ANAVEX LIFE SCIENCES CORP. (AVXL)

ITEM 7 MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following discussion should be read in conjunction
with our consolidated financial statements and related notes thereto included elsewhere in this report. Past operating results are not
necessarily indicative of results that may occur in future periods. This discussion contains forward-looking statements, which involve
a number of risks and uncertainties. See Forward Looking Statements included elsewhere in this report.

Financial Operations Overview

We are in
the development stage and have not earned any revenues since our inception in 2004. We 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.

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Our operating costs consist primarily of research and development
activities including the cost of clinical studies and clinical supplies as well as clinical drug manufacturing and formulation. Research
and development expenses also include personnel related costs such as salaries and wages, and third-party contract research organization
(CRO) expenses in support of these clinical studies. Personnel costs include salaries and wages, benefits, and non-cash share-based compensation
charges associated with options and other equity awards granted to employees and consultants who are directly engaged in support of our
research and development activities.

General and administrative expenses consist of personnel costs,
expenses for outside professional services and expenses associated with operating as a public company. Personnel costs consist of salaries
and wages, benefits and share-based compensation for general and administrative personnel. Outside professional services and public company
expenses include expenses related to compliance and reporting, additional insurance expenses, audit and SOX compliance, expenses associated
with patent research, applications and filings, investor and stockholder relations activities and other administrative expenses and professional
services.

Comparison of year ended September 30, 2024 to year ended
September 30, 2023

Operating Expenses

Our operating expenses for fiscal 2024 decreased to $52.9 million,
from $55.8 million in fiscal 2023. The decrease is attributable to a modest decrease in research and development expenses of $1.9 million
(4.3%) to $41.8 million in fiscal 2024 as well as a small decrease in general and administrative expenses of $1.0 million (8.3%) to $11.0
million in fiscal 2024, as more fully described below.

During fiscal 2024, we experienced an overall decrease
in total research and development expenses over the comparable fiscal 2023 financial year.

The decreases were largely due to:

These decreases were largely offset by the following
increases in research and development expenditures over the comparable fiscal 2023 financial year:

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The following table summarizes our research and development expenses for
the years ended September 30, 2024, and 2023 (in thousands):

External service provider cost by product candidate
was as follows (in thousands):

General and administrative expenses were $11.0 million
for the fiscal 2024 financial year, as compared to $12.0 million in fiscal 2023. The primary reason for the decrease in general and administrative
expenses was a reduction in share-based compensation charges of $1.9 million, as a result of the vesting of previous option awards and
the extended timeline of milestone based vesting awards.

We
expect to see our research and development expenditures increase from current levels as we advance our clinical programs, including continuation
of ANAVEX®3-71 trial in Schizophrenia and subsequent advancements, planned advancement of ANAVEX®2-73 for
Parkinson’s disease, planned initiation of an ANAVEX®2-73
for a Fragile X clinical trial, and as we continue to grow our staffing to manage and support these clinical initiatives.

Other income (net)

Net other income for the year ended September 30, 2024 was $9.9
million as compared to $8.3 million for fiscal 2023. The primary reason for the increase in other income was due to a one-time financing
charge of $0.9 million recognized in the comparable year associated with entering into the 2023 Purchase Agreement (as described below),
as well as an increase in interest income in fiscal 2024 earned on cash and cash equivalents, due to an increase in market wide interest
rates year over year.

During
fiscal 2024, we recorded $2.3 million in research and development incentive income, consisting of the Australian research and development
incentive credit administered through the ATO, in connection with fiscal 2024 eligible expenditures. In comparison, research and development
incentive income for fiscal 2023 was $2.7 million in connection with fiscal 2023 eligible expenditures. This income is driven by the clinical
trial expenditures incurred in Australia, and the decrease is a result of the completion of the EXCELLENCE trial in Rett Syndrome and
the Phase 2b/3 clinical trial in Alzheimer’s disease, as well as
related open label extension trials, which were completed during fiscal 2024. We expect to continue to receive support from the Australian
government for future clinical trials which we plan to conduct, in part, within Australia.

Net loss

Net loss for fiscal 2024 was $43.0 million, or $0.52
per share, compared to a net loss of approximately $47.5 million, or $0.60 per share for fiscal 2023.

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Liquidity and Capital Resources

Working Capital (in thousands)

At September 30, 2024, we had $132.2 million in cash and cash
equivalents, a decrease from $151.0 million at September 30, 2023.

We intend to continue to use our capital resources to advance
our clinical trials for ANAVEX®2-73 and ANAVEX®3-71, and to perform work necessary to prepare for future
development of our pipeline compounds.

Cash Flows

Following is a summary
of sources of cash flows for the years ended September 30, 2024 and 2023 (in thousands)

Cash flow used in operating activities

There was an increase in cash used in operating activities of
$3.0 million during fiscal 2024. The principal reason for this is an increase in net cash expenses, after taking into account non-cash
share-based compensation, over the comparable period of approximately $3.3 million.

Cash flow provided by financing activities

Cash provided by financing activities in fiscal 2024 was $12.0
million, comprised of $11.3 attributable to cash received from the issuance of common shares at various market prices under the 2023 Purchase
Agreement (as defined below) and $0.7 million received pursuant to the exercise of stock options.

Cash provided by financing activities in fiscal 2023 was $29.7
million, comprised of $27.9 million attributable to cash received from the issuance of common shares under the 2023 Purchase Agreement
and $1.8 million received pursuant to the exercise of stock options.

Other Financings

2023 Purchase Agreement

On February 3, 2023, the Company entered into a $150,000,000
purchase agreement (the “2023 Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant
to which the Company has the right to sell and issue to Lincoln Park, and Lincoln Park is obligated to purchase, up to $150.0 million
in value of its shares of Common Stock from time to time over a three-year period until February 3, 2026.

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On any business day and subject to certain customary
conditions, the Company may direct Lincoln Park to purchase up to 200,000 shares of Common Stock (such purchases, “Regular Purchases”).
The amount of a Regular Purchase may increase under certain circumstances based on the market price of the Common Stock; provided, however,
that Lincoln Park’s committed obligation under any Regular Purchase shall not exceed $4.0 million. The purchase price of shares
of Common Stock will be based on the then prevailing market prices of such shares at the time of sales as described in the 2023 Purchase
Agreement. There are no limits on the price per share that Lincoln Park may pay to purchase Common Stock under the 2023 Purchase Agreement.
In addition, if the Company has directed Lincoln Park to purchase the full amount of Common Stock available as a Regular Purchase on a
given day, it may direct Lincoln Park to purchase additional amounts as “accelerated purchases” and “additional accelerated
purchases,” each as set forth in the 2023 Purchase Agreement.

The 2023 Purchase Agreement limits the Company’s
sale of shares of Common Stock to Lincoln Park to 15,606,426 shares of Common Stock, representing 19.99% of the shares of the Common Stock
outstanding on the date of the 2023 Purchase Agreement unless (i) stockholder approval is obtained to issue more than such amount or (ii)
the average price of all applicable sales of Common Stock to Lincoln Park under the 2023 Purchase Agreement equals or exceeds the lower
of (A) the closing price of the Common Stock on the Nasdaq Capital Market immediately preceding the Execution Date or (B) the average
of the closing price of the Common Stock on the Nasdaq Capital Market for the five Business Days immediately preceding the Execution Date.

The 2023 Purchase Agreement also prohibits the Company
from directing Lincoln Park to purchase any shares of Common Stock if those shares, when aggregated with all other shares of Common Stock
then beneficially owned by Lincoln Park and its affiliates, would result in Lincoln Park and its affiliates having beneficial ownership,
at any single point in time, of more than 4.99% of the then total outstanding shares of Common Stock, as calculated pursuant to Section
13(d) of the Securities Exchange Act of 1934, as amended, and Rule 13d-3 thereunder.

In consideration for entering into the 2023 Purchase
Agreement, the Company issued to Lincoln Park 75,000 shares of Common Stock as a commitment fee (the “initial commitment shares”)
during the year ended September 30, 2023 and agreed to issue up to 75,000 shares pro rata (collectively with the initial commitment shares,
the “commitment shares”), when and if, Lincoln Park purchased, at the Company’s discretion, the $150.0 million aggregate
commitment.

During the year ended September 30, 2024, the Company
issued to Lincoln Park an aggregate of 2,455,646 shares of Common Stock under the 2023 Purchase Agreement, including 2,450,000 shares
of Common Stock for an aggregate purchase price of $11.3 million and 5,646 commitment shares. During the year ended September 30, 2023,
the Company issued to Lincoln Park an aggregate of 3,288,943 shares of Common Stock under the 2023 Purchase Agreement, including 3,275,000
shares of Common Stock for an aggregate purchase price of $27.9 million and 13,943 commitment shares as well as the 75,000 initial commitment
shares.

On September 30, 2024, an amount of $110.8 million
remained available under the 2023 Purchase Agreement.

Controlled Equity Offering Sales Agreement

On May 1, 2020, we entered into an Amended and Restated
Sales Agreement (the “2020 Sales Agreement”) with Cantor Fitzgerald & Co. and SVB Leerink LLC (the “Sales Agents”),
pursuant to which we could offer and sell shares of Common Stock registered under an effective registration statement from time to time
through the Sales Agents (the “At-the-Market Offering”).

No shares were sold during the years ended September
30, 2024 and 2023 under the 2020 Sales Agreement. The Company terminated the 2020 Sales Agreement on July 24, 2024.

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.

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Application
of Critical Accounting Policies

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

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

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

Research and Development Expenses

Research
and development costs are expensed as incurred. These expenses are comprised of the costs of the Company’s
proprietary research and development efforts, including preclinical studies, clinical trials, manufacturing costs, employee salaries and
benefits and share-based compensation expense, contract services including external research and development expenses incurred under arrangements
with third parties such as contract research organizations (“CROs”),
facilities costs, overhead costs and other related expenses. Milestone payments made by the Company to third parties are expensed when
the specific milestone has been achieved. Manufacturing costs are expensed as incurred in accordance with Accounting Standard Codification
(“ASC”)
730, Research and Development, as these materials have no alternative future use outside of their intended use.

Nonrefundable advance payments for goods or services that will
be used or rendered for future research and development activities are deferred and amortized over the period that the goods are delivered,
or the related services are performed, subject to an assessment of recoverability. The Company makes estimates of costs incurred in relation
to external CROs, and clinical site costs. The Company analyzes the progress of clinical trials, including levels of patient enrollment,
invoices received and contracted costs when evaluating the adequacy of the amount expensed and the related prepaid asset and accrued liability.
Significant judgments and estimates must be made and used in determining the accrued balance and expense in any accounting period. The
Company reviews and accrues CRO expenses and clinical trial study expenses based on work performed and relies upon estimates of those
costs applicable to the stage of completion of a study. Accrued CRO costs are subject to revisions as such trials progress to completion.
Revisions are charged to expense in the period in which the facts that give rise to the revision become known. With respect to clinical
site costs, the financial terms of these agreements are subject to negotiation and vary from contract to contract. Payments under these
contracts may be uneven and depend on factors such as the achievement of certain events, the successful recruitment of patients, the completion
of portions of the clinical trial or similar conditions. The objective of our policy is to record expenses in our financial statements
based on actual services received and efforts expended. As such, expense accruals related to clinical site costs are recognized based
on our estimate of the degree of completion of the event or events specified in the specific clinical trial contract.

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 develop commercial applications
of the drugs subject to the acquired patents and trademarks is difficult to determine and numerous risks and uncertainties exist with
respect to the timely completion of the development projects. There is no assurance the acquired patents and trademarks will ever be successfully
commercialized. Due to these risks and uncertainties, we expense the acquisition of patents and trademarks.

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Share-based Compensation

We account for all share-based payments and awards under the
fair value-based method.

The fair value of all share purchase options and warrants are
expensed over their contractual vesting period, or over the expected performance period for only the portion of awards expected to vest,
in the case of milestone-based vesting, with a corresponding increase to additional paid-in capital.

Compensation costs for share-based payments with graded vesting
are recognized on a straight-line basis. Share-based compensation expense is adjusted for actual forfeitures of unvested awards as they
occur.

We have granted share purchase option awards that vest upon
achievement of certain performance criteria, or milestone-based awards. We estimate an implicit service period for achieving performance
criteria for each award and recognizes the resulting fair value as expense over the implicit service period when we conclude that achieving
the performance criteria is probable. We periodically review and update as appropriate our estimates of implicit service periods and conclusions
on achieving the performance criteria. Performance awards vest upon achievement of the performance criteria.

We
use the Black-Scholes option valuation model to calculate the fair value of share purchase options and warrants at the date of the grant.
This model requires the input of subjective assumptions, including the expected price volatility, and expected life of each award.
These assumptions consist of estimates of future market conditions, which are inherently uncertain, and therefore, are subject to management’s
judgment. Changes in these assumptions can materially affect the fair value estimates.

RECENT ACCOUNTING PRONOUNCEMENTS

For a discussion of recent accounting pronouncements and their
possible effect on our results, see Note 2 to our Consolidated Financial Statements found elsewhere in this Annual Report.

ITEM 7 MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following discussion should be read
in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this report. Past operating
results are not necessarily indicative of results that may occur in future periods. This discussion contains forward-looking statements,
which involve a number of risks and uncertainties. See Forward Looking Statements included elsewhere in this report.

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Financial Operations Overview

We
are in the development stage and have not earned any revenues since our inception in 2004. We 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.

Our
operating costs consist primarily of research and development activities including the cost of clinical studies and clinical supplies
as well as clinical drug manufacturing and formulation. Research and development expenses also include personnel related costs such as
salaries and wages, and third-party contract research organization (CRO) expenses in support of these clinical studies. Personnel costs
include salaries and wages, benefits, and non-cash stock-based compensation charges associated with options and other equity awards granted
to employees and consultants who are directly engaged in support of our research and development activities.

General and administrative expenses
consist of personnel costs, expenses for outside professional services and expenses associated with operating as a public company.
Personnel costs consist of salaries and wages, benefits and stock-based compensation for general and administrative personnel.
Outside professional services and public company expenses, include expenses related to compliance and reporting, additional insurance
expenses, audit and SOX compliance, expenses associated with patent research, applications and filings, investor and stockholder
relations activities and other administrative expenses and professional services.

Comparison of year ended September 30, 2023 to year
ended September 30, 2022

Operating Expenses

Our operating expenses for fiscal 2023 increased to
$55.8 million, from $51.0 million in fiscal 2022. The increase is attributable to an increase in research and development expenses
of $5.7 million in 2023 to $43.7 million.

The following table summarizes our research and development
expenses for the years ended September 30, 2023, and 2022 (in thousands):

External service providers cost by product
candidate was as follows (in thousands):

The
increase in external service provider costs from fiscal 2022 to fiscal 2023 is primarily due to (1) an increase in manufacturing
costs for both ANAVEX®2-73 and ANAVEX®3-71, in preparation for planned clinical trials or studies
and (2) an increase in clinical trial expenditures related to our Rett program in connection with the completed enrollment and
dosing of our Phase 2/3 Excellence pediatric clinical trial.

During
fiscal 2023, our personnel costs increased to $10.3 million from $8.0 million as a result of our expanded team. However,
this was offset by a decrease in stock-based compensation expense as a result of the vesting of previously awarded milestone-based
option awards.

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General and administrative expenses
for fiscal 2023 decreased to $12.0 million, from $13.1 million in fiscal 2022, most significantly related to a decrease in non-cash
stock option compensation charges as a result of the vesting of previously awarded milestone-based option awards.

During
fiscal 2023, we utilized cash and cash equivalents of $27.8 million to fund our operations, compared to $24.2 million during fiscal
2022. Our cash position increased slightly to $151.0 million at September 30, 2023, an increase of $1.9 million over the prior
year. Cash for operations was generated through the issuance of
shares of common stock under the financing arrangements described below.

We
expect to continue to see an increase in our research and development expenditures as we advance our ANAVEX®2-73
clinical studies, including planned advancement of ANAVEX®2-73 for Parkinson’s
disease program, ongoing extension studies of our current clinical programs, continued advancement of our other pipeline compounds
such as ANAVEX®3-71, and as we continue to add additional staffing to manage and support these clinical initiatives.

Other income (net)

Net other income for the year ended
September 30, 2023 was $8.3 million as compared to $3.4 million for fiscal 2022. The primary reason for the increase in other
income was due to an increase in interest income earned on cash and cash equivalents, due to an increase in market wide interest
rates year over year.

During fiscal 2023, we recorded
$2.7 million in research and development incentive income, consisting of the Australian research and development incentive credit
administered through the Australian Tax Office, in connection with fiscal 2023 eligible expenditures. In comparison, research
and development incentive income for fiscal 2022 was $3.3 million in connection with fiscal 2022 eligible expenditures. We expect
to continue to receive support from the Australian government for various clinical trials being conducted within Australia.

Net loss

Net loss for fiscal 2023 was $47.5 million,
or $0.60 per share, compared to a net loss of approximately $48.0 million, or $0.62 per share for fiscal 2022.

Liquidity and Capital Resources

Working Capital (in thousands)

At September 30, 2023, we had $151.0
million in cash and cash equivalents, an increase from $149.2 million at September 30, 2022.

We intend
to continue to use our capital resources to advance our clinical trials for ANAVEX®2-73 and ANAVEX®3-71,
and to perform work necessary to prepare for future development of our pipeline compounds.

Cash Flows

Following
is a summary of sources of cash flows for the years ended September 30, 2023 and 2022 (in thousands)

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Cash flow used in operating activities

There was an increase in cash used in operating activities
of $1.9 million during fiscal 2023 primarily due to the collection of incentive and tax receivables in the comparable period.

Cash flow provided by financing activities

Cash provided by financing activities in
fiscal 2023 was $29.7 million, primarily attributable to cash received from the issuance of common shares at various market
prices under the 2023 Purchase Agreement (as defined below).

Cash provided by financing activities
in fiscal 2022 was $21.3 million, net of financing costs, primarily attributable to cash received
from the issuance of common shares at various market prices under the Sales Agreement.

Other Financings

2023 Purchase Agreement

On February 3, 2023, the Company entered into
a $150,000,000 purchase agreement (the “2023 Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln
Park”), pursuant to which the Company has the right to sell and issue to Lincoln Park, and Lincoln Park is obligated to purchase,
up to $150.0 million in value of its shares of Common Stock from time to time over a three-year period until February 3, 2026.

On any business day and subject to certain
customary conditions, the Company may direct Lincoln Park to purchase up to 200,000 shares of Common Stock (such purchases, “Regular
Purchases”). The amount of a Regular Purchase may increase under certain circumstances based on the market price of the
Common Stock; provided, however, that Lincoln Park’s committed obligation under any Regular Purchase shall not exceed $4.0
million. The purchase price of shares of Common Stock will be based on the then prevailing market prices of such shares at the
time of sales as described in the Purchase Agreement. There are no limits on the price per share that Lincoln Park may pay to purchase
Common Stock under the Purchase Agreement. In addition, if the Company has directed Lincoln Park to purchase the full amount of
Common Stock available as a Regular Purchase on a given day, it may direct Lincoln Park to purchase additional amounts as “accelerated
purchases” and “additional accelerated purchases,” each as set forth in the Purchase Agreement.

The Purchase Agreement limits the Company’s
sale of shares of Common Stock to Lincoln Park to 15,606,426 shares of Common Stock, representing 19.99% of the shares of the Common
Stock outstanding on the date of the Purchase Agreement unless (i) stockholder approval is obtained to issue more than such
amount or (ii) the average price of all applicable sales of Common Stock to Lincoln Park under the Purchase Agreement equals
or exceeds the lower of (A) the closing price of the Common Stock on the Nasdaq Capital Market immediately preceding the Execution
Date or (B) the average of the closing price of the Common Stock on the Nasdaq Capital Market for the five Business Days immediately
preceding the Execution Date.

The Purchase Agreement also prohibits the Company
from directing Lincoln Park to purchase any shares of Common Stock if those shares, when aggregated with all other shares of Common
Stock then beneficially owned by Lincoln Park and its affiliates, would result in Lincoln Park and its affiliates having beneficial
ownership, at any single point in time, of more than 4.99% of the then total outstanding shares of Common Stock, as calculated
pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended, and Rule 13d-3 thereunder.

In consideration for entering into the 2023
Purchase Agreement, the Company issued to Lincoln Park 75,000 shares of Common Stock as a commitment fee (the “initial commitment
shares”) during the year ended September 30, 2023 and agreed to issue up to 75,000 shares pro rata (collectively with the
initial commitment shares, the “commitment shares”), when and if, Lincoln Park purchased, at the Company’s discretion,
the $150.0 million aggregate commitment.

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During the year ended September 30, 2023, the
Company issued to Lincoln Park an aggregate of 3,288,943 (2022: 0) shares of Common Stock under the 2023 Purchase Agreement, including
3,275,000 (2022: 0) shares of Common Stock for aggregate proceeds of $27.9 million (2022: $0) and 88,943 (2022: 0) commitment shares
(inclusive of the 75,000 initial commitment shares).

As of September 30, 2023, an amount of
$122.1 million in shares of our common stock remain available for purchase by Lincoln Park under the 2023 Purchase Agreement.

Controlled Equity Offering Sales
Agreement

On May 1, 2020, we entered into an Amended
and Restated Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. and SVB Leerink LLC (the “Sales
Agents”), pursuant to which we may offer and sell shares of common stock registered under an effective registration statement
from time to time through the Sales Agents (the “At-the-Market Offering”).

Upon delivery of a placement notice based on
our instructions and subject to the terms and conditions of the Sales Agreement, the Sales Agents may sell shares of common stock
by methods deemed to be an “at the market offering”, in negotiated transactions at market prices prevailing at the
time of sale or at prices related to such prevailing market prices, or by any other method permitted by law, including negotiated
transactions, subject to our prior written consent. We are not obligated to make any sales of shares under the Sales Agreement.
We or the Sales Agents may suspend or terminate the At-the-Market Offering upon notice to the other party, subject to certain conditions.
The Sales Agents will act as agents on a commercially reasonable efforts basis consistent with their normal trading and sales practices,
applicable state and federal law, and rules and regulations and the rules of Nasdaq.

We have agreed to pay the Sales Agents’
commissions for their services of 3.0% of the gross proceeds from the sale of shares of Common Stock pursuant to the Sales Agreement.
We have also agreed to provide the Sales Agents with customary indemnification and contribution rights.

No shares were sold during the year ended September
30, 2023 under the Sales Agreement. The Company currently does not have access to sell shares of common stock with the Sales Agents.

During the year ended September 30, 2022, 1,623,813
shares were sold under the Sales Agreement for gross proceeds of $21.0 million (net proceeds of $20.3 million after deducting commissions
and offering expenses).

2019 Purchase Agreement

On June 7, 2019, we
entered into a Purchase Agreement (the “2019 Purchase Agreement”) with Lincoln Park, as amended on July 1, 2020, pursuant
to which Lincoln Park committed to purchase up to $50.0 million of our common stock. Concurrently with the execution of the 2019
Purchase Agreement in 2019, we issued 324,383 shares of our common stock to Lincoln Park as a fee for its commitment to purchase
shares of our common stock under the 2019 Purchase Agreement and became obligated to issue up to 162,191 shares pro rata, when
and if Lincoln Park purchased, at our discretion, the $50.0 million aggregate commitment.

During fiscal year 2021, the Company
issued to Lincoln Park an aggregate of 4,086,209 shares of common stock under the 2019 Purchase Agreement, including 4,007,996
shares of common stock for an aggregate purchase price of $24.1 million and 78,213 commitment shares. As of
September 30, 2023 and 2022, no shares of our common stock remained available for purchase by Lincoln Park under the 2019 Purchase
Agreement.

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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, politics, global economics, general business conditions and other factors. Our significant estimates
are related to the valuation of warrants and options.

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

Research and Development Expenses

Research
and development costs are expensed as incurred. These expenses are comprised of the costs of the Company’s
proprietary research and development efforts, including preclinical studies, clinical trials, manufacturing costs, employee salaries
and benefits and stock-based compensation expense, contract services including external research and development expenses incurred
under arrangements with third parties such as contract research organizations (“CROs”),
facilities costs, overhead costs and other related expenses. Milestone payments made by the Company to third parties are expensed
when the specific milestone has been achieved. Manufacturing costs are expensed as incurred in accordance with Accounting Standard
Codification (“ASC”)
730, Research and Development, as these materials have no alternative future use outside of their intended use.

Nonrefundable advance payments
for goods or services that will be used or rendered for future research and development activities are deferred and amortized
over the period that the goods are delivered, or the related services are performed, subject to an assessment of recoverability.
The Company makes estimates of costs incurred in relation to external CROs, and clinical site costs. The Company analyzes the
progress of clinical trials, including levels of patient enrollment, invoices received and contracted costs when evaluating the
adequacy of the amount expensed and the related prepaid asset and accrued liability. Significant judgments and estimates must
be made and used in determining the accrued balance and expense in any accounting period. The Company reviews and accrues CRO
expenses and clinical trial study expenses based on work performed and relies upon estimates of those costs applicable to the
stage of completion of a study. Accrued CRO costs are subject to revisions as such trials progress to completion. Revisions are
charged to expense in the period in which the facts that give rise to the revision become known. With respect to clinical site
costs, the financial terms of these agreements are subject to negotiation and vary from contract to contract. Payments under these
contracts may be uneven and depend on factors such as the achievement of certain events, the successful recruitment of patients,
the completion of portions of the clinical trial or similar conditions. The objective of our policy is to record expenses in our
financial statements based on actual services received and efforts expended. As such, expense accruals related to clinical site
costs are recognized based on our estimate of the degree of completion of the event or events specified in the specific clinical
trial contract.

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 develop commercial applications of the drugs subject to the acquired patents and trademarks is difficult to determine
and numerous risks and uncertainties exist with respect to the timely completion of the development projects. There is no assurance
the acquired patents and trademarks will ever be successfully commercialized. Due to these risks and uncertainties, 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.

The fair value of all share purchase
options and warrants are expensed over their contractual vesting period, or over the expected performance period for only the
portion of awards expected to vest, in the case of milestone-based vesting, with a corresponding increase to additional paid-in
capital.

Compensation costs for stock-based
payments with graded vesting are recognized on a straight-line basis. Stock-based compensation expense is adjusted for actual
forfeitures of unvested awards as they occur.

We have granted share purchase
option awards that vest upon achievement of certain performance criteria, or milestone-based awards. We estimate an implicit service
period for achieving performance criteria for each award and recognizes the resulting fair value as expense over the implicit
service period when we conclude that achieving the performance criteria is probable. We periodically review and update as appropriate
our estimates of implicit service periods and conclusions on achieving the performance criteria. Performance awards vest upon
achievement of the performance criteria.

We
use the Black-Scholes option valuation model to calculate the fair value of share purchase options and warrants at the date of
the grant. This model requires the input of subjective assumptions, including the expected price volatility, and expected life
of each award. These assumptions consist of estimates of future market conditions, which are inherently uncertain, and therefore,
are subject to management’s judgment. Changes in these assumptions
can materially affect the fair value estimates.

RECENT ACCOUNTING PRONOUNCEMENTS

For a discussion of recent accounting
pronouncements and their possible effect on our results, see Note 2 to our Consolidated Financial Statements found elsewhere in
this Annual Report.

ITEM 7 MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following discussion should be read
in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this report. Past operating
results are not necessarily indicative of results that may occur in future periods. This discussion contains forward-looking statements,
which involve a number of risks and uncertainties. See Forward Looking Statements included elsewhere in this report.

This section discusses year over year comparisons
for the fiscal years ended September 30, 2022 and 2021. Discussion of year over year comparisons between the fiscal years ended September
30, 2021 and 2020 have been excluded from this Form 10-K and can be found in “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended September
30, 2021.

Overview

We
are in the development stage and have not earned any revenues since our inception in 2004. We 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.

Our operating costs consist primarily
of research and development activities including the cost of clinical trials and clinical supplies as well as clinical drug manufacturing
and formulation. Research and development expenses also include personnel related costs such as salaries and wages, and third-party
contract research organization (CRO) expenses in support of these clinical trials. Personnel costs include salaries and wages,
benefits, and non-cash stock-based compensation charges associated with options and other equity awards granted to employees and
consultants who are directly engaged in support of our research and development activities.

General and administrative expenses
consist of personnel costs, expenses for outside professional services and expenses associated with operating as a public company.
Personnel costs consist of salaries and wages, benefits and stock-based compensation for general and administrative personnel.
Outside professional services and public company expenses, include expenses related to compliance and reporting, additional
insurance expenses, audit and SOX compliance, expenses associated with patent research, applications and filings, investor and
stockholder relations activities and other administrative expenses and professional services.

52

Year ended September 30, 2022

During fiscal 2022, we advanced our business and clinical trials
through the following events:

Operating Expenses

Our operating expenses for fiscal 2022 increased to $51.0 million, from $42.0
million in fiscal 2021. The increase is attributable to an increase in research and development expenses of $4.9 million in 2022 to $37.9
million, as described below.

The following table summarizes our research and development
expenses for the years ended September 30, 2022, and 2021 (in thousands):

During fiscal 2022, external service
providers costs by product candidate were as follows (in thousands):

The
decrease in external service provider costs from fiscal 2021 to fiscal 2022 is related to a decrease in clinical trial expenditures over
the comparable period, associated with the completion of the enrollment and recruitment activities for our Phase 2b/3 trial in Alzheimer’s
disease, and manufacturing activities in the comparable period associated with the Rett syndrome program. This decrease was offset by
an increase in personnel costs and non-cash stock-based compensation associated with an expanding team directly engaged in support of
ongoing research and development activities.

General and administrative expenses for
fiscal 2022 increased to $13.1 million, from $9.0 million in fiscal 2021, most significantly related to an increase in personnel and
an increase in associated non-cash stock option compensation charges.

During
fiscal 2022, we utilized cash and cash equivalents of $24.2 million to fund our operations, compared to $30.4 million during fiscal 2021.
Our cash position decreased to $149.2 million at September 30, 2022, a decrease of $2.9 million over the prior year. Cash for operations
was generated through the issuance of shares of common stock under the financing arrangements described below.

53

We will continue to see an increase in our research and development expenditures as we advance our ANAVEX®2-73
clinical trials, including planned advancement of ANAVEX®2-73 for Parkinson’s disease program, planned initiation
of a Fragile X clinical program, ongoing extension studies of our current clinical programs, continued advancement of our other
pipeline compounds such as ANAVEX®3-71, and as we continue to add additional staffing to manage and support these
clinical initiatives.

Other income

Net other income for the year ended September
30, 2022 was $3.4 million as compared to $4.4 million for fiscal 2021. The primary reason for the decrease in other income was due to
a decrease in research and development incentive income and an increased foreign exchange loss associated with incentive and other receivables
denominated in Australian dollars, and related impact from the fluctuation of the Australian dollar against the US dollar during the
year. The decrease was offset by an increase in interest income.

During fiscal 2022, we recorded $3.3 million
in research and development incentive income, consisting of the Australian research and development incentive credit administered through
the Australian Tax Office, in connection with fiscal 2022 eligible expenditures. In comparison, research and development incentive income
for fiscal 2021 was $4.5 million in connection with fiscal 2021 eligible expenditures and fiscal 2020 expenditures for which an overseas
finding ruling was obtained during fiscal 2021. We expect to continue to receive support from the Australian government for various clinical
trials being conducted within Australia.

Net loss

Net loss for fiscal 2022 was $48.0 million,
or $0.62 per share, compared to a net loss of approximately $37.9 million, or $0.54 per share for fiscal 2021.

Liquidity and Capital Resources

Working Capital

At September 30, 2022, we had $149.2 million
in cash and cash equivalents, a decrease of $2.9 million, from $152.1 million at September 30, 2021. The decrease in cash and cash equivalents
during the year is a result of cash utilized in operations, partially offset by cash provided by financing activities, as described below.

We intend to
continue to use our capital resources to advance our clinical trials for ANAVEX®2-73 and ANAVEX®3-71, and
to perform work necessary to prepare for future development of our pipeline compounds.

Cash Flows

Cash flow used in operating activities

There was a decrease in cash used in operating
activities of $6.1 million during fiscal 2022 primarily due to the collection of incentive and tax receivables.

54

Cash flow provided by financing activities

Cash provided by financing activities
in fiscal 2022 was $21.3 million, net of financing costs, primarily attributable to cash received from
the issuance of common shares at various market prices under the Sales Agreement.

Cash provided by financing activities in
fiscal 2021 was $153.2 million, net of financing costs, primarily attributable to cash received from the issuance of common shares
at various market prices under the 2019 Purchase Agreement, the Sales Agreement and a direct registered offering.

Other Financings

Purchase Agreement

On June 7, 2019, we
entered into a Purchase Agreement (the “2019 Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln
Park”), as amended on July 1, 2020, pursuant to which Lincoln Park committed to purchase up to $50.0 million of our common
stock. Concurrently with the execution of the 2019 Purchase Agreement in 2019, we issued 324,383 shares of our common stock to
Lincoln Park as a fee for its commitment to purchase shares of our common stock under the 2019 Purchase Agreement and became obligated
to issue up to 162,191 shares pro rata, when and if Lincoln Park purchased, at our discretion, the $50.0 million aggregate commitment.

During fiscal year 2021, the Company
issued to Lincoln Park an aggregate of 4,086,209 shares of common stock under the 2019 Purchase Agreement, including 4,007,996
shares of common stock for an aggregate purchase price of $24.1 million and 78,213 commitment shares. As of
September 30, 2022 and 2021, no shares of our common stock remain available for purchase by Lincoln Park under the 2019 Purchase
Agreement.

Controlled Equity Offering Sales
Agreement

On May 1, 2020, we entered into an Amended
and Restated Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. and SVB Leerink LLC (the “Sales
Agents”), pursuant to which we may offer and sell shares of common stock registered under an effective registration statement
from time to time through the Sales Agents (the “At-the-Market Offering”).

Upon delivery of a placement notice based on
our instructions and subject to the terms and conditions of the Sales Agreement, the Sales Agents may sell shares of common stock
by methods deemed to be an “at the market offering”, in negotiated transactions at market prices prevailing at the
time of sale or at prices related to such prevailing market prices, or by any other method permitted by law, including negotiated
transactions, subject to our prior written consent. We are not obligated to make any sales of shares under the Sales Agreement.
We or the Sales Agents may suspend or terminate the At-the-Market Offering upon notice to the other party, subject to certain conditions.
The Sales Agents will act as agents on a commercially reasonable efforts basis consistent with their normal trading and sales practices,
applicable state and federal law, and rules and regulations and the rules of Nasdaq.

We have agreed to pay the Sales Agents’ commissions
for their services of 3.0% of the gross proceeds from the sale of shares of common stock pursuant to the Sales Agreement. We have
also agreed to provide the Sales Agents with customary indemnification and contribution rights.

During fiscal 2022, 1,623,813 shares were sold
pursuant to the At-the-Market Offering for gross proceeds of $21.0 million (net proceeds of $20.3 million after deducting offering
expenses).

During fiscal 2021, 5,634,576 shares were sold
pursuant to the At-the-Market Offering for gross proceeds of $79.1 million (net proceeds of $76.7 million after deducting commissions
and offering expenses).

55

Registered Direct Offering

On June 24, 2021, the Company completed a registered
direct offering off of the Company’s shelf registration statement on Form S-3 filed with the SEC on July 3, 2019. The Company
issued 2,380,953 common shares at $21.00 per share for gross proceeds of $50.0 million (net proceeds of $46.9 million after deducting
offering fees and expenses).

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, politics, global economics, general business conditions and other factors. Our significant estimates are
related to the valuation of warrants and options.

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

Research and Development Expenses

Research and development costs are expensed
as incurred. These expenses are comprised of the costs of the Company’s proprietary research and development efforts, including
preclinical studies, clinical trials, manufacturing costs, employee salaries and benefits and stock based compensation expense,
contract services including external research and development expenses incurred under arrangements with third parties such as contract
research organizations (“CROs”), facilities costs, overhead costs and other related expenses. Milestone payments made
by the Company to third parties are expensed when the specific milestone has been achieved. Manufacturing costs are expensed as
incurred in accordance with Accounting Standard Codification (“ASC”) 730, Research and Development, as these materials
have no alternative future use outside of their intended use.

Nonrefundable advance payments for goods or
services that will be used or rendered for future research and development activities are deferred and amortized over the period
that the goods are delivered, or the related services are performed, subject to an assessment of recoverability. The Company makes
estimates of costs incurred in relation to external CROs, and clinical site costs. The Company analyzes the progress of clinical
trials, including levels of patient enrollment, invoices received and contracted costs when evaluating the adequacy of the amount
expensed and the related prepaid asset and accrued liability. Significant judgments and estimates must be made and used in determining
the accrued balance and expense in any accounting period. The Company reviews and accrues CRO expenses and clinical trial study
expenses based on work performed and relies upon estimates of those costs applicable to the stage of completion of a study. Accrued
CRO costs are subject to revisions as such trials progress to completion. Revisions are charged to expense in the period in which
the facts that give rise to the revision become known. With respect to clinical site costs, the financial terms of these agreements
are subject to negotiation and vary from contract to contract. Payments under these contracts may be uneven and depend on factors
such as the achievement of certain events, the successful recruitment of patients, the completion of portions of the clinical trial
or similar conditions. The objective of our policy is to record expenses in our financial statements based on actual services received
and efforts expended. As such, expense accruals related to clinical site costs are recognized based on our estimate of the degree
of completion of the event or events specified in the specific clinical trial contract.

56

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 develop
commercial applications of the drugs subject to the acquired patents and trademarks is difficult to determine and numerous risks and
uncertainties exist with respect to the timely completion of the development projects. There is no assurance the acquired patents and
trademarks will ever be successfully commercialized. Due to these risks and uncertainties, we expense the acquisition of patents and
trademarks.

Stock-based Compensation

We account for all stock-based payments and awards under the
fair value-based method.

The fair value of all share purchase options
and warrants are expensed over their contractual vesting period, or over the expected performance period for only the portion of awards
expected to vest, in the case of milestone-based vesting, with a corresponding increase to additional paid-in capital.

Compensation costs for stock-based payments
with graded vesting are recognized on a straight-line basis. Stock based compensation expense is adjusted for actual forfeitures of unvested
awards as they occur.

We have granted share purchase option
awards that vest upon achievement of certain performance criteria, or milestone-based awards. We estimate an implicit service period
for achieving performance criteria for each award and recognizes the resulting fair value as expense over the implicit service period
when we conclude that achieving the performance criteria is probable. We periodically review and update as appropriate our estimates
of implicit service periods and conclusions on achieving the performance criteria. Performance awards vest upon achievement of the performance
criteria.

We use the Black-Scholes option valuation model to calculate the fair value
of share purchase options and warrants at the date of the grant. This model requires the input of subjective assumptions, including the
expected price volatility, and expected life of each award. These assumptions consist of estimates of future market conditions, which
are inherently uncertain, and therefore, are subject to management’s judgment. Changes in these assumptions can materially affect
the fair value estimates.

RECENT ACCOUNTING PRONOUNCEMENTS

For a discussion of recent accounting
pronouncements and their possible effect on our results, see Note 2 to our Consolidated Financial Statements found elsewhere in this
Annual Report.

ITEM 7 MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following discussion should be read in conjunction with
our audited consolidated financial statements and notes thereto for the fiscal year ended September 30, 2021, included elsewhere
in this Annual Report on Form 10-K.

Financial Overview

We
are in the development stage and have not earned any revenues since our inception in 2004. We 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.

Our
operating costs consist primarily of research and development activities including the cost of clinical studies and clinical supplies
as well as clinical drug manufacturing and formulation. Research
and development expenses also include personnel related costs such as salaries and wages, and third-party contract research organization
(CRO) expenses in support of these clinical studies. Personnel
costs include salaries and wages, benefits, and non-cash stock-based compensation charges associated with options and other equity
awards granted to employees and consultants who are directly engaged in support of our research and development activities.

38

General and administrative expenses consist of personnel
costs, expenses for outside professional services and expenses for associated with operating as a public company. Personnel costs
consist of salaries and wages, benefits and stock-based compensation for general and administrative personnel. Outside professional
services and public company expenses, include expenses related to compliance and reporting, additional insurance expenses, audit
and SOX compliance, expenses associated with patent research, applications and filings, investor and shareholder relations activities
and other administrative expenses and professional services

Year ended September 30, 2021

During
fiscal 2021, we made significant progress in the advancement of clinical studies for ANAVEX®2-73, including completing
enrollment of our international Phase 2b/3 Alzheimer’s disease
trial, completion of our proof-of-concept Phase 2 Parkinson’s disease
dementia trial, continued advancement of a multi-regional Phase 2/3 clinical program for the treatment of Rett syndrome, including completion
of the Phase 2 U.S. trial, expansion of the AVATAR Phase 2 study internationally into the United Kingdom and the commencement of the
EXCELLENCE Phase 2/3 pediatric Rett syndrome study and expansion of this trial into Canada and the United Kingdom. Additionally, we advanced
the first in human Phase 1 clinical trial of ANAVEX®3-71 with focus on the treatment of Frontotemporal Dementia (FTD).

Operating Expenses

Our operating expenses for fiscal 2021 increased to $42.0
million, from $31.1 million in fiscal 2020. The increase is attributable to an increase in research and development expenses of
$7.8 million in 2021 to $33.0 million, primarily due to the advancement of our clinical programs, as described above.

General and administrative expenses for fiscal 2021 increased
to $9.0 million, from $5.9 million in fiscal 2020, most significantly related to an increase in personnel and an increase in associated
non-cash stock option compensation charges.

During
fiscal 2021, we utilized $30.4 million to fund our operations, compared to $21.3 million during fiscal 2020. Our cash position
increased to $152.1 million at September 30, 2021, an increase of $122.9 million over the prior year. Cash
for operations was generated through the issuance of shares of common stock under financing arrangements described below, and through
the completion of a registered direct offering.

We will continue to see an increase in our research and
development expenditures as we advance our ANAVEX®2-73 clinical studies, including adding extension studies to allow
us to continue to gather longer term data, continuing to advance our other pipeline compounds such as ANAVEX®3-71,
and as we continue to add additional staffing to manage and support these clinical studies.

Other income

Net other income for the year ended September 30, 2021
was $4.4 million as compared to $4.8 million for fiscal 2020. The primary reason for the decrease in other income was due to an
increased foreign exchange loss associated with Incentive and other receivables denominated in Australian dollars, and related
impact from the fluctuation of the Australian dollar against the US dollar during the year.

During fiscal 2021, we recorded $4.5 million in research
and development incentive income, consisting of the Australian research and development incentive credit administered through the
Australian Tax Office, in connection with fiscal 2021 eligible expenditures and fiscal 2020 expenditures for which an overseas
finding ruling was obtained during the current year. In comparison, research and development incentive income for fiscal 2020 was
$4.4 million in connection with fiscal 2020 eligible expenditures. We expect to continue to receive support from the Australian
government for various clinical trials being conducted within Australia.

Net loss

Net loss for fiscal 2021 was $37.9 million,
or $0.54 per share, compared to a net loss of approximately $26.3 million, or $0.45 per share for fiscal 2020.

39

Liquidity and Capital Resources

Working Capital

At
September 30, 2021, we had $152.1 million in cash and cash equivalents, an increase of $122.9 million, from $29.2 million at September
30, 2020. The principal reason for
this increase is due to cash received from financing activities of $153.2 million from the issuance of common shares, offset by
cash utilized in operations of $30.4 million.

We intend to continue to
use our capital resources to advance our clinical trials for ANAVEX®2-73 and ANAVEX®3-71, and to
perform work necessary to prepare for future development of our pipeline compounds.

Cash Flows

Cash flow used in operating activities

There was an increase in cash used in operating activities
of $9.1 million during fiscal 2021 due to an increase in clinical trial activities, as more fully described above.

Cash flow provided by financing activities

Cash provided by financing activities in
fiscal 2021 was $153.2 million, net of financing costs, primarily attributable to cash received from the issuance of common
shares at various market prices under the 2019 Purchase Agreement, the Sales Agreement and a direct registered offering we completed
for net proceeds of $46.9 million, after deducting expenses associated with the offering.

Cash provided by financing activities in
fiscal 2020 were $28.4 million, attributable to cash received from the issuance of common shares at various market prices
under the 2019 Purchase Agreement and under the Sales Agreement.

Other Financings

Purchase Agreement

On June 7, 2019, we
entered into a Purchase Agreement (the “2019 Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln
Park”), as amended on July 1, 2020, pursuant to which Lincoln Park committed to purchase up to $50.0 million of our common
stock. Concurrently with the execution of the 2019 Purchase Agreement in 2019, we issued 324,383 shares of our common stock to
Lincoln Park as a fee for its commitment to purchase shares of our common stock under the 2019 Purchase Agreement and became obligated
to issue up to 162,191 shares pro rata, when and if Lincoln Park purchased, at our discretion, the $50.0 million aggregate commitment.

During fiscal year 2021, the Company
issued to Lincoln Park an aggregate of 4,086,209 shares of common stock under the 2019 Purchase Agreement, including 4,007,996
shares of common stock for an aggregate purchase price of $24.1 million and 78,213 commitment shares. As of
September 30, 2021, no shares of our common stock remain available for purchase by Lincoln Park under the 2019 Purchase Agreement.

40

Controlled Equity Offering Sales
Agreement

On May 1, 2020, we entered into an Amended
and Restated Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. and SVB Leerink LLC (the “Sales
Agents”), pursuant to which we may offer and sell shares of common stock registered under an effective registration statement
from time to time through the Sales Agents (the “At-the-Market Offering”).

Upon delivery of a placement notice based on
our instructions and subject to the terms and conditions of the Sales Agreement, the Sales Agents may sell shares of common stock
by methods deemed to be an “at the market offering”, in negotiated transactions at market prices prevailing at the
time of sale or at prices related to such prevailing market prices, or by any other method permitted by law, including negotiated
transactions, subject to our prior written consent. We are not obligated to make any sales of shares under the Sales Agreement.
We or the Sales Agents may suspend or terminate the At-the-Market Offering upon notice to the other party, subject to certain conditions.
The Sales Agents will act as agents on a commercially reasonable efforts basis consistent with their normal trading and sales practices
and applicable state and federal law, rules and regulations and the rules of Nasdaq.

We have agreed to pay the Sales Agents commissions
for their services of 3.0% of the gross proceeds from the sale of the Shares pursuant to the Sales Agreement. We have also agreed
to provide the Sales Agents with customary indemnification and contribution rights.

During fiscal 2021, 5,634,576 shares were sold
pursuant to the At-the-Market Offering for gross proceeds of $79.1 million (net proceeds of $76.7 million after deducting commissions
and offering expenses).

Registered Direct Offering

On June 24, 2021, the Company completed a registered
direct offering off of the Company’s shelf registration statement on Form S-3 filed with the SEC on July 3, 2019. The Company
issued 2,380,953 common shares at $21.00 per share for gross proceeds of $50.0 million (net proceeds of $46.9 million after deducting
offering fees and expenses).

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,
politics, global economics, general business conditions and other factors. Our significant estimates are related to the valuation
of warrants and options.

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

41

Research and Development Expenses

Research and development costs are expensed
as incurred. These expenses are comprised of the costs of the Company’s proprietary research and development efforts, including
preclinical studies, clinical trials, manufacturing costs, employee salaries and benefits and stock based compensation expense,
contract services including external research and development expenses incurred under arrangements with third parties such as contract
research organizations (“CROs”), facilities costs, overhead costs and other related expenses. Milestone payments made
by the Company to third parties are expensed when the specific milestone has been achieved. Manufacturing costs are expensed as
incurred in accordance with Accounting Standard Codification (“ASC”) 730, Research and Development, as these materials
have no alternative future use outside of their intended use.

Nonrefundable advance payments for goods or
services that will be used or rendered for future research and development activities are deferred and amortized over the period
that the goods are delivered, or the related services are performed, subject to an assessment of recoverability. The Company makes
estimates of costs incurred in relation to external CROs, and clinical site costs. The Company analyzes the progress of clinical
trials, including levels of patient enrollment, invoices received and contracted costs when evaluating the adequacy of the amount
expensed and the related prepaid asset and accrued liability. Judgments and estimates must be made and used in determining
the accrued balance and expense in any accounting period. The Company reviews and accrues CRO expenses and clinical trial study
expenses based on work performed and relies upon estimates of those costs applicable to the stage of completion of a study. Accrued
CRO costs are subject to revisions as such trials progress to completion. Revisions are charged to expense in the period in which
the facts that give rise to the revision become known. With respect to clinical site costs, the financial terms of these agreements
are subject to negotiation and vary from contract to contract. Payments under these contracts may be uneven and depend on factors
such as the achievement of certain events, the successful recruitment of patients, the completion of portions of the clinical trial
or similar conditions. The objective of our policy is to record expenses in our financial statements based on actual services received
and efforts expended. As such, expense accruals related to clinical site costs are recognized based on our estimate of the degree
of completion of the event or events specified in the specific clinical study or trial contract.

In addition, 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 develop commercial
applications of the drugs subject to the acquired patents and trademarks is difficult to determine and numerous risks and uncertainties
exist with respect to the timely completion of the development projects. There is no assurance the acquired patents and trademarks
will ever be successfully commercialized. Due to these risks and uncertainties, we expense the acquisition of patents and trademarks.

Stock-based Compensation

We account for all stock-based payments and awards under
the fair value-based method.

The fair value of all share purchase options and warrants
are expensed over their contractual vesting period, or over the expected performance period for only the portion of awards expected
to vest, in the case of milestone-based vesting, with a corresponding increase to additional paid-in capital.

Compensation costs for stock-based payments with graded
vesting are recognized on a straight-line basis. Stock based compensation expense is adjusted for actual forfeitures of unvested
awards as they occur.

We have granted share purchase
option awards that vest upon achievement of certain performance criteria, or milestone-based awards. We estimate an implicit service
period for achieving performance criteria for each award and recognizes the resulting fair value as expense over the implicit service
period when we conclude that achieving the performance criteria is probable. We periodically review and update, as appropriate, our estimates
of implicit service periods and conclusions on achieving the performance criteria. Performance awards vest upon achievement of the performance
criteria.

42

We use the Black-Scholes option
valuation model to calculate the fair value of share purchase options and warrants at the date of the grant. This model requires the input
of subjective assumptions, including the expected price volatility, expected life and estimated forfeitures of each award. We use
the U.S. Treasury daily treasury yield curve rates for the expected term of the option as the risk-free rate. The expected term represents
the period that options granted are expected to be outstanding using the simplified method. Our historical share option exercise experience
does not provide a reasonable basis for estimating the expected term. Expected volatility is based on the average of the daily share price
changes over the expected term. We do not estimate forfeitures and elect to record actual forfeitures as they occur. We have not paid
any dividends on our common stock historically, therefore no assumption of dividend payments is made in the model. These assumptions consist
of estimates of future market conditions, which are inherently uncertain, and therefore, are subject to management’s judgment. Changes
in these assumptions can materially affect the fair value estimates.

The purchase price of options or warrants may
be paid in cash or, if approved by our compensation committee in advance, “net settled” in shares of our common stock. In
a net settlement of an option or warrant, we do not receive payment of the exercise price from the holder but reduce the number of shares
of common stock issued upon the exercise of the stock option or warrant by the smallest number of whole shares that have an aggregate
fair market value equal to or over the aggregate exercise price for the option shares covered by the option or warrant being exercised.
Shares issued pursuant to the exercise of options and warrants are issued from our treasury.

RECENT ACCOUNTING PRONOUNCEMENTS

For a discussion of recent accounting pronouncements
and their possible effect on our results, see Note 2(n) to our Consolidated Financial Statements found elsewhere in this Annual Report.