. TheWe intend to use the majority of our capital resources to complete the next clinical trial for ANAVEX PLUS, and to perform work necessary to prepare for further clinical development.

Cash Flows

|  | Six Month Period Ended March 31, |
|  | 2014 |  |  | 2013 |
Cash flows used in operating activities | $ | (782,519 | ) | $ | (260,875 | )
Cash flows from investing activities |  | (2,327 | ) |  | Nil |
Cash flows from financing activities |  | 9,633,330 |  |  | 250,000 |
Increase (decrease) in cash | $ | 8,848,484 |  | $ | (10,875 | )

Cash flow used in operating activities

Our cash used in operating activities for the six month period ended March 31, 2014 was $782,519 compared to $260,875 used in operating activities for the comparative six month period ended March 31, 2013. 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 used in investing activities

Cash used in investing activities was $2,327 in the current six month period ended March 31, 2014 as compared to $Nil in the comparative period. This is as a result of a small equipment purchase in the current period.

Cash flow provided by financing activities

Our cash provided by financing activities for the six month period ended March 31, 2014 was $9,633,330, attributable to cash received from the issuance of convertible debentures in the aggregate principal amount of $10,000,000, less related fees and expenses of $734,840 incurred in connection with the closing of these debentures. We also received cash from the issuance of common shares under the Purchase Agreement with Lincoln Park Capital Fund, LLC (described under Future Financing below).

In the comparative six month period ended March 31, 2013, we had cash inflows of $250,000 from activities related to the issuance of short term debt.

Other Financing

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. During the six months ended March 31, 2014, we issued 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.

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.

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

We expect that we will be able to continue to fund our operations through existing cash on hand and through equity and debt financing in the future. If we raise additional financing by issuing equity securities, our existing stockholders’ ownership will be diluted. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

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.

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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-K filed on December 30, 2013.

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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 March 31, 2014 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.

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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 Securities Purchase Warrant, entered into December 21, 2013Agreement, dated March 13, 2014, by and among the Company and the Purchasers named therein (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on February 10March 19, 20132014)
10.2 | Form of Registration Rights Agreement, dated March 13, 2014, by and among the Company and the parties identified therein (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on March 19, 2014)
10.3 | Form of Senior Convertible Debenture (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on March 19, 2014)
10.4 | Form of Series A/B Warrant (incorporated by reference to an exhibit to our Current Report on Form 8-K filed on March 19, 2014)
(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.

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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: May 29, 2014 |

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