---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended: December 31,
2009or

[   ] 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.)

27 Marathonos Ave., 15351 Athens,
Greece(Address of principal executive offices) (Zip Code)

30 210 603 4026(Registrants telephone
number, including area code)

Not Applicable(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. Yes
[X]    No [   ]

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and
post such files). [   ] Yes     [   ]
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]                         

---

ii

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

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:
21,062,932 shares of common stock outstanding as of February 17,
2010.

---

iii

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.                          | 8 
|Item 4T. Controls and
      Procedures.                                                             | 8 
|PART II - OTHER INFORMATION                                                                         | 9 
|Item 1. Legal
      Proceedings.                                                                    | 9 
|Item 1A. Risk Factors                                                                               | 9 
|Item 2. Unregistered
      Sales of Equity Securities and Use of Proceeds                           | 17
|Item 3. Defaults upon Senior Securities.                                                            | 17
|Item 4. Submission of
      Matters to a Vote of Security Holders.                                  | 18
|Item 5. Other Information                                                                           | 18
|Item 6. Exhibits.                                                                                   | 18
|SIGNATURES                                                                                          | 21

---

1

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.









ANAVEX LIFE SCIENCES CORP.

(A Development Stage Company)

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009

(Stated in US Dollars)

---

ANAVEX LIFE SCIENCES CORP.
  (A Development Stage
  Company) 
  INTERIM CONSOLIDATED BALANCE SHEETS 
  December 31, 2009 and
  September 30, 2009 
  (Stated in US Dollars) 
  (Unaudited)

|ASSETS                                                      |   | December 31, |   |   | September 30, |  
|----------------------------------------------------------- | - | ------------ | - | - | ------------- | -
|                                                            |   | 2009         |   |   | 2009          |  
|                                                            |   |              |   |   |               |  
|Current                                                     |   |              |   |   |               |  
|Cash                                                        | $ | 21,034       |   | $ | 350,994       |  
|Deferred financing
      charges                            |   | 49,951       |   |   | 55,777        |  
|Prepaid expense                                             |   | 178          |   |   | 181           |  
|                                                            |   |              |   |   |               |  
|                                                            |   | 71,163       |   |   | 406,952       |  
|Equipment                                                   |   | 1,501        |   |   | 1,691         |  
|                                                            |   |              |   |   |               |  
|                                                            | $ | 72,664       |   | $ | 408,643       |  
|                                                            |   |              |   |   |               |  
|LIABILITIES                                                 |  
|                                                            |   |              |   |   |               |  
|Current                                                     |   |              |   |   |               |  
|Accounts payable and accrued
      liabilities              | $ | 1,570,482    |   | $ | 1,591,940     |  
|Derivative liabilities
       Notes 3 and 4                |   | 432,508      |   |   | -             |  
|Current portion of promissory notes
      payable  Note 5  |   | 2,428,441    |   |   | 2,506,526     |  
|                                                            |   |              |   |   |               |  
|                                                            |   | 4,431,431    |   |   | 4,098,466     |  
|                                                            |   |              |   |   |               |  
|Promissory notes payable  Note 5                           |   | 123,981      |   |   | 168,000       |  
|                                                            |   |              |   |   |               |  
|                                                            |   | 4,555,412    |   |   | 4,266,466     |  
|                                                            |   |              |   |   |               |  
|CAPITAL DEFICIT                                             |  
|                                                            |   |              |   |   |               |  
|Capital stock  Note 6                                      |   |              |   |   |               |  
|Authorized:                                                 |   |              |   |   |               |  
|150,000,000 common
      shares, par value $0.001 per share |   |              |   |   |               |  
|Issued and outstanding:                                     |   |              |   |   |               |  
|21,013,427 common shares (September 30, 2009: 20,746,761)   |   | 21,014       |   |   | 20,747        |  
|Share subscriptions received                                |   | -            |   |   | 300,000       |  
|Additional paid-in capital                                  |   | 8,762,948    |   |   | 8,383,663     |  
|Deficit accumulated during the development
      stage      |   | (13,266,710  | ) |   | (12,562,233   | )
|                                                            |   |              |   |   |               |  
|                                                            |   | (4,482,748   | ) |   | (3,857,823    | )
|                                                            |   |              |   |   |               |  
|                                                            | $ | 72,664       |   | $ | 408,643       |  

SEE ACCOMPANYING NOTES

---

ANAVEX LIFE SCIENCES CORP.
  (A Development Stage
  Company) 
  INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS 
  for the three
  months ended December 31, 2009 and 2008 and 
  for the period from January 23,
  2004 (Date of Inception) to December 31, 2009 
  (Stated in US Dollars) 
  (Unaudited)

|                                                            |   |                    |   |   |               |   |   | January 23,   |  
|----------------------------------------------------------- | - | ------------------ | - | - | ------------- | - | - | ------------- | -
|                                                            |   |                    |   |   |               |   |   | 2004 (Date of |  
|                                                            |   | Three months ended |   |   | Inception) to |  
|                                                            |   | December 31,       |   |   | December 31,  |  
|                                                            |   | 2009               |   |   | 2008          |   |   | 2009          |  
|Expenses                                                    |   |                    |   |   |               |   |   |               |  
|Accounting and audit fees                                   | $ | 21,859             |   | $ | 31,260        |   | $ | 234,977       |  
|Amortization                                                |   | 190                |   |   | 90            |   |   | 820           |  
|Bank Charges and Interest                                   |   | 1,715              |   |   | 876           |   |   | 22,491        |  
|Consulting fees 
      Notes 7 and 8(b)                    |   | 454,074            |   |   | 515,567       |   |   | 6,202,076     |  
|Investor relations                                          |   | 54,511             |   |   | 25,000        |   |   | 458,054       |  
|Legal fees                                                  |   | 27,908             |   |   | 3,610         |   |   | 241,028       |  
|Management fees  Note 7                                    |   | -                  |   |   | -             |   |   | 14,625        |  
|Office and miscellaneous                                    |   | 84,728             |   |   | 40,640        |   |   | 409,266       |  
|Registration and filing fees                                |   | 6,133              |   |   | 5,576         |   |   | 47,184        |  
|Rent and administration
       Note 7                      |   | -                  |   |   | -             |   |   | 148,750       |  
|Research and development                                    |   | 211,479            |   |   | 284,104       |   |   | 4,790,453     |  
|Website design and maintenance                              |   | -                  |   |   | -             |   |   | 26,725        |  
|                                                            |   |                    |   |   |               |   |   |               |  
|Loss before other item                                      |   | (862,597           | ) |   | (906,723      | ) |   | (12,596,449   | )
|Other income (loss)                                         |   |                    |   |   |               |   |   |               |  
|Interest                                                    |   | (22,802            | ) |   | (30,491       | ) |   | (135,277      | )
|Change in fair value of derivative liability
       Note 4 |   | 649,038            |   |   | -             |   |   | 649,038       |  
|Loss on extinguishment
      of promissory note             |   | -                  |   |   | -             |   |   | (487,469      | )
|Accretion of debt discount                                  |   | (220,410           | ) |   | -             |   |   | (390,574      | )
|Foreign exchange gain (loss)                                |   | 8,270              |   |   | 9,172         |   |   | (50,003       | )
|                                                            |   | 414,096            |   |   | (21,319       | ) |   | (414,285      | )
|Net loss for the period                                     | $ | (448,501           | ) | $ | (928,042      | ) | $ | (13,010,734   | )
|                                                            |   |                    |   |   |               |   |   |               |  
|Basic and diluted loss per share                            | $ | (0.02              | ) | $ | (0.05         | ) |   |               |  
|                                                            |   |                    |   |   |               |   |   |               |  
|Weighted average number of shares outstanding               |   | 21,007,630         |   |   | 19,965,300    |   |   |               |  

SEE ACCOMPANYING NOTES

---

ANAVEX LIFE SCIENCES CORP.
  (A Development Stage
  Company) 
  INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS 
  for the three
  months ended December 31, 2009 and 2008 and 
  for the period from January 23,
  2004 (Date of Inception) to December 31, 2009 
  (Stated in US Dollars) 
  (Unaudited)

|                                                            |   |                    |   |   |               |   |   | January 23,  |  
|----------------------------------------------------------- | - | ------------------ | - | - | ------------- | - | - | ------------ | -
|                                                            |   |                    |   |   |               |   |   | 2004(Date of |  
|                                                            |   | Three months ended |   |   | Inception) to |  
|                                                            |   | December 31,       |   |   | December 31,  |  
|                                                            |   | 2009               |   |   | 2008          |   |   | 2009         |  
|Cash Flows used in Operating Activities                     |   |                    |   |   |               |   |   |              |  
|Net loss for the period                                     | $ | (448,501           | ) | $ | (928,042      | ) | $ | (13,010,734  | )
|Add items not involving
      cash:                         |   |                    |   |   |               |   |   |              |  
|Amortization                                                |   | 190                |   |   | 90            |   |   | 820          |  
|Amortization
      of deferred financing costs              |   | 5,826              |   |   | -             |   |   | 5,826        |  
|Accretion of debt
      discount                            |   | 220,410            |   |   | -             |   |   | 390,574      |  
|Stock
      based compensation                              |   | 112,608            |   |   | 200,616       |   |   | 2,609,730    |  
|Change in fair value
      of derivative liability          |   | (649,038           | ) |   | -             |   |   | (649,038     | )
|Consulting
      expense recorded in exchange for shares    |   |                    |   |   |               |   |   |              |  
|to be issued                                                |   | -                  |   |   | 134,450       |   |   | 236,337      |  
|Common
      shares issued for consulting expenses          |   | -                  |   |   | -             |   |   | 390,510      |  
|Promissory note issued
      for severance                  |   | -                  |   |   | -             |   |   | 71,500       |  
|Common
      shares issued for severance                    |   | -                  |   |   | -             |   |   | 340,600      |  
|Common shares issued
      for research and development     |   |                    |   |   |               |   |   |              |  
|expenses                                                    |   | -                  |   |   | -             |   |   | 800,000      |  
|Management fees contributed                                 |   | -                  |   |   | -             |   |   | 14,625       |  
|Loss
      on extinguishment of debt                        |   | -                  |   |   | -             |   |   | 487,469      |  
|Rent contributed                                            |   | -                  |   |   | -             |   |   | 3,750        |  
|Adjustments to reconcile
      net loss to net cash used in |   |                    |   |   |               |   |   |              |  
|operating activities:                                       |   |                    |   |   |               |   |   |              |  
|Prepaid
      expenses                                      |   | 3                  |   |   | -             |   |   | (178         | )
|Accounts payable and
      accrued liabilities              |   | (21,458            | ) |   | 324,562       |   |   | 1,828,901    |  
|                                                            |   |                    |   |   |               |   |   |              |  
|Net cash used in operating activities                       |   | (779,960           | ) |   | (268,324      | ) |   | (6,479,308   | )
|                                                            |   |                    |   |   |               |   |   |              |  
|Cash Flows provided by Financing Activities                 |   |                    |   |   |               |   |   |              |  
|Issuance of common shares                                   |   | 300,000            |   |   | -             |   |   | 3,433,498    |  
|Proceeds from promissory notes                              |   | 150,000            |   |   | 134,500       |   |   | 2,802,500    |  
|Repayment of promissory
      notes                         |   | -                  |   |   | -             |   |   | (100,000     | )
|Share subscriptions received                                |   | -                  |   |   | 128,081       |   |   | -            |  
|Due to related parties                                      |   | -                  |   |   | -             |   |   | 33,665       |  
|Shareholder advances                                        |   | -                  |   |   | -             |   |   | 333,000      |  
|                                                            |   |                    |   |   |               |   |   |              |  
|Net cash provided by financing activities                   |   | 450,000            |   |   | 262,581       |   |   | 6,502,663    |  
|                                                            |   |                    |   |   |               |   |   |              |  
|Cash Flows used in Investing Activities                     |   |                    |   |   |               |   |   |              |  
|Acquisition of capital
      assets                         |   | -                  |   |   | -             |   |   | (2,321       | )
|                                                            |   |                    |   |   |               |   |   |              |  
|Increase (decrease) in cash during the period               |   | (329,960           | ) |   | (5,743        | ) |   | 21,034       |  
|                                                            |   |                    |   |   |               |   |   |              |  
|Cash, beginning of period                                   |   | 350,994            |   |   | 6,357         |   |   | -            |  
|                                                            |   |                    |   |   |               |   |   |              |  
|Cash, end of period                                         | $ | 21,034             |   | $ | 614           |   | $ | 21,034       |  
|                                                            |   |                    |   |   |               |   |   |              |  
|Supplemental Cash Flow Information  Note
      9           |   |                    |   |   |               |   |   |              |  

SEE ACCOMPANYING NOTES

---

ANAVEXLIFESCIENCESCORP.
  (A
  Development Stage Company) 
  INTERIM CONSOLIDATED STATEMENT OF CHANGES IN
  CAPITAL DEFICIT 
  for the period January 23, 2004 (Date of Inception) to
  December 31, 2009 
  (Stated in US Dollars ) 
  (Unaudited)

|                                                                                                                          |  |                    |  |   |             |  |   |            |  |   |              |  |   | Deficit     |   |   |            |  
|------------------------------------------------------------------------------------------------------------------------- |  | ------------------ |  | - | ----------- |  | - | ---------- |  | - | ------------ |  | - | ----------- | - | - | ---------- | -
|                                                                                                                          |  | Common
      Stock |  |   | Accumulated |  |   |            | 
|                                                                                                                          |  |                    |  |   |             |  |   | Additional |  |   | Common       |  |   | During the  |   |   |            |  
|                                                                                                                          |  |                    |  |   |             |  |   | Paid-in    |  |   | Shares to be |  |   | Development |   |   |            |  
|                                                                                                                          |  | Shares             |  |   | Par Value   |  |   | 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 
      Note 7                                                                                |  | -                  |  |   | -           |  |   | 1,625      |  |   | -            |  |   | -           |   |   | 1,625      |  
|Rent contributed  Note
      7                                                                                           |  | -                  |  |   | -           |  |   | 750        |  |   | -            |  |   | -           |   |   | 750        |  
|Debt forgiven by directors 
      Note 7                                                                                 |  | -                  |  |   | -           |  |   | 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  carried
      forward                                                                       |  | 19,514,722         |  | $ | 19,515      |  | $ | 1,229,526  |  | $ | -            |  | $ | (1,711,545  | ) | $ | (462,504   | )

SEE ACCOMPANYING NOTES

---

ANAVEXLIFESCIENCESCORP.
  (A
  Development Stage Company) 
  INTERIM CONSOLIDATED STATEMENT OF CHANGES IN
  CAPITAL DEFICIT 
  for the period January 23, 2004 (Date of Inception) to
  December 31, 2009 
  (Stated in US Dollars ) 
  (Unaudited)

|                                                                                   |  |                    |  |   |             |  |   |            |  |   |              |   |   | Deficit     |   |   |            |  
|---------------------------------------------------------------------------------- |  | ------------------ |  | - | ----------- |  | - | ---------- |  | - | ------------ | - | - | ----------- | - | - | ---------- | -
|                                                                                   |  | Common
      Stock |  |   | Accumulated |  |   |            | 
|                                                                                   |  |                    |  |   |             |  |   | Additional |  |   | Common       |   |   | During the  |   |   |            |  
|                                                                                   |  |                    |  |   |             |  |   | Paid-in    |  |   | Shares to be |   |   | Development |   |   |            |  
|                                                                                   |  | Shares             |  |   | Par Value   |  |   | 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 stock to be issued for
      consulting services                            |  | -                  |  |   | -           |  |   | -          |  |   | 252,599      |   |   | -           |   |   | 252,599    |  
|Capital 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         |  |   | 606,324    |  |   | -            |   |   | -           |   |   | 606,467    |  
|Stock based compensation 
      Note 6                                            |  | -                  |  |   | -           |  |   | 1,493,937  |  |   | -            |   |   | -           |   |   | 1,493,937  |  
|Net loss for the year                                                              |  | -                  |  |   | -           |  |   | -          |  |   | -            |   |   | (5,351,269  | ) |   | (5,351,269 | )
|                                                                                   |  |                    |  |   |             |  |   |            |  |   |              |   |   |             |   |   |            |  
|Balance, September 30, 2008  carried forward                                      |  | 19,957,420         |  | $ | 19,957      |  | $ | 4,624,838  |  | $ | 125,849      |   | $ | (7,062,814  | ) | $ | (2,292,170 | )

SEE ACCOMPANYING NOTES

---

ANAVEXLIFESCIENCESCORP.
  (A
  Development Stage Company) 
  INTERIM CONSOLIDATED STATEMENT OF CHANGES IN
  CAPITAL DEFICIT 
  for the period January 23, 2004 (Date of Inception) to
  December 31, 2009 
  (Stated in US Dollars ) 
  (Unaudited)

|                                                                                                                                    |  |                    |   |   |             |   |   |            |   |   |              |   |   | Deficit     |   |   |            |  
|----------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | - | - | ----------- | - | - | ---------- | - | - | ------------ | - | - | ----------- | - | - | ---------- | -
|                                                                                                                                    |  | Common
      Stock |   |   | Accumulated |   |   |            |  
|                                                                                                                                    |  |                    |   |   |             |   |   | Additional |   |   | Common       |   |   | During the  |   |   |            |  
|                                                                                                                                    |  |                    |   |   |             |   |   | Paid-in    |   |   | Shares to be |   |   | Development |   |   |            |  
|                                                                                                                                    |  | Shares             |   |   | Par Value   |   |   | 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  at $2.63                                                  |  | 25,000             |   |   | 25          |   |   | 65,725     |   |   | (65,750      | ) |   | -           |   |   | -          |  
|Capital stock issued for consulting services
      on February 20, 2009  at $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 the issuance
      of a promissory 
               note 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

---

ANAVEXLIFESCIENCESCORP.
  (A
  Development Stage Company) 
  INTERIM STATEMENT OF STOCKHOLDERS EQUITY
  (DEFICIENCY) 
  for the period January 23, 2004 (Date of Inception) to December
  31, 2009 
  (Stated in US Dollars ) 
  (Unaudited)

|                                                                  |  |                    |  |   |             |  |   |            |   |   |              |   |   | Deficit     |   |   |            |  
|----------------------------------------------------------------- |  | ------------------ |  | - | ----------- |  | - | ---------- | - | - | ------------ | - | - | ----------- | - | - | ---------- | -
|                                                                  |  | Common
      Stock |  |   | Accumulated |  |   |            |  
|                                                                  |  |                    |  |   |             |  |   | Additional |   |   | Common       |   |   | During the  |   |   |            |  
|                                                                  |  |                    |  |   |             |  |   | Paid-in    |   |   | Shares to be |   |   | Development |   |   |            |  
|                                                                  |  | Shares             |  |   | Par Value   |  |   | 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 change 
      Note 3             |  |                    |  |   |             |  |   | (333,056   | ) |   |              |   |   | (255,976    | ) |   | (589,032   | )
|Capital stock issued for cash
      on October 2, 2009  at $2.25 |  | 266,666            |  |   | 267         |  |   | 599,733    |   |   | (300,000     | ) |   | -           |   |   | 300,000    |  
|Stock-based compensation  Note 8(b)                              |  | -                  |  |   | -           |  |   | 112,608    |   |   | -            |   |   | -           |   |   | 112,608    |  
|Net loss for the period                                           |  | -                  |  |   | -           |  |   | -          |   |   | -            |   |   | (448,501    | ) |   | (448,501   | )
|                                                                  |  |                    |  |   |             |  |   |            |   |   |              |   |   |             |   |   |            |  
|Balance, December 31, 2009                                        |  | 21,013,427         |  | $ | 21,014      |  | $ | 8,762,948  |   | $ | -            |   | $ | (13,266,710 | ) | $ | (4,482,748 | )

SEE ACCOMPANYING NOTES

---

ANAVEX LIFE SCIENCES CORP.
  (A Development Stage
  Company) 
  NOTES TO THE FINANCIAL STATEMENTS 
  December 31, 2009 
  (Stated in US Dollars) 
  (Unaudited)

|Note 1 | Nature of Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       | The Company is in the development stage has not yet
      realized any revenues from its planned operations. The Company is seeking
      to develop and market proprietary drug targets for the treatment of cancer
      and diseases of the central nervous system.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       | These financial statements have been prepared in
      accordance with generally accepted accounting principles in the United
      States of America on a going concern basis, which assumes that the Company
      will continue to realize its assets and discharge its obligations and
      commitments in the normal course of operations. Realization values may be
      substantially different from carrying values as shown and these financial
      statements do not give effect to adjustments that would be necessary to
      the carrying values and classification of assets and liabilities should
      the Company be unable to continue as a going concern. At December 31,
      2009, the Company had an accumulated deficit of $13,266,710 (September 30,
      2009 - $12,562,233) since its inception, has a working capital deficit of
      $4,360,268 (September 30, 2008 - $3,691,514) and expects to incur further
      losses in the development of its business, all of which casts substantial
      doubt about the Companys ability to continue as a going concern. The
      Companys ability to continue as a going concern is dependent upon its
      ability to generate future profitable operations and/or to obtain the
      necessary financing to meet its obligations and repay its liabilities
      arising from normal business operations when they come due. Management has
      no formal plan in place to address this concern but is considering
      obtaining additional funds by debt financing to the extent there is a
      shortfall from operations. Management is also negotiating amended terms of
      the promissory notes that have come due. While the Company is expending
      its best efforts to achieve the above plans, there is no assurance that
      any such activity will generate funds for operations.
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       | The Company was incorporated in the State of Nevada,
      United States of America on January 23, 2004 as Thrifty Printing Inc. On
      January 25, 2007, the Company changed its business from developing online
      photofinishing services to its current business and changed its name to
      Anavex Life Sciences Corp.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       | These unaudited interim financial statements reflect all
      adjustments, consisting of normal recurring adjustments, which in the
      opinion of management are necessary for fair presentation of the
      information contained therein. It is suggested that these interim
      financial statements be read in conjunction with the audited financial
      statements of the Company for the year ended September 30, 2009. The
      interim results are not necessarily indicative of the operating results
      expected for the fiscal year ending on September 30, 2010. Certain
      information and footnote disclosures normally included in financial
      statements prepared in accordance with generally accepted accounting
      principles have been condensed or omitted pursuant to such rules and
      regulations, although the Company believes that the disclosures herein are
      adequate to make the information presented not misleading.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

---

Anavex Life Sciences Corp. 
  (A Development Stage Company) 
  Notes to the Consolidated Financial Statements 
  December 31, 2009 
  (Stated in US Dollars) 
  Unaudited  Page 2

|Note 2 | Recent Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|       | In December 2007, FASB issued guidance included in ASC
      805 Business Combinations and ASC 810 Accounting and
        Reporting of Non-controlling Interests in Consolidated Financial Statementswhich requires companies to: (i) recognize, with
      certain exceptions, 100% of the fair values of assets acquired,
      liabilities assumed, and non-controlling interests in acquisitions of less
      than a 100% controlling interest when the acquisition constitutes a change
      in control of the acquired entity; (ii) measure acquirer shares issued in
      consideration for a business combination at fair value on the acquisition
      date; (iii) recognize contingent consideration arrangements at their
      acquisition-date fair values, with subsequent changes in fair value
      generally reflected in earnings; (iv) with certain exceptions, recognize
      pre-acquisition loss and gain contingencies at their acquisition-date fair
      values; (v) capitalize in-process research and development (IPR&D)
      assets acquired; (vi) expense, as incurred, acquisition-related
      transaction costs; (vii) capitalize acquisition-related restructuring
      costs only if certain criteria are met as of the acquisition date; and
      (viii) recognize changes that result from a business combination
      transaction in an acquirers existing income tax valuation allowances and
      tax uncertainty accruals as adjustments to income tax expense. The impact
      of ASC 805 and ASC 810 on the Companys financial position or results of
      operations is dependent on whether the Company undertakes any business
      combinations after October 1, 2009.
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|       | In March 2008, the FASB issued guidance included in ASC
      815-10 Derivatives and Hedging, which seeks to enhance disclosure
      about how and why a company uses derivatives; how derivative instruments
      are accounted for and how derivatives affect a companys financial
      position, financial performance and cash flows. This guidance was
      effective for financial statements issued for fiscal years and interim
      periods beginning after November 15, 2008. The adoption of this guidance
      did not have a material impact on the Companys consolidated financial
      statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|       | In October 2009, the FASB issued ASU No. 2009-13,
      Multiple-Deliverable Revenue Arrangements, or ASU 2009-13,
      which amends existing revenue recognition accounting pronouncements that
      are currently within the scope of ASC 605. This guidance eliminates the
      requirement to establish the fair value of undelivered products and
      services and instead provides for separate revenue recognition based upon
      managements estimate of the selling price for an undelivered item when
      there is no other means to determine the fair value of that undelivered
      item. ASU 2009-13 is effective prospectively for revenue arrangements
      entered into or materially modified in fiscal years beginning on or after
      June 15, 2010. The Company is currently evaluating the impact, if any,
      that the adoption of this amendment will have on its consolidated
      financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Note 3 | Adoption of New Accounting Policy                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|       | In June 2008, the Financial Accounting Standards Board
      (FASB) issued Emerging Issues Task Force (EITF) Issue 07-5 (EITF
      07-5), Determining Whether an Instrument (or Embedded Feature)
        is Indexed to an Entitys Own Stockwhich is now included in the FASB
      Accounting Standards Codification at ASC 815-40-15. This guidance requires
      entities to evaluate whether an equity-linked financial instrument (or
      embedded feature) is indexed to its own stock by assessing the
      instruments contingent exercise provisions and settlement provisions.
      Instruments not indexed to their own stock fail to meet the scope
      exception of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, paragraph 11(a), now included in the FASB Codification
      at ASC 815-10-15-74(a), and should be classified as a liability and
      marked-to-market. ASC 815-40-15 was effective for fiscal years beginning
      after December 15, 2008 and thus, upon its adoption on October 1, 2009,
      was applied to the Companys outstanding promissory notes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

---

Anavex Life Sciences Corp. 
  (A Development Stage Company) 
  Notes to the Consolidated Financial Statements 
  December 31, 2009 
  (Stated in US Dollars) 
  Unaudited  Page 3

|Note 3 | Adoption of New Accounting
      Policy  (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       | The Companys outstanding promissory notes, as described
      in Note 5, include embedded conversion options that, prior to the adoption
      of this accounting policy, were not accounted for as derivative
      liabilities. Effective October 1, 2009, these conversion options met the
      criteria of a derivative instrument liability because the terms of the
      promissory notes require that the conversion price be adjusted in certain
      circumstances that do not meet the fixed- for-fixed criteria in ASC
      815-40-15-5. As a result, the Company is now required to separately
      account for the embedded conversion option as a derivative instrument
      liability, carried at fair value and marked-to-market each period, with
      changes in the fair value each period charged or credited to income. The
      discount resulting from separating the embedded conversion feature is
      accreted via a charge to income using the effective yield method over the
      term of the debt.                                                     
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       | The transition provisions of ASC 815-40-15 require
      cumulative effect adjustments as of October 1, 2009 to reflect the amounts
      that would have been recognized if derivative fair value accounting had
      been applied from the original issuance date of an equity-linked financial
      instrument through the implementation date of the revised guidance. Thus,
      the Company calculated the value of the derivative liabilities associated
      with the embedded conversion features as at the date of their issuances,
      recorded the accretion expense applicable to the debt discount arising
      upon the bifurcation of the derivative liabilities and recorded the change
      in the fair value of the derivative liabilities from the date of the
      issuance of the promissory notes up to October 1, 2009. Additionally, in
      conjunction with the foregoing, the previously calculated amounts in
      respect of the beneficial conversion features and the accretion expense on
      the beneficial conversion debt discounts were reversed.
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       | The cumulative effect of this change in accounting
      principle of $589,032 has been recognized as an increase of the opening
      balance of the accumulated deficit of $255,976 and a decrease in the
      opening balance of additional paid-in capital of $333,056 as of October 1,
      2009, with corresponding adjustments at October 1, 2009 to decrease the
      carrying value of the Convertible Debentures by $492,514 and the
      recognition of a derivative liability of $1,081,546.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Note 4 | Derivative Liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       | Derivative liabilities, consisting of the embedded
      conversion features in the Companys convertible promissory notes, are
      accounted for as separate liabilities measured at their respective fair
      values as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

Balance, October 1, 2009
      $
      1,081,546Change in fair value of derivative liabilities
      
      (649,038
      )Balance, December 31, 2009
      $
      432,508


---

Anavex Life Sciences Corp. 
  (A Development Stage Company) 
  Notes to the Consolidated Financial Statements 
  December 31, 2009 
  (Stated in US Dollars) 
  Unaudited  Page 4

|Note 4 | Derivative Liabilities  (contd)                                                                                                                                          
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                            
|       | The fair value of the derivative liabilities has been
      determined using the Black-Scholes option pricing model using the
      following weighted average assumptions:

| |                                       | December 31, | October 1,
| | ------------------------------------- | ------------ | ----------
| |                                       | 2009         | 2009      
| |                                       |              |           
| | Risk-free interest rate               | 0.56%        | 0.65%     
| | Expected life of derivative liability | 1.02 years   | 1.27 years
| | Annualized volatility                 | 68.01%       | 69.50%    
| | Dividend rate                         | 0.00%        | 0.00%     

|Note 5 | Promissory Notes Payable
|------ | ------------------------

| |                                                                                     |   | December 31, |   |   | September 30, |  
| | ----------------------------------------------------------------------------------- | - | ------------ | - | - | ------------- | -
| |                                                                                     |   | 2009         |   |   | 2009          |  
| | Convertibleu non-interest bearing
      promissory notes                            | $ | 1,919,418    |   | $ | 1,919,418     |  
| | Convertible interest bearing promissory notes                                       |   | 668,000      |   |   | 668,000       |  
| | Interesti bearing promissory note                                                   |   | 300,000      |   |   | 150,000       |  
| | Non-interest bearing promissory note                                                |   | 100,000      |   |   | 100,000       |  
| | Less:
      beneficial conversion features                                          |   | -            |   |   | (333,056      | )
| | Less: fair value of
      derivative liabilities on promissory notes issuance dates |   | (1,074,570   | ) |   | -             |  
| | Add:
      accumulated accretion                                                    |   | 639,574      |   |   | 170,164       |  
| |                                                                                     |   | 2,552,422    |   |   | 2,674,526     |  
| | Less: current portion                                                               |   | (2,428,441   | ) |   | (2,506,526    | )
| |                                                                                     |   |              |   |   |               |  
| |                                                                                     | $ | 123,981      |   | $ | 168,000       |  

Convertible non-interest bearing
  promissory notes

The convertible non-interest bearing
  promissory notes are due on demand but not before January 13, 2010 as to
  $150,000, February 2, 2010 as to $1,669,418 and March 16, 2010 as to $100,000.
  The promissory notes are convertible into units at $2.25 per unit. Each unit is
  comprised of one common share and one common share purchase warrant exercisable
  at $3.00 per share for a period of two years from the conversion date. The
  embedded conversion features included in these promissory notes, recorded as
  separate derivative liabilities along with a corresponding debt discount, were
  determined to have a cumulative fair value of $683,744 at their respective
  issuance dates. During the three months ended December 31, 2009, the Company
  recorded accretion expense of $203,850 on the discounts of these notes.

---

Anavex Life Sciences Corp. 
  (A Development Stage Company) 
  Notes to the Consolidated Financial Statements 
  December 31, 2009 
  (Stated in US Dollars) 
  Unaudited  Page 5

|Note 5 | Promissory Notes Payable  (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       | Convertible interest bearing promissory notes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       | The convertible interest bearing notes bear interest at
      8% and mature on June 3, 2014, as to $500,000 and June 19, 2011, as to
      $168,000. The holder of the note in the amount of $500,000 may demand
      repayment of the balance outstanding at any time. The promissory notes are
      convertible into units at $2.25 per unit. Each unit is comprised of one
      common share and one common share purchase warrant exercisable at $3.00
      per share for a period of two years from the conversion date, as to
      $500,000 and one common share and one-half of one common share purchase
      warrant exercisable at $3.50 per share for a period of one year from the
      conversion date, as to $168,000. The embedded conversion features included
      in these promissory notes, recorded as separate derivative liabilities
      along with a corresponding debt discount, were determined to have a
      cumulative fair value of $390,826 at their respective issuance dates.
      During the three months ended December 31, 2009, the Company recorded
      accretion expense of $16,560 on the discounts of these notes.
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       | Interest bearing promissory notes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       | The Company has issued promissory notes totaling $150,000
      bearing interest at 8% and it matured on December 31, 2009. On January 1,
      2010, the Company issued a note with a principal balance of $157,890 (new
      note) in exchange for the $150,000 note plus accrued interest on the note
      which matured on December 31, 2009. The new note bears interest at 8% per
      annum and matures on December 31, 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       | During the three months ended December 31, 2009, the
      Company issued additional 8% interest bearing notes totaling $150,000
      which mature on December 5, 2010 as to $50,000 and December 22, 2010 as to
      $100,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       | Non- interest bearing promissory note                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       | Pursuant to a termination agreement the Company has
      issued one non-interest bearing promissory note to a former officer of the
      Company, in the amount of $200,000. The Company has repaid $100,000 and,
      as at December 31, 2009 and September 30, 2009, the Company was in default
      of the payment terms for the remaining $100,000 balance owing. Subsequent
      to December 31, 2009, the Company and the former officer agreed to settle
      the outstanding amount owed by issuing 49,505 common shares of the Company
      at their fair value of $2.02 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Note 6 | Capital Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       | On May 24, 2006, the board of directors approved a six
      (6) for one (1) forward split of the authorized issued and outstanding
      common stock. The Companys authorized capital increased from 25,000,000
      shares of common stock to 150,000,000 shares of common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       | On September 24, 2007, the Company issued 222,222 common
      shares 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

---

Anavex Life Sciences Corp. 
  (A Development Stage Company) 
  Notes to the Consolidated Financial Statements 
  December 31, 2009 
  (Stated in US Dollars) 
  Unaudited  Page 6

|Note 6 | Capital Stock  (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|       | 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.                                                                                                                                                 
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|       | 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.                                                                                                                                                  

---

Anavex Life Sciences Corp. 
  (A Development Stage Company) 
  Notes to the Consolidated Financial Statements 
  December 31, 2009 
  (Stated in US Dollars) 
  Unaudited  Page 7

|Note 6 | Capital Stock  (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       | 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 at their par value.                                                                                                                                                                                                                                                                                                                                                                                             
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       | 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 finders 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 quoted market price of the Companys common
      stock on the issuance date.                                                                                                                                                                                                                                                                                                                                                                                          
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       | On June 19, 2009 the Company issued 495,556 units at
      $2.25 per unit for proceeds of $1,115,000 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 share at $2.25 per share until June 19, 2011. The
      Company paid finders fees in the amount of $55,750 in relation to this
      private placement.                                                                                                                                                                      
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       | On June 26, 2009, the Company issued 22,222 common shares
      at $2.51 per share for a total value of $55,777 for finders fees related
      to the issuance of the $500,000 promissory note (Note 5). The common
      shares were recorded based upon the quoted market price of the Companys
      common stock on the issuance date. Such amount has been deferred and is
      being amortized over the term of the debt.                                                                                                                                                                                                                 
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       | 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 10, 2010 and 88,888 Units consisted on 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 totaling $9,000 in respect of these
      private placements.
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       | 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 share at $2.25 per share until October 2, 2011.                                                                                                                                                                                                                                                                               
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Note 7 | Related Party Transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       | During the three months ended December 31, 2009 and 2008
      the Company was charged consulting fees from officers and a private
      company owned by a director as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

| |            |   | Three months |  |   | Three months | 
| | ---------- | - | ------------ |  | - | ------------ | 
| |            |   | ended        |  |   | ended        | 
| |            |   | December 31, |  |   | December 31, | 
| |            |   | 2009         |  |   | 2008         | 
| |            |   |              |  |   |              | 
| |            |   |              |  |   |              | 
| | Consulting | $ | 170,657      |  | $ | 67,959       | 

---

Anavex Life Sciences Corp. 
  (A Development Stage Company) 
  Notes to the Consolidated Financial Statements 
  December 31, 2009 
  (Stated in US Dollars) 
  Unaudited  Page 8

|Note 7 | Related Party Transactions  (contd)                                                                    
|------ | ---------------------------------------------------------------------------------------------------------
|       |                                                                                                          
|       | The following amounts were contributed to the Company by
      the directors and officers of the Company:

| |                            |   |              |  |   |              |  |   | January 23,   | 
| | -------------------------- | - | ------------ |  | - | ------------ |  | - | ------------- | 
| |                            |   | Three Months |  |   | Three Months |  |   | 2004 (Date of | 
| |                            |   | ended        |  |   | ended        |  |   | Inception) to | 
| |                            |   | December 31, |  |   | December 31, |  |   | December 31   | 
| |                            |   | 2009         |  |   | 2008         |  |   | 2009          | 
| |                            |   |              |  |   |              |  |   |               | 
| | Management fees            | $ | -            |  | $ | -            |  | $ | 14,625        | 
| | Rent                       |   | -            |  |   | -            |  |   | 3,750         | 
| | Debt forgiven by directors |   | -            |  |   | -            |  |   | 33,666        | 
| |                            | $ | -            |  | $ | -            |  | $ | 52,041        | 

|       | At December 31, 2009, included in accounts payable and
      accrued liabilities is $71,006 (September 30, 2009: $57,464) owed to a
      director and an officer of the Company in respect of unpaid consulting
      fees.
|------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                             
|Note 8 | Commitments                                                                                                                                                                                                                 

| | a) | Share Purchase Warrants                                                                 
| | -- | ----------------------------------------------------------------------------------------
| |    |                                                                                         
| |    | A summary of the Companys share purchase warrants
      outstanding is presented below:

| |                             |  | Number of |   |  | Exercise | 
| | --------------------------- |  | --------- | - |  | -------- | 
| |                             |  | Shares    |   |  | Price    | 
| |                             |  |           |   |  |          | 
| | Balance, September 30, 2008 |  | 292,698   |   |  | $5.00    | 
| | Expired                     |  | (142,695  | ) |  | $5.00    | 
| | Issued                      |  | 833,448   |   |  | $2.62    | 
| | Balance, September 30, 2009 |  | 983,448   |   |  | $2.93    | 
| | Expired                     |  | (150,000  | ) |  | $5.00    | 
| | Issued                      |  | 299,999   |   |  | $2.25    | 
| |                             |  |           |   |  |          | 
| | Balance, December 31, 2009  |  | 1,133,447 |   |  | $2.52    | 

At December 31, 2009 the Company has
  1,133,447 currently exercisable share purchase warrants outstanding as follows:

Number
      
      
      Exercise Price
      
      
      Expiry Date89,148
      
      
      $4.00
      
      
      March 6, 201010,800
      
      
      $4.00
      
      
      March 20, 201036,000
      
      
      $4.00
      
      
      June 11, 201040,000
      
      
      $4.00
      
      
      July 10, 201099,999
      
      
      $2.25
      
      
      August 4, 2010557,501
      
      
      $2.25
      
      
      June 19, 2011299,999
      
      
      $2.25
      
      
      October 2, 20111,133,447


---

Anavex Life Sciences Corp. 
  (A Development Stage Company) 
  Notes to the Consolidated Financial Statements 
  December 31, 2009 
  (Stated in US Dollars) 
  Unaudited  Page 9

|Note 8 | Commitments  (contd)
|------ | ----------------------

| | b) | Stock-based Compensation Plan                                                                                                                      
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                    
| |    | A summary of the status of the companys outstanding
      stock purchase options for the three months ended December 31, 2009 is as
      follows:

| |                                                         |  |           |  |  | Weighted | 
| | ------------------------------------------------------- |  | --------- |  |  | -------- | 
| |                                                         |  |           |  |  | Average  | 
| |                                                         |  | Number of |  |  | Exercise | 
| |                                                         |  | Shares    |  |  | Price    | 
| |                                                         |  |           |  |  |          | 
| | Outstanding at September 30, 2008                       |  | 1,420,000 |  |  | $4.44    | 
| | Granted                                                 |  | 1,775,000 |  |  | $2.51    | 
| |                                                         |  |           |  |  |          | 
| | Outstanding at September 30, 2009 and December 31, 2009 |  | 3,195,000 |  |  | $3.37    | 
| |                                                         |  |           |  |  |          | 
| | Exercisable at December 30, 2009                        |  | 1,380,000 |  |  | $4.31    | 
| |                                                         |  |           |  |  |          | 
| | Exercisable at September 30, 2009                       |  | 1,330,000 |  |  | $4.38    | 

At December 31, 2009, the following
  stock options were outstanding:

Number of SharesTotal
      
      
      Number
      
      ExerciseNumber
      
      
      Vested
      
      Price
      
      
      Expiry Date100,000
      (1)
      
      -
      
      $3.86
      
      
      December 1, 2010400,000
      (2)
      
      400,000
      
      $5.25
      
      
      May 20, 201150,000
      (3)
      
      50,000
      
      $3.75
      
      
      November 1, 2012150,000
      (4)
      
      150,000
      
      $3.85
      
      
      December 3, 2012450,000
      (5)
      
      450,000
      
      $5.00
      
      
      June 3, 201350,000
      (6)
      
      25,000
      
      $2.75
      
      
      January 14, 20145,000
      (7)
      
      5,000
      
      $2.50
      
      
      March 2, 2014400,000
      (8)
      
      300,000
      
      $2.50
      
      
      May 12, 2014500,000
      (9)
      
      -
      
      $2.50
      
      
      June 11, 2014700,000
      (10)
      
      -
      
      $2.50
      
      
      June 12, 2014120,000
      (11)
      
      -
      
      $2.50
      
      
      July 1, 2014270,000
      (12)
      
      -
      
      $3.00
      
      
      February 8, 20173,195,000
      
      
      1,380,000


| | 1. | As at December 31, 2009, these options have not vested.
      The options vest upon the Company listing its shares on the American Stock
      Exchange or any other nationally recognized stock exchange by December 1,
      2012 or in the event of a change of control and a listing on a nationally
      recognized stock exchange is not required. No stock-based compensation has
      been recorded in the financial statements as the performance condition has
      not yet been met.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 2. | As at December 31, 2009 and September 30, 2009, these
      options have fully vested. The Company recognized $320,752 stock-based
      compensation for the options vested in the year ended September 30, 2008.
      The Company recognized $40,020 included with consulting fees in respect of
      the remainder of the options that vested during the year ended September
      30, 2009.                                                                                                

---

Anavex Life Sciences Corp. 
  (A Development Stage Company) 
  Notes to the Consolidated Financial Statements 
  December 31, 2009 
  (Stated in US Dollars) 
  Unaudited  Page 10

|Note 8 | Commitments  (contd)
|------ | ----------------------

| | b) | Stock-based Compensation Plan  (contd)
| | -- | ----------------------------------------
| |    |                                         
| |    | 3.                                      
| |    |                                         
| |    | 4.                                      
| |    |                                         
| |    | 5.                                      
| |    |                                         
| |    | 6.                                      
| |    |                                         
| |    | 7.                                      
| |    |                                         
| |    | 8.                                      
| |    |                                         
| |    | 9.                                      
| |    |                                         
| |    | 10.                                     
| |    |                                         
| |    | 11.                                     

---

Anavex Life Sciences Corp. 
  (A Development Stage Company) 
  Notes to the Consolidated Financial Statements 
  December 31, 2009 
  (Stated in US Dollars) 
  Unaudited  Page 11

|Note 8 | Commitments  (contd)
|------ | ----------------------

| | b) | Stock-based Compensation Plan  (contd)
| | -- | ----------------------------------------
| |    |                                         
| |    | 12.                                     

The fair value of stock options
  granted has been determined using the Black-Scholes option pricing model using
  the following weighted average assumptions applied to stock options granted or
  re-priced during the periods:

| |                          | December 31, | September 30,
| | ------------------------ | ------------ | -------------
| |                          | 2009         | 2009         
| |                          |              |              
| | Risk-free interest rate  | 1.79%        | 1.07%        
| | Expected life of options | 3.99 years   | 2.42 years   
| | Annualized volatility    | 88.54%       | 73.61%       
| | Dividend rate            | 0%           | 0%           

The volatility was determined based on
  an index of volatility from comparable companies. The expected term of the
  options granted to employees is derived from the simplified method as prescribed
  by SEC Staff Accounting Bulletin No. 110 given that the Company has no
  historical experience with the exercise of options for which to base an estimate
  of the expected term of options granted. The Company anticipates it will
  discontinue the use of the simplified method of SAB 110 once sufficient
  historical option exercise behavior becomes apparent. The expected term of
  options granted to non-employees was determined to be the option term.

At December 31, 2009, 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, 2009 |  | 1,865,000 |   | $ | 2.65     |  | $ | 2.93       | 
| | Vested                                 |  | (50,000   | ) | $ | 2.50     |  | $ | 3.44       | 
| |                                        |  |           |   |   |          |  |   |            | 
| | Unvested options at December 31, 2009  |  | 1,815,000 |   | $ | 2.65     |  | $ | 3.01       | 

As at December 31, 2009, there was a
  total of $191,390 of unrecognized compensation cost associated with unvested
  share-based compensation awards that will become vested exclusive of achieving
  any performance milestones. This unrecognized compensation cost is expected to
  be recognized in the year ended September 30, 2010. There has been no
  stock-based compensation recognized in the financial statements for the period
  ended December 31, 2009 for options that 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.

---

Anavex Life Sciences Corp. 
  (A Development Stage Company) 
  Notes to the Consolidated Financial Statements 
  December 31, 2009 
  (Stated in US Dollars) 
  Unaudited  Page 12

|Note 8 | Commitments  (continued)
|------ | -------------------------

| | b) | Stock-based Compensation Plan                                                                                                                                                                                  
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                
| |    | Stock-based compensation amounts, including those
      relating to shares issued for non-cash consideration during the period,
      are classified in the Companys Statement of Operations as
      follows:

| |            |   | 2009    |  |   | 2008    | 
| | ---------- | - | ------- |  | - | ------- | 
| |            |   |         |  |   |         | 
| | Consulting | $ | 112,608 |  | $ | 335,066 | 

|Note 9  | Supplemental Cash flow Information                                                                                                                                                     
|------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                        
|        | Investing and financing activities that do not have a
      direct impact on current cash flows are excluded from the statements of
      cash flows.                                  
|        |                                                                                                                                                                                        
|        | During the period ended December 31, 2008, the Company
      issued 25,000 common shares at $2.63 per share for a total of $65,750 in
      respect of payment for consulting services.
|        |                                                                                                                                                                                        
|Note 10 | Subsequent Events                                                                                                                                                                      
|        |                                                                                                                                                                                        
|        | The Company has evaluated subsequent events from December
      31, 2009 up to February 22, 2010, the date on which the financial
      statements are filed as required by ASC 855.   

---

2

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

Forward-Looking Statements

This quarterly report contains forward-looking statements. All
statements other than statements of historical facts contained in this quarterly
report, 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. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology such as may, should, expect, plan, anticipate, believe,
estimate, predict, potential or continue or the negative of these terms
or other comparable terminology. 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
statements are only predictions and involve known and unknown risks,
uncertainties and other factors, including the risks in the section entitled
Risk Factors that may cause our companys or our industrys actual results,
levels of activity, performance or achievements to be materially different from
any future results, levels of activity, performance or achievements expressed or
implied by these forward-looking statements.

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. Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements. Except as required by applicable law, including the securities
laws of the United States, we do not intend to update any of the forward-looking
statements to conform these statements to actual results.

Our financial statements are stated in United States dollars
and are prepared in accordance with United States generally accepted accounting
principles.

In this quarterly report, unless otherwise specified, all
dollar amounts are expressed in United States dollars and all references to
common shares refer to the shares of our common stock.

As used in this quarterly report, the terms we, us, our,
and Anavex mean Anavex Life Sciences Corp., unless the context clearly
requires otherwise.

Our Business

We are a biopharmaceutical company engaged in the discovery and
development of novel drug targets to treat serious diseases for which there are
urgent unmet medical needs. The ANAVEX portfolio involves new sigma receptor
compounds (ligands) in the preclinical stage that target neurodegenerative
diseases and cancer. Our lead drug candidate ANAVEX 2-73, targeting Alzheimers
disease (AD), is expected to enter first Human Clinical Trials (HCT) by mid
2010. Scale-up manufacturing of ANAVEX 2-73 has been completed and Forenap
Pharma EURL has been contracted to carry out our phase 1 clinical trials. We
have completed most preclinical testing on ANAVEX 2-73 and are currently
preparing the Investigational New Drug (IND) file. In parallel, we plan to
launch HCT for another three of our compounds (melanoma, prostate cancer and
epilepsy) in 2010 provided sufficient capital is available. Additionally, we
intend to further develop compounds in earlier preclinical phases, which target
diseases like diabetes, depression, neuropathic pain and various types of cancer
and continue to develop and expand our Sigmaceptortmplatform.

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3

Our proprietary SIGMACEPTOR Discovery Platform has resulted in
and continues to generate small molecule drug candidates with unique modes of
action, by making use of sigma receptors, which represent potential targets for
therapeutic developments in combating many human diseases (such as Alzheimers
disease, depression, epilepsy and cancer). When activated by the appropriate
ligands, these receptors influence the functioning of multiple biochemical
signals that are involved in the pathogenesis (origin or development) of a
disease.

With our SIGMACEPTOR-N program, we are focused on developing
disease modifying treatments for CNS diseases using sigma-1 receptor ligands.
Among our lead CNS drug candidates, we have made significant progress with
ANAVEX 2-73, our lead drug candidate to treat Alzheimers disease (AD), and
ANAVEX 19-144, another lead drug candidate to treat epilepsy. Preclinical data
reveals that these compounds exhibit significant anti-amnesic, neuroprotective
and anticonvulsant properties in a variety of in vitro systems and specialized
animal models. These activities involve sigma-1 and NMDA receptor components and
also ion channels, indicating a unique mode of action. In AD, ANAVEX 2-73 is
pharmacologically suggested as an effective neuroprotective, anti-convulsive and
anti depressive (anti-amnesic) putative therapeutic agent, due to its potent
affinity to sigma-1 receptors and moderate affinities to M1-4 types muscarinic
receptors. In epilepsy, ANAVEX 19-144 controls seizures and the epileptogenesis
process. Moreover, its neuroprotective properties prevent the process that
causes long-term damage to tissue and cells as well as biochemical and
physiological alterations to the brain from epileptic seizures.

We also have reported promising developments with ANAVEX 1-41,
which is a sigma-1 agonist and a lead compound to treat AD and depression.
Preclinical tests revealed significant neuroprotective benefits (i.e. protects
nerve cells from degeneration or death) through the prevention of oxidative
stress, which damages and destroys cells and is believed to be a primary cause
of AD. In addition, ANAVEX 1-41 prevented the expression of caspase-3, an enzyme
that plays a key role in apoptosis (programmed cell death) and in the loss of
cells in the hippocampus, the part of the brain that regulates learning, emotion
and memory. These activities involve both muscarinic andsigma-1 receptor systems
through a novel mechanism of action. Via this novel mechanism of action, it is
anticipated that ANAVEX 1-41 may offer disease-modifying options that reverse
memory and learning deficits and protect nerve cells from death through its
anti-amnesic, neuroprotective and anxiolytic actions. ANAVEX 1-41 may slow the
progression of AD and considerably improve the quality of life of those impacted
by the disease as well as their caregivers.

Our SIGMACEPTOR-C program leverages the unique properties of
sigma-1 and/or sigma-2 receptor ligands, which allows us to create a potent
class of promising drug candidates designed to combat various types of solid
cancer. Sigma receptors are highly expressed in different tumor cell types and
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 are believed to 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. The compounds in
our oncology program are in pre-clinical testing, and there is no guarantee that
the activity demonstrated in pre-clinical models will be shown in human testing.

ANAVEX 7-1037, our lead drug candidate for the treatment of
prostate cancer, is a low molecular weight, synthetic compound exhibiting high
(nanomolar) affinity for sigma-1 and moderate (micromolar) affinity for sigma-2
and sodium channels. In advanced preclinical 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 emphasize the promise of sigma receptor ligands,
highlighting the fact that these ligands stop tumor growth and induce selective
cell death in various tumor cell lines, including leukemia, melanoma and cancers
of the colon, breast, prostate, lung, brain, ovary and kidney.

Numerous additional compounds are currently in the early
discovery and lead optimization stages of our SIGMACEPTOR-N and SIGMACEPTOR-C
programs.

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4

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 targeted companies to
market or distribute the results of our research projects.

Expenses

Our expenses for the three months ended December 31, 2009 and
2008 were as follows:

Three Months EndedDecember 312009
      
      
      2008Accounting and audit fees
      $
      21,859
      
      $
      31,260Amortization
      
      190
      
      
      90Bank charges and interest
      
      1,715
      
      
      876Consulting fees
      
      454,074
      
      
      515,567Investor Relations
      
      54,511
      
      
      25,000Legal fees
      
      27,908
      
      
      3,610Office and miscellaneous
      
      84,728
      
      
      40,640Registration and filing fees
      
      6,133
      
      
      5,576Rent and administration
      
      0
      
      
      0Research and development
      
      211,479
      
      
      284,104Total expenses
      $
      862,597
      
      $
      906,723


Three Months Ended December 31, 2009 and 2008

Expenses for the three months ended December 31, 2009 decreased
by $44,126 over the same period in 2008. Bank charges and Interest increased to
$1,715 for the three months ended December 31, 2009 from $876 for the same
period in 2008 due to an increased amount of interest bearing promissory notes.
Consulting fees decreased from $515,567 for the three months ended December 31,
2008 to $454,074 for the same period in 2009 primarily as a result of decreased
stock based compensation charges. Legal fees increased to $27,908 for the three
months ended December 31, 2009 from $3,610 for the same period in 2008 primarily
as a result of increased patent and corporate activity fees. Research and
Development charges decreased to $211,479 for the three months ended December
31, 2009 from $284,104 for the same period in 2008 resulting from decreased
research activities.

Other Income and loss

Other income and (loss) for the three months ended December 31,
2009, were $414,096 as compared to a loss of $(21,319) for the comparable three
months ended December 31, 2008. The increase of $435,415 is primarily
attributable to the change in fair value of the derivative liability of $649,038
and a foreign exchange gain of $8,270. These were offset by accretion of
discounts on notes payable of $220,410 and interest expense of $22,802.

Change in fair value of derivative liability

We recognized a gain on derivative financial instruments of $
649,038 for the three months ended December 31, 2009, as compared to $ Nil for
the prior years comparable period, The non-cash gain arises from adjusting the
embedded conversion feature of our convertible promissory notes payable to fair
value at each reporting period in accordance with current accounting standards.
The embedded conversion features of the convertible promissory notes are treated
as derivative liabilities because the conversion price can be adjusted in
certain circumstances.

We use the Black-Scholes option pricing model to estimate the
fair value of this derivative. Because the Black-Scholes model uses our stock
price as one of the inputs in calculating the fair value of the derivative
liabilities, changes in the stock price will result in volatility in the
earnings in future periods as we continue to reflect the derivative financial
instruments at fair value.

---

5

Liquidity and Capital Resources

Working Capital

December 31, 2009
      
      
      September 30, 2009Current Assets
    
    71,163
    
    
    406,952Current Liabilities
    
    4,431,431
    
    
    4,098,466Working Capital (Deficit)
    $
    (4,360,268
    )
    $
    (3,691,514
    )


As of December 31, 2009, we had $21,034 in cash, a decrease of
$329,960 from September 30, 2009. The principal component of this decrease in
cash was draw downs on the cash for general working purposes.As of
December 31, 2009, we had a working capital deficit of $4,360,268, an increase
of $668,754 from September 30, 2009. The principal component of this increase in
working capital deficit was a decrease in our current assets.

On October 2, 2009 we issued an aggregate of 266,666 units of
  our securities at a purchase price of $2.25 per unit. Each unit consists of
  one share of common stock in the capital of our company and 1.125 common share
  purchase warrants. One full warrant entitles the holder to purchase one additional
  share of common stock at a price of $2.25 per warrant share for a period of
  two years.

We anticipate that we will require up to $10 million for the 12
months ending December 31, 2010 to implement our plan of operation of
researching and developing our patents, the related compounds and any further
intellectual property we may acquire. The majority of our capital resources
requirement is needed to enter ANAVEX 2-73, ANAVEX 1-41 and ANAVEX 7-1037 into
clinical trials. If we are not able to secure additional financing, we will not
be able to implement and fund these trials.

Cash Flows

|                                              |   | Three Months Ended |   |  | Three Months Ended |  
|--------------------------------------------- | - | ------------------ | - |  | ------------------ | -
|                                              |   | December 31, 2009  |   |  | December 31, 2008  |  
|Cash flows used in operating
      activities | $ | (779,960           | ) |  | (268,324           | )
|Cash flows from financing activities          | $ | 450,000            |   |  | 262,581            |  
|Cash flows from investing
      activities    | $ | -                  |   |  | -                  |  
|Increase (decrease) in cash                   | $ | (329,960           | ) |  | (5,743             | )

Cash flow used in operating activities

Our cash used in operating activities for the three months
ended December 31, 2009 compared to our cash used in operating activities for
the three months ended December 31, 2008 increased by 191%. This change was
largely due to a net decrease in accounts payable for the three months ended
December 31, 2009 in the amount of $21,459 compared to a net increase of
accounts payable for the three months ended December 31, 2008 in the amount of
$324,562 for a total difference of $346,021.

Cash flow provided by financing activities

Our cash provided by financing activities for the three months
ended December 31, 2009 compared to our cash provided by financing activities
for the three months ended December 31, 2008 increased by 71% largely due to
promissory notes issued in the quarter.

Cash Provided by Investing Activities

No cash was used in or provided by investing activities for the
three months ended December 31, 2009 or 2008.

Going Concern

At December 31, 2009, we had an accumulated deficit of
$13,266,710 since our inception and expect to incur further losses in the
development of our business, all of which casts substantial doubt about our
ability to continue as a going concern. Our ability to continue as a going
concern is dependent upon our ability to generate future profitable operations
and/or to obtain the necessary financing to meet our obligations and repay our
liabilities arising

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6

from normal business operations when they come due. Our
independent auditors included an explanatory paragraph regarding substantial
doubt about our ability to continue as a going concern in their report on our
annual financial statements for the year ended September 30, 2009.

Future Financing

We will require additional financing to fund our planned
operations, including researching and developing our patents, the related
compounds and any further intellectual property that we may acquire and entering
some of our current compounds into clinical trials. We currently do not have
committed sources of additional financing and may not be able to obtain
additional financing, particularly, if the volatile conditions in the stock and
financial markets, and more particularly the market for early development stage
biotechnology research and development company stocks persist.

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

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

There is no assurance that we will be able to maintain
operations at a level sufficient for an investor to obtain a return on his, her,
or its investment in our common stock. Further, we may continue to be
unprofitable.

Off-Balance Sheet Arrangements

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

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 to third parties are expensed when the specific
milestone has been achieved.

---

7

In addition, we incur expenses in respect of the acquisition of
intellectual property relating to patents and trademarks. The probability of
success and length of time to developing commercial applications of the drugs
subject to the acquired patents and trademarks is difficult to determine and
numerous risks and uncertainties exist with respect to the timely completion of
the development projects. There is no assurance the acquired patents and
trademarks will ever be successfully commercialized. Due to these risks and
uncertainties, we expense the acquisition of patents and trademarks.

Stock-based Compensation

We account for all of our 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.

Derivative Liabilities

We evaluate the embedded conversion features of our convertible
promissory notes to determine whether they are indexed to our stock for purposes
of determining whether are required to be bifurcated as separate derivative
liabilities. When they are determined not to be indexed to our stock, and thus
classified as derivative liabilities, they are marked-to-market each reporting
period.

We use the Black-Scholes option pricing model to calculate the
fair value of the derivative liabilities at each reporting period. The Black
Scholes pricing model requires 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
derivative liabilities.

The summary of significant accounting policies should be read
in conjunction with our consolidated financial statements and related notes and
managements discussion and analysis of financial condition and results of
operations.

Recent accounting pronouncements

In December 2007, FASB issued guidance included in ASC 805
Business Combinations and ASC 810 Accounting and Reporting
of Non-controlling Interests in Consolidated Financial Statements which
requires companies to: (i) recognize, with certain exceptions, 100% of the fair
values of assets acquired, liabilities assumed, and non-controlling interests in
acquisitions of less than a 100% controlling interest when the acquisition
constitutes a change in control of the acquired entity; (ii) measure acquirer
shares issued in consideration for a business combination at fair value on the
acquisition date; (iii) recognize contingent consideration arrangements at their

---

8

acquisition-date fair values, with subsequent changes in fair
value generally reflected in earnings; (iv) with certain exceptions, recognize
pre-acquisition loss and gain contingencies at their acquisition-date fair
values; (v) capitalize in-process research and development (IPR&D) assets
acquired; (vi) expense, as incurred, acquisition-related transaction costs;
(vii) capitalize acquisition-related restructuring costs only if certain
criteria are met as of the acquisition date; and (viii) recognize changes that
result from a business combination transaction in an acquirers existing income
tax valuation allowances and tax uncertainty accruals as adjustments to income
tax expense. The impact of ASC 805 and ASC 810 on the Companys financial
position or results of operations is dependent on whether the Company undertakes
any business combinations after October 1, 2009.

In March 2008, the FASB issued guidance included in ASC 815-10
Derivatives and Hedging,which seeks to enhance disclosure about how
and why a company uses derivatives; how derivative instruments are accounted for
and how derivatives affect a companys financial position, financial performance
and cash flows. This guidance was effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008. The adoption
of this guidance did not have a material impact on the Companys consolidated
financial statements.

In October 2009, the FASB issued ASU No. 2009-13,
Multiple-Deliverable Revenue Arrangements, or ASU 2009-13, which amends
existing revenue recognition accounting pronouncements that are currently within
the scope of ASC 605. This guidance eliminates the requirement to establish the
fair value of undelivered products and services and instead provides for
separate revenue recognition based upon managements estimate of the selling
price for an undelivered item when there is no other means to determine the fair
value of that undelivered item. ASU 2009-13 is effective prospectively for
revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. The Company is currently evaluating the
impact, if any, that the adoption of this amendment will have on its
consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures about
Market Risks.

Not Applicable.

Item 4T. 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 our 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
our 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 our 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
weaknesses disclosed in our annual report on Form 10-K filed on December 24,
2009.

We intend to take appropriate and reasonable steps to make the
necessary improvements to remediate these deficiencies at some time in the
future. This will depend on our financial position and the managements
determination of which changes should be made and when. We intend to consider
the results of our remediation efforts and related testing as part of our
year-end 2010 assessment of the effectiveness of our internal control over
financial reporting.

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9

Changes in Internal Control over Financial
Reporting

We have not made any changes in our internal control over
financial reporting during the fiscal quarter ended December 31, 2009 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 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. We know of no proceedings in which any of our
directors, officers or affiliates, or any registered or beneficial stockholder
is a party adverse to our company or has a material interest adverse to our
company.

Item 1A. Risk Factors.

In addition to other information in this quarterly report, the
following risk factors should be carefully considered in evaluating our business
because such factors may have a significant impact on our business, operating
results, liquidity and financial condition. As a result of the risk factors set
forth below, actual results could differ materially from those projected in any
forward-looking statements. Additional risks and uncertainties not presently
known to us, or that we currently consider to be immaterial, may also impact our
business, operating results, liquidity and financial condition. If any such
risks occur, our business, operating results, liquidity and financial condition
could be materially affected in an adverse manner. Under such circumstances, the
trading price of our securities could decline, and you may lose all or part of
your investment.

Risks Related to our Company

We have had a history of losses and no revenue, which raise
substantial doubt about our ability to continue as a going concern.

Since inception on January 23, 2004, we have an accumulated
deficit of $13,266,710 from operations. We can offer no assurance that we will
ever operate profitably or that we will generate positive cash flow in the
future. To date, we have not generated any revenues from our operations. Our
history of losses and no revenues raise substantial doubt about our ability to
continue as a going concern. We will not be able to generate significant
revenues in the future and our management expects acquisitions and exploration
expenditures and operating expenses to increase substantially over the next 12
months. As a result, our management expects the business to continue to
experience negative cash flow for the foreseeable future and cannot predict
when, if ever, our business might become profitable. We will need to raise
additional funds, and such funds may not be available on commercially acceptable
terms, if at all. If we are unable to raise funds on acceptable terms, we may
not be able to execute our business plan, take advantage of future
opportunities, or respond to competitive pressures or unanticipated
requirements. This may seriously harm our business, financial condition and
results of operations.

We are an early development stage biotechnology research and
development company and may never be able to successfully develop marketable
products or generate any revenue. We have a very limited relevant operating
history upon which an evaluation of our performance and prospects can be made.
There is no assurance that our future operations will result in profits. If we
cannot generate sufficient revenues, we may suspend or cease operations.

We are an early development stage company and have not
generated any revenues to date and have no operating history. All of our
potential drug compounds are in the concept stage and have not undergone
significant testing in non-clinical studies or in clinical trials. Moreover, we
cannot be certain that our research and development efforts will be successful
or, if successful, that our potential drug compounds will ever be approved for
sales to pharmaceutical companies or generate commercial revenues. We have no
relevant operating history upon which an evaluation of our performance and
prospects can be made. We are subject to all of the business risks associated
with

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10

a new enterprise, including, but not limited to, risks of
unforeseen capital requirements, failure of potential drug compounds either in
non-clinical testing or in clinical trials, failure to establish business
relationships and competitive disadvantages as against larger and more
established companies. If we fail to become profitable, we may suspend or cease
operations.

We will need additional funding and may be unable to raise
additional capital when needed, which would force us to delay, reduce or
eliminate our research and development activities.

We will need to raise additional funding, but the current
economic crisis and its impact on the stock markets will most likely have a
negative impact on our ability to raise additional needed capital on terms that
are favorable to our company or at all. We do not anticipate that we will
generate significant revenues for several years, if at all. Until we can
generate significant revenues, if ever, we expect to satisfy our future cash
needs through equity or debt financing. We cannot be certain that additional
funding will be available on acceptable terms, or at all. If adequate funds are
not available, we may be required to delay, reduce the scope of, or eliminate
one or more of our research and development activities.

We may be unable to continue as a going concern in which
case our securities will have little or no value.

Our independent auditors have noted in their report concerning
our annual financial statements as of September 30, 2009 that we have incurred
substantial losses since inception, which raises substantial doubt abut our
ability to continue as a going concern. In the event we are not able to continue
operations you will likely suffer a complete loss of your investment in our
securities.

Risks Related to our Business

Even if we are able to develop our potential drug compounds,
we may not be able to receive regulatory approval, or if approved, we may not be
able to generate significant revenues or successfully commercialize our
products, which will adversely affect our financial results and financial
condition and we will have to delay or terminate some or all of our research and
development plans and we may be forced to cease operations.

All of our potential drug compounds will require extensive
additional research and development, including non-clinical testing and clinical
trials, as well as regulatory approvals, before we can market them. We cannot
predict if or when any of the potential drug compounds we intend to develop will
be approved for marketing. There are many reasons that we may fail in our
efforts to develop our potential drug compounds. These include:

- the possibility that non-clinical testing or clinical trials may show that
  our potential drug compounds are ineffective and/or cause harmful side
  effects;
- our potential drug compounds may prove to be too expensive to manufacture
  or administer to patients;
- our potential drug compounds may fail to receive necessary regulatory
  approvals from the United States Food and Drug Administration or foreign
  regulatory authorities in a timely manner, or at all;
- even if our potential drug compounds are approved, we may not be able to
  produce them in commercial quantities or at reasonable costs;
- even if our potential drug compounds are approved, they may not achieve
  commercial acceptance;
- regulatory or governmental authorities may apply restrictions to any of our
  potential drug compounds, which could adversely affect their commercial
  success; and
- the proprietary rights of other parties may prevent us or our potential
  collaborative partners from marketing our potential drug compounds.

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11

If we fail to develop our potential drug compounds, our
financial results and financial condition will be adversely affected, we will
have to delay or terminate some or all of our research and development plans and
may be forced to cease operations.

Our research and development plans will require substantial
additional future funding which could impact our operational and financial
condition. Without the required additional funds, we will likely cease
operations.

It will take several years before we are able to develop
marketable potential drug compounds, if at all. Our research and development
plans will require substantial additional capital, arising from costs to:

- conduct research, non-clinical testing and human studies;
- establish pilot scale and commercial scale manufacturing processes and
  facilities; and
- establish and develop quality control, regulatory, marketing, sales,
  finance and administrative capabilities to support these programs.

Our future operating and capital needs will depend on many
factors, including:

- the pace of scientific progress in our research and development programs
  and the magnitude of these programs;
- the scope and results of preclinical testing and human studies;
- the time and costs involved in obtaining regulatory approvals;
- the time and costs involved in preparing, filing, prosecuting, maintaining
  and enforcing patent claims;
- competing technological and market developments;
- our ability to establish additional collaborations;
- changes in our existing collaborations;
- the cost of manufacturing scale-up; and
- the effectiveness of our commercialization activities.

We base our outlook regarding the need for funds on many
uncertain variables. Such uncertainties include the success of our research
initiatives, regulatory approvals, the timing of events outside our direct
control such as negotiations with potential strategic partners and other
factors. Any of these uncertain events can significantly change our cash
requirements as they determine such one-time events as the receipt or payment of
major milestones and other payments.

Additional funds will be required to support our operations and
if we are unable to obtain them on favorable terms, we may be required to cease
or reduce further research and development of our drug product programs, sell
some or all of our intellectual property, merge with another entity or cease
operations.

If we fail to demonstrate efficacy in our non-clinical
studies and clinical trials our future business prospects, financial condition
and operating results will be materially adversely affected.

The success of our research and development efforts will be
greatly dependent upon our ability to demonstrate potential drug compound
efficacy in non-clinical studies, as well as in clinical trials. Non-clinical
studies involve testing potential drug compounds in appropriate non-human
disease models to demonstrate efficacy and safety. Regulatory agencies evaluate
these data carefully before they will approve clinical testing in humans. If
certain non-clinical data reveals potential safety issues or the results are
inconsistent with an expectation of the potential drug compounds efficacy in
humans, the regulatory agencies may require additional more rigorous testing,
before

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12

allowing human clinical trials. This additional testing will
increase program expenses and extend timelines. We may decide to suspend further
testing on our potential drug compounds if, in the judgment of our management
and advisors, the non-clinical test results do not support further development.

Moreover, success in non-clinical testing and early clinical
trials does not ensure that later clinical trials will be successful, and we
cannot be sure that the results of later clinical trials will replicate the
results of prior clinical trials and non-clinical testing. The clinical trial
process may fail to demonstrate that our potential drug compounds are safe for
humans and effective for indicated uses. This failure would cause us to abandon
a drug candidate and may delay development of other potential drug compounds.
Any delay in, or termination of, our non-clinical testing or clinical trials
will delay the filing of an investigational new drug application and new drug
application with the Food and Drug Administration and, ultimately, our ability
to commercialize our potential drug compounds and generate product revenues. In
addition, we expect that our clinical trials will involve small patient
populations. Because of the small sample size, the results of these early
clinical trials may not be indicative of future results.

Following successful non-clinical testing, potential drug
compounds will need to be tested in a clinical development program to provide
data on safety and efficacy prior to becoming eligible for product approval and
licensure by regulatory agencies. From the first human trial through product
approval can take many years and 10-12 years is not unusual.

If any of our future clinical development potential drug
compounds become the subject of problems, our ability to sustain our development
programs will become critically compromised. For example, efficacy or safety
concerns may arise, whether or not justified, that could lead to the suspension
or termination of our clinical programs. Examples of problems that could arise
include, among others:

- efficacy or safety concerns with the potential drug compounds, even if not
  justified;
- unexpected side-effects;
- regulatory proceedings subjecting the potential drug compounds to potential
  recall;
- publicity affecting doctor prescription or patient use of the potential
  drug compounds;
- pressure from competitive products; or
- introduction of more effective treatments.

Each clinical phase is designed to test attributes of the drug
and problems that might result in the termination of the entire clinical plan
can be revealed at any time throughout the overall clinical program. The failure
to demonstrate efficacy in our clinical trials would have a material adverse
effect on our future business prospects, financial condition and operating
results.

If we do not obtain the support of qualified scientific
collaborators, our revenue, growth and profitability will likely be limited,
which would have a material adverse effect on our business.

We will need to establish relationships with leading scientists
and research institutions. We believe that such relationships are pivotal to
establishing products using our technologies as a standard of care for various
indications. Additionally, although in discussion, there is no assurance that
our current research partners will continue to work with us or that we will be
able to attract additional research partners. If we are not able to establish
scientific relationships to assist in our research and development, we may not
be able to successfully develop our potential drug compounds. If this happens,
our business will be adversely affected.

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13

We may not be able to develop market or generate sales of
our products to the extent anticipated. Our business may fail and investors
could lose all of their investment in our company.

Assuming that we are successful in developing our potential
drug compounds and receiving regulatory clearances to market our products, our
ability to successfully penetrate the market and generate sales of those
products may be limited by a number of factors, including the following:

- If our competitors receive regulatory approvals for and begin marketing
  similar products in the United States, the European Union, Japan and other
  territories before we do, greater awareness of their products as compared to
  ours will cause our competitive position to suffer;
- Information from our competitors or the academic community indicating that
  current products or new products are more effective than our future products
  could be, if and when they are generated, impede our market penetration or
  decrease our future market share; and,
- The price for our future products, as well as pricing decisions by our
  competitors, may have an effect on our revenues.

If this happens, our business will be adversely affected.

None of our potential drug compounds may reach the
commercial market for a number of reasons and our business may fail.

Successful research and development of pharmaceutical products
is high risk. Most products and development candidates fail to reach the market.
Our success depends on the discovery of new drug compounds that we can
commercialize. It is possible that our potential drug compounds may never reach
the market for a number of reasons. They may be found ineffective or may cause
harmful side-effects during non-clinical testing or clinical trials or fail to
receive necessary regulatory approvals. We may find that certain potential drug
compounds cannot be manufactured at a commercial scale and, therefore, they may
not be economical to produce. Our potential drug compounds could also fail to
achieve market acceptance or be precluded from commercialization by proprietary
rights of third parties. Furthermore, we do not expect our potential drug
compounds to be commercially available for a number of years, if at all. If none
of our potential drug compounds reach the commercial market, our business will
likely fail and investors will lose all of their investment in our company. If
this happens, our business will be adversely affected.

If our competitors succeed in developing products and
technologies that are more effective than our own, or if scientific developments
change our understanding of the potential scope and utility of our potential
drug compounds, then our technologies and future potential drug compounds may be
rendered undesirable or obsolete.

We face significant competition from industry participants that
are pursuing technologies similar to those that we are pursuing and are
developing pharmaceutical products that are competitive with our potential drug
compounds. Nearly all of our industry competitors have greater capital
resources, larger overall research and development staffs and facilities, and a
longer history in drug discovery and development, obtaining regulatory approval
and pharmaceutical product manufacturing and marketing than we do. With these
additional resources, our competitors may be able to respond to the rapid and
significant technological changes in the biotechnology and pharmaceutical
industries faster than we can. Our future success will depend in large part on
our ability to maintain a competitive position with respect to these
technologies. Rapid technological development, as well as new scientific
developments, may result in our potential drug compounds becoming obsolete
before we can recover any of the expenses incurred to develop them. For example,
changes in our understanding of the appropriate population of patients who
should be treated with a targeted therapy like we are developing may limit the
drugs market potential if it is subsequently demonstrated that only certain
subsets of patients should be treated with the targeted therapy.

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14

Our reliance on third parties, such as university
laboratories, contract manufacturing organizations and contract or clinical
research organizations, may result in delays in completing, or a failure to
complete, non-clinical testing or clinical trials if they fail to perform under
our agreements with them.

In the course of product development, we may engage university
laboratories, other biotechnology companies or contract or clinical
manufacturing organizations to manufacture drug material for us to be used in
non-clinical and clinical testing and contract research organizations to conduct
and manage non-clinical and clinical studies. If we engage these organizations
to help us with our non-clinical and clinical programs, many important aspects
of this process have been and will be out of our direct control. If any of these
organizations we may engage in the future fail to perform their obligations
under our agreements with them or fail to perform non-clinical testing and/or
clinical trials in a satisfactory manner, we may face delays in completing our
clinical trials, as well as commercialization of any of our potential drug
compounds. Furthermore, any loss or delay in obtaining contracts with such
entities may also delay the completion of our clinical trials, regulatory
filings and the potential market approval of our potential drug compounds.

If we fail to compete successfully with respect to
acquisitions, joint venture and other collaboration opportunities, we may be
limited in our ability to research and develop our potential drug
compounds.

Our competitors compete with us to attract established
biotechnology and pharmaceutical companies or organizations for acquisitions,
joint ventures, licensing arrangements or other collaborations. Collaborations
include contracting with academic research institutions for the performance of
specific scientific testing. If our competitors successfully enter into
partnering arrangements or license agreements with academic research
institutions, we will then be precluded from pursuing those specific
opportunities. Since each of these opportunities is unique, we may not be able
to find a substitute. Other companies have already begun many drug development
programs, which may target diseases that we are also targeting, and have already
entered into partnering and licensing arrangements with academic research
institutions, reducing the pool of available opportunities.

Universities and public and private research institutions also
compete with us. While these organizations primarily have educational or basic
research objectives, they may develop proprietary technology and acquire patents
that we may need for the development of our potential drug compounds. We will
attempt to license this proprietary technology, if available. These licenses may
not be available to us on acceptable terms, if at all. If we are unable to
compete successfully with respect to acquisitions, joint venture and other
collaboration opportunities, we may be limited in our ability to develop new
products.

The use of any of our potential drug compounds in clinical
trials may expose us to liability claims, which may cost us a significant
amounts of money to defend against or pay out, causing our business to suffer.

The nature of our business exposes us to potential liability
risks inherent in the testing, manufacturing and marketing of our potential drug
compounds. We currently do not have any potential drug compounds in clinical
trials, however, when any of our potential drug compounds enter into clinical
trials or become marketed products they could potentially harm people or
allegedly harm people and we may be subject to costly and damaging product
liability claims. Some of the patients who participate in clinical trials are
already critically ill when they enter a trial. The waivers we obtain may not be
enforceable and may not protect us from liability or the costs of product
liability litigation. Although we intend to obtain product liability insurance
that we believe is adequate, we are subject to the risk that our insurance will
not be sufficient to cover claims. The insurance costs along with the defense or
payment of liabilities above the amount of coverage could cost us significant
amounts of money, causing our business to suffer.

The patent positions of biopharmaceutical products are
complex and uncertain and we may not be able to protect our patented or other
intellectual property. If we cannot protect this property, we may be prevented
from using it or our competitors may use it and our business could suffer
significant harm. Also, the time and money we spend on acquiring and enforcing
patents and other intellectual property will reduce the time and money we have
available for our research and development, possibly resulting in a slow down or
cessation of our research and development.

We own patents related to certain of our potential drug
compounds. However, these patents do not ensure the protection of our
intellectual property for a number of reasons, including the following:

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15

| | 1. | Competitors may interfere with our patent process in a
      variety of ways. Competitors may claim that they invented the claimed
      invention prior to us. Competitors may also claim that we are infringing
      on their patents and therefore cannot practice our technology as claimed
      under our patents and patent applications. Competitors may also contest
      our patents and patent application, if issued, by showing the patent
      examiner that the invention was not original, was not novel or was
      obvious. In litigation, a competitor could claim that our patents and
      patent application are not valid for a number of reasons. If a court
      agrees, we would lose that patents or patent application. As a company, we
      have no meaningful experience with competitors interfering with our
      patents or patent applications.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | 2. | Because of the time, money and effort involved in
      obtaining and enforcing patents, our management may spend less time and
      resources on developing potential drug compounds than they otherwise
      would, which could increase our operating expenses and delay product
      programs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | 3. | Receipt of a patent may not provide much practical
      protection. If we receive a patent with a narrow scope, then it will be
      easier for competitors to design products that do not infringe on our
      patent.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | 4. | In addition, competitors also seek patent protection for
      their inventions. Due to the number of patents in our field, we cannot be
      certain that we do not infringe on existing patents or that we will not
      infringe on patents granted in the future. If a patent holder believes our
      potential drug compound infringes on their patent, the patent holder may
      sue us even if we have received patent protection for our technology. If
      someone else claims we infringe on their patent, we would face a number of
      issues which could cause a slow down or cessation of our research and
      development, including the following:                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | (d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

It is also unclear whether our trade secrets are adequately
protected. While we use reasonable efforts to protect our trade secrets, our
employees or consultants may unintentionally or willfully disclose our
information to competitors. Enforcing a claim that someone else illegally
obtained and is using our trade secrets, like patent litigation, is expensive
and time consuming, and the outcome is unpredictable. In addition, courts
outside the United States are sometimes less willing to protect trade secrets.
Our competitors may independently develop equivalent knowledge, methods and
know-how.

We may also support and collaborate in research conducted by
government organizations, hospitals, universities or other educational
institutions. These research partners may be unwilling to grant us any exclusive
rights to technology or products derived from these collaborations prior to
entering into the relationship.

If we do not obtain required licenses or rights, we could
encounter delays in our product development efforts while we attempt to design
around other patents or even be prohibited from developing, manufacturing or
selling potential drug compounds requiring these licenses. There is also a risk
that disputes may arise as to the rights to technology or potential drug
compounds developed in collaboration with other parties.

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16

We will incur increased costs as a result of recently
enacted and proposed changes in laws and regulations and we cannot predict the
impact of any future changes in law.

We face burdens relating to the recent trend toward stricter
corporate governance and financial reporting standards. New legislation or
regulations such as Section 404 of the Sarbanes-Oxley Act of 2002 follow
the trend of imposing stricter corporate governance and financial reporting
standards have led to an increase in our costs of compliance including increases
in consulting, auditing and legal fees. Any new rules could make it more
difficult or more costly for us to obtain certain types of insurance, including
directors and officers liability insurance, and we may be forced to accept
reduced policy limits and coverage or incur substantially higher costs to obtain
the same or similar coverage. The impact of these events could also make it more
difficult for us to attract and retain qualified persons to serve on our board
of directors, our board committees or as executive officers. A failure to comply
with these new laws and regulations may impact market perception of our
financial condition and could materially harm our business. Additionally, it is
unclear what additional laws or regulations may develop, and we cannot predict
the ultimate impact of any future changes in law.

Risks Related to our Common Stock

A decline in the price of our common stock could affect our
ability to raise further working capital and adversely impact our operations and
would severely dilute existing or future investors if we were to raise funds at
lower prices.

A prolonged decline in the price of our common stock could
result in a reduction in the liquidity of our common stock and a reduction in
our ability to raise capital. Because our operations have been financed through
the sale of equity securities, a decline in the price of our common stock could
be especially detrimental to our liquidity and our continued operations. Any
reduction in our ability to raise equity capital in the future would force us to
reallocate funds from other planned uses and would have a significant negative
effect on our business plans and operations, including our ability to develop
new products and continue our current operations. If the stock price declines,
there can be no assurance that we can raise additional capital or generate funds
from operations sufficient to meet our obligations. We believe the following
factors could cause the market price of our common stock to continue to
fluctuate widely and could cause our common stock to trade at a price below the
price at which you purchase your shares of common stock:

- actual or anticipated variations in our quarterly operating results;
- announcements of new services, products, acquisitions or strategic
  relationships by us or our competitors;
- changes in accounting treatments or principles;
- changes in earnings estimates by securities analysts and in analyst
  recommendations; and
- general political, economic, regulatory and market conditions.

The market price for our common stock may also be affected by
our ability to meet or exceed expectations of analysts or investors. Any failure
to meet these expectations, even if minor, could materially adversely affect the
market price of our common stock.

If we issue additional shares of common stock in the future,
it will result in the dilution of our existing stockholders.

Our articles of incorporation authorize the issuance of
150,000,000 shares of common stock. Our board of directors has the authority to
issue additional shares of common stock up to the authorized capital stated in
the articles of incorporation. Our board of directors may choose to issue some
or all of such shares of common stock to acquire one or more businesses or to
provide additional financing in the future. The issuance of any such shares of
common stock will result in a reduction of the book value or market price of the
outstanding shares of our common stock. If we do issue any such additional
shares of common stock, such issuance also will cause a reduction in the
proportionate ownership and voting power of all other stockholders. Further, any
such issuance may result in a change of control of our corporation.

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17

Trading on the OTC Bulletin Board may be volatile and
sporadic, which could depress the market price of our common stock and make it
difficult for our stockholders to resell their shares.

There is currently a limited market for our common stock. Our
common stock is quoted on the OTC Bulletin Board service of the Financial
Industry Regulatory Authority. Trading in stock quoted on the OTC Bulletin Board
is often thin and characterized by wide fluctuations in trading prices, due to
many factors that may have little to do with our operations or business
prospects. This volatility could depress the market price of our common stock
for reasons unrelated to operating performance. Moreover, the OTC Bulletin Board
is not a stock exchange, and trading of securities on the OTC Bulletin Board is
often more sporadic than the trading of securities listed on a quotation system
like NASDAQ. There is no assurance that a sufficient market will develop in the
stock, in which case it could be difficult for our stockholders to resell their
stock.

Our stock is a penny stock. Trading of our stock may be
restricted by the Securities and Exchange Commissions penny stock regulations
which may limit a stockholders ability to buy and sell our stock.

Our stock is a penny stock. The Securities and Exchange
Commission has adopted Rule 15g-9 which generally defines penny stock to be
any equity security that has a market price (as defined) less than $5.00 per
share or an exercise price of less than $5.00 per share, subject to certain
exceptions. Our securities are covered by the penny stock rules, which impose
additional sales practice requirements on broker-dealers who sell to persons
other than established customers and accredited investors. The term
accredited investor refers generally to institutions with assets in excess of
$5,000,000 or individuals with a net worth in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document in a form prepared by the Securities and Exchange Commission which
provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction and monthly account
statements showing the market value of each penny stock held in the customers
account. The bid and offer quotations, and the broker-dealer and salesperson
compensation information, must be given to the customer orally or in writing
prior to effecting the transaction and must be given to the customer in writing
before or with the customers confirmation. In addition, the penny stock rules
require that prior to a transaction in a penny stock not otherwise exempt from
these rules, the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchasers written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor interest
in and limit the marketability of our common stock.

The Financial Industry Regulatory Authority sales practice
requirements may also limit a stockholders ability to buy and sell our stock.

In addition to the penny stock rules described above, the
Financial Industry Regulatory Authority or FINRA has adopted rules that require
that in recommending an investment to a customer, a broker-dealer must have
reasonable grounds for believing that the investment is suitable for that
customer. Prior to recommending speculative low-priced securities to their
non-institutional customers, broker-dealers must make reasonable efforts to
obtain information about the customers financial status, tax status, investment
objectives and other information. Under interpretations of these rules, FINRA
believes that there is a high probability that speculative low-priced securities
will not be suitable for at least some customers. The FINRA requirements make it
more difficult for broker-dealers to recommend that their customers buy our
common stock, which may limit your ability to buy and sell our stock and have an
adverse effect on the market for shares of our common stock.

Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds.

On October 2, 2009 we issued an aggregate of 266,666 units of
our securities at a purchase price of $2.25 per unit to two offshore investors.
Each unit consists of one share of common stock in the capital of our company
and 1.125 common share purchase warrants. One full warrant entitles the holder
to purchase one additional share of common stock at a price of $2.25 per warrant
share for a period of two years. We issued these units to two non-U.S. persons

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18

(as that term is defined in Regulation S of the Securities Act
of 1933, as amended) in an offshore transaction in which we relied on the
registration exemption provided for in Regulation S of the Securities Act of
1933, as amended.

Item 3. Defaults upon Senior Securities.

Pursuant to a termination agreement we have issued one
non-interest bearing promissory note to Panos Kontzalis, a former officer of our
company, in the amount of $200,000. We have repaid $100,000 and, as at December
31, 2009 and September 30, 2009, we were in default of the payment terms for the
remaining $100,000 balance owing. Subsequent to December 31, 2009, we and Mr.
Kontzalis agreed to settle the outstanding amount owed by issuing 49,505 shares
of our common stock.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

Item 5. Other Information.

Pursuant to a termination agreement we have issued one
non-interest bearing promissory note to Panos Kontzalis, a former officer of our
company, in the amount of $200,000. We have repaid $100,000 and, as at December
31, 2009 and September 30, 2009, we were in default of the payment terms for the
remaining $100,000 balance owing. On February 8, 2010, we agreed to settle the
outstanding amount owed by issuing 49,505 shares of our common stock. We will
issue these shares to a non-U.S. person (as that term is defined in Regulation S
of the Securities Act of 1933, as amended) in an offshore transaction relying on
the registration exemption provided for in Regulation S of the Securities Act of
1933, as amended.

On May 5, 2009, we issued Stonehedge Limited a promissory note
with a principal amount of $150,000 that matured on December 31, 2009 bearing an
interest rate of 8%. On January 1, 2010, this promissory note was replaced by
another promissory note with a principal amount of $157,890 maturing on December
31, 2010 bearing interest rate of 8%.

Item 6. Exhibits.

Number
    Description(3)
    Articles of Incorporation and Bylaws3.1
    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
      Registration Statement on Form SB-2 filed on January 13, 2005)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 indentures4.1
    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


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19

Number
    Description10.1
    Agreement between Anavex Life Sciences Corp. and Dr.
      Alexandre Vamvakides dated January 31, 2007 (incorporated by reference to
      an exhibit to our Current Report on Form 8-K filed on February 7, 2007)10.2
    Abstract of Disclosure of Greek Patent Number 1002616
      (incorporated by reference to an exhibit to our Current Report on Form 8-K
      filed on February 7, 2007)10.3
    Abstract of Disclosure of Greek Patent Number 1004208
      (incorporated by reference to an exhibit to our Current Report on Form 8-K
      filed on February 7, 2007)10.4
    Abstract of Disclosure of Greek Patent Number 1004868
      (incorporated by reference to an exhibit to our Current Report on Form 8-K
      filed on February 7, 2007)10.5
    Written description of Greek Patent Application Number
      20070100020 (incorporated by reference to an exhibit to our Current Report
      on Form 8-K filed on February 7, 2007)10.6
    Form of Stock Option Agreement (incorporated by reference
      to an exhibit to our Current Report on Form 8-K filed on February 22,
      2007)10.7
    Shares for Services and Subscription Agreement dated
      September 11, 2007 between our company and Eurogenet Labs S.A.
      (incorporated by reference to an exhibit to our Current Report on Form 8-K
      filed on September 27, 2007)10.8
    2007 Stock Option Plan (incorporated by reference to an
      exhibit to our Current Report on Form 8-K filed on September 28, 2007)10.9
    Consulting Agreement with Cameron Durrant dated May 20,
      2008 (incorporated by reference to an exhibit to our Quarterly Report on
      Form 10-QSB filed on August 18, 200810.10
    Form of Convertible Loan Agreement (incorporated by
      reference to an exhibit to our Current Report on Form 8-K filed on April
      3, 2009)10.11
    Consulting Agreement with Tariq Arshad dated March 2,
      2009 (incorporated by reference to an exhibit to our Current Report on
      Form 8-K filed on April 3, 2009)10.13
    Consulting Agreement with Dr. Mark Smith dated January
      13, 2009 (incorporated by reference to an exhibit to our Current Report on
      Form 8-K filed on April 3, 2009)10.14
    Form of Subscription Agreement (incorporated by reference
      to an exhibit to our Current Report on Form 8-K filed on April 3, 2009)10.15
    Form of Warrant Certificate (incorporated by reference to
      an exhibit to our Current Report on Form 8-K filed on April 3, 2009)10.16
    Amended Consulting Agreement with Cameron Durrant dated
      May 14, 2009 (incorporated by reference to an exhibit to our Current
      Report on Form 8-K filed on June 23, 2009)10.17
    CEO Consulting Agreement with Dr. Herve de Kergrohen
      dated June 12, 2009 (incorporated by reference to an exhibit to our
      Current Report on Form 8-K filed on June 23, 2009)10.18
    Form of Private Placement subscription agreement dated
      June 15, 2009 (incorporated by reference to an exhibit to our Current
      Report on Form 8-K filed on June 23, 2009)10.19
    Shares for Services Agreement with Andreas Eleuthariadis
      dated June 10, 2009 (incorporated by reference to an exhibit to our
      Current Report on Form 8-K filed on June 23, 2009)10.20
    Shares for Services Agreement with Vasileios Kourafalos
      dated June 10, 2009 (incorporated by reference to an exhibit to our
      Current Report on Form 8-K filed on June 23, 2009)10.21
    Shares for Services Agreement with George Kalkanis dated
      June 10, 2009 (incorporated by reference to an exhibit to our Current
      Report on Form 8-K filed on June 23, 2009)10.22
    Stock Option Agreement with Alexandre Vamvakides dated
      June 11, 2009 (incorporated by reference to an exhibit to our Current
      Report on Form 8-K filed on June 23, 2009)10.23
    Form of Private Placement Subscription Agreement
      Convertible Loan (incorporated by reference to an exhibit to our Current
      Report on Form 8-K filed on June 26, 2009)10.24
    Form of Private Placement Subscription Agreement for
      Units (incorporated by reference to an exhibit to our Current Report on
      Form 8-K filed on June 26, 2009)10.25
    Consultant Services Agreement with NAD Ltd. dated July 1,
      2009 (incorporated by reference to an exhibit to our Current Report on
      Form 8-K filed on November 24, 2009)


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20

Number
      Description10.26
      Form of Subscription Agreement
          (incorporated by reference to an exhibit to our Current Report on Form
          8-K filed on November 24, 2009)10.27
      Form of Warrant Certificate
          (incorporated by reference to an exhibit to our Current Report on Form
          8-K filed on August 12, 2009)10.28
      Stock Option Agreement with
          Alexander Vamvakides dated October 19, 2009 (incorporated by reference
          to an exhibit to our Current Report on Form 8-K filed on November 24,
          2009)10.29*
      Promissory note issued to Stonehedge
          Limited on January 1, 2010(14)
      Code of Ethics14.1
      Code of Conduct (incorporated
          by reference to an exhibit to our Current Report on Form 8-K filed on
          September 28, 2007)(21)
      Subsidiaries21.1
      Anavex Life Sciences (France) SA, incorporated under the
          laws of France(31)
      Section 302 Certification31.1*
      Section 302 Certification of
          Dr. Herve de Kergrohen31.2*
      Section 302 Certification of
          Harvey Lalach(32)
      Section 906 Certification32.1*
      Section 906 Certification of
          Dr. Herve de Kergrohen32.2*
      Section 906 Certification of
          Harvey Lalach


* Filed herewith.

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21

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.

By:

/s/ Dr. Herve de
KergrohenDr.
Herve de KergrohenChief Executive Officer and Director (Principal
Executive Officer) Date: February 22, 2010

By:

/s/ Harvey
LalachHarvey
LalachPresident, Chief Financial Officer, Secretary and Director
(Principal Financial Officer and Principal Accounting Officer) Date:
February 22, 2010

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