---

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,
2010

or

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

For the transition period from _____to _____

Commission File Number: 000-51652

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

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

50 Harrison Street, Suite 315A, Hoboken, NJ
07030(Address of principal executive offices) (Zip Code)

1-800-689-3939(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:
25,188,240 shares of common stock outstanding as of February 14,
2011.

---

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.                                                                    | 9 
|PART
      II - OTHER INFORMATION                                                                          | 9 
|Item
      1. Legal Proceedings.                                                                           | 9 
|Item
      1A. Risk Factors                                                                                | 10
|Item
      2. Unregistered Sales of Equity Securities and Use of Proceeds                                  | 19
|Item
      3. Defaults upon Senior Securities.                                                             | 19
|Item
      4. (Removed and Reserved)                                                                       | 19
|Item
      5. Other Information                                                                            | 19
|Item
      6. Exhibits.                                                                                    | 19
|SIGNATURES                                                                                                 | 23

---

1

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

---

ANAVEX LIFE SCIENCES CORP.

(A Development Stage Company)

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010

(Stated in US Dollars)

---

|ANAVEX LIFE SCIENCES CORP.              
|----------------------------------------
|(A Development Stage Company)           
|INTERIM CONSOLIDATED BALANCE SHEETS     
|December 31, 2010 and September 30, 2010
|(Stated in US Dollars)                  
|(Unaudited)                             

|                                                                                                         |   | December 31, |   |   | September 30, |  
|-------------------------------------------------------------------------------------------------------- | - | ------------ | - | - | ------------- | -
|                                                                                                         |   | 2010         |   |   | 2010          |  
|ASSETS                                                                                                   |   |              |   |   |               |  
|                                                                                                         |   |              |   |   |               |  
|Current                                                                                                  |   |              |   |   |               |  
|Cash                                                                                                     | $ | 423,783      |   | $ | 264,669       |  
|VAT receivable                                                                                           |   | -            |   |   | 37,820        |  
|Prepaid expenses                                                                                         |   | 61,905       |   |   | 23,269        |  
|                                                                                                         |   | 485,688      |   |   | 325,758       |  
|                                                                                                         |   |              |   |   |               |  
|Equipment                                                                                                |   | 3,601        |   |   | 4,091         |  
|                                                                                                         | $ | 489,289      |   | $ | 329,849       |  
|                                                                                                         |   |              |   |   |               |  
|LIABILITIES                                                                                              |   |              |   |   |               |  
|                                                                                                         |   |              |   |   |               |  
|Current                                                                                                  |   |              |   |   |               |  
|Accounts payable and accrued liabilities
      - Note 5                                                  | $ | 382,937      |   | $ | 797,763       |  
|Current portion of promissory notes payable 
      Note 3                                               |   | 200,000      |   |   | 2,492,308     |  
|                                                                                                         |   | 582,937      |   |   | 3,290,071     |  
|                                                                                                         |   |              |   |   |               |  
|CAPITAL DEFICIT                                                                                          |   |              |   |   |               |  
|                                                                                                         |   |              |   |   |               |  
|Capital stock  Note 4                                                                                   |   |              |   |   |               |  
|Authorized: 
                150,000,000 common
      shares, par value $0.001 per share                 |   |              |   |   |               |  
|Issued and outstanding: 
                25,127,226 common
      shares (September 30, 2010: 23,516,952) |   | 25,128       |   |   | 23,517        |  
|Shares to be issued - Note 6                                                                             |   | 60,000       |   |   | -             |  
|Additional paid-in capital                                                                               |   | 23,604,049   |   |   | 18,912,335    |  
|Deficit accumulated during the development stage                                                         |   | (23,782,825  | ) |   | (21,896,074   | )
|                                                                                                         |   |              |   |   |               |  
|                                                                                                         |   | (93,648      | ) |   | (2,960,222    | )
|                                                                                                         | $ | 489,289      |   | $ | 329,849       |  

Nature of Operations and Ability to Continue as a Going Concern
   Note 1 
  Commitments  Note 6

SEE ACCOMPANYING NOTES

---

|ANAVEX LIFE SCIENCES CORP.                                                         
|-----------------------------------------------------------------------------------
|(A Development Stage Company)                                                      
|INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS                                      
|for the three months ended December 31, 2010 and 2009 and                          
|for the period from January 23, 2004 (Date of Inception)
      to December 31, 2010
|(Stated in US Dollars)                                                             
|(Unaudited)                                                                        

|                                              |   |                    |   |   |               |   |   | January 23,   |  
|--------------------------------------------- | - | ------------------ | - | - | ------------- | - | - | ------------- | -
|                                              |   |                    |   |   |               |   |   | 2004 (Date of |  
|                                              |   | Three months ended |   |   | Inception) to |  
|                                              |   | December 31,       |   |   | December 31,  |  
|                                              |   | 2010               |   |   | 2009          |   |   | 2010          |  
|                                              |   |                    |   |   |               |   |   |               |  
|Expenses                                      |   |                    |   |   |               |   |   |               |  
|Accounting and audit fees                     | $ | 48,948             |   | $ | 21,859        |   | $ | 413,076       |  
|Amortization and depreciation                 |   | 491                |   |   | 190           |   |   | 2,031         |  
|Bank charges and interest                     |   | 2,043              |   |   | 1,715         |   |   | 29,686        |  
|Consulting fees  Note 5                      |   | 652,201            |   |   | 473,184       |   |   | 8,483,091     |  
|Investor relations                            |   | 54,535             |   |   | 54,511        |   |   | 644,299       |  
|Legal fees                                    |   | 19,747             |   |   | 27,908        |   |   | 406,236       |  
|Management fees                               |   | -                  |   |   | -             |   |   | 14,625        |  
|Office and miscellaneous                      |   | 6,469              |   |   | 3,691         |   |   | 114,938       |  
|Insurance                                     |   | 4,815              |   |   | -             |   |   | 4,815         |  
|Registration and filing fees                  |   | 9,062              |   |   | 6,133         |   |   | 77,788        |  
|Rent and administration                       |   | 41,819             |   |   | -             |   |   | 203,379       |  
|Research and development                      |   | 497,290            |   |   | 211,479       |   |   | 7,805,100     |  
|Travel                                        |   | 31,725             |   |   | 81,037        |   |   | 523,784       |  
|Website design and maintenance                |   | -                  |   |   | -             |   |   | 28,417        |  
|                                              |   |                    |   |   |               |   |   |               |  
|Loss before other income (expenses)           |   | (1,369,145         | ) |   | (881,707      | ) |   | (18,751,265   | )
|Other income (expenses)                       |   |                    |   |   |               |   |   |               |  
|Interest                                      |   | (7,956             | ) |   | (22,802       | ) |   | (405,390      | )
|Accretion of debt discount                    |   | -                  |   |   | (220,410      | ) |   | (2,007,161    | )
|Change in fair value of derivative liability  |   | -                  |   |   | 649,038       |   |   | (630,774      | )
|Debt conversion expense - Note 3              |   | (504,160           | ) |   | -             |   |   | (504,160      | )
|Loss on settlement of accounts payable        |   | -                  |   |   | -             |   |   | (444,000      | )
|Loss on extinguishment of debt                |   | -                  |   |   | -             |   |   | (487,469      | )
|Foreign exchange gain (loss)                  |   | (5,490             | ) |   | 8,270         |   |   | (1,802        | )
|                                              |   |                    |   |   |               |   |   |               |  
|Net loss for the period                       | $ | (1,886,751         | ) | $ | (467,611      | ) | $ | (23,232,021   | )
|                                              |   |                    |   |   |               |   |   |               |  
|Basic and diluted loss per share              |   | ($0.08             | ) |   | ($0.02        | ) |   |               |  
|                                              |   |                    |   |   |               |   |   |               |  
|Weighted average number of shares outstanding |   | 24,267,082         |   |   | 21,007,630    |   |   |               |  

SEE ACCOMPANYING NOTES

---

|ANAVEX LIFE SCIENCES CORP.                                                         
|-----------------------------------------------------------------------------------
|(A Development Stage Company)                                                      
|INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS                                      
|for the three months ended December 31, 2010 and 2009 and                          
|for the period from January 23, 2004 (Date of Inception)
      to December 31, 2010
|(Stated in US Dollars)                                                             
|(Unaudited)                                                                        

|                                                                          |   |                    |   |   |               |   |   | January 23,   |  
|------------------------------------------------------------------------- | - | ------------------ | - | - | ------------- | - | - | ------------- | -
|                                                                          |   |                    |   |   |               |   |   | 2004 (Date of |  
|                                                                          |   | Three months ended |   |   | Inception) to |  
|                                                                          |   | December 31,       |   |   | December 31,  |  
|                                                                          |   | 2010               |   |   | 2009          |   |   | 2010          |  
|Cash Flows used in Operating Activities                                   |   |                    |   |   |               |   |   |               |  
|Net loss for the period                                                   | $ | (1,886,751         | ) | $ | (467,611      | ) | $ | (23,232,021   | )
|Adjustments to reconcile net loss
      to net cash used in operations:   |   |                    |   |   |               |   |   |               |  
|Amortization                                                              |   | 491                |   |   | 190           |   |   | 2,031         |  
|Accretion
      of debt discount                                          |   | -                  |   |   | 220,410       |   |   | 2,007,161     |  
|Stock based compensation                                                  |   | 187,750            |   |   | 131,719       |   |   | 3,454,927     |  
|Amortization
      of deferred financing costs                            |   | -                  |   |   | 5,826         |   |   | 55,777        |  
|Change in fair value of derivative
      liability                        |   | -                  |   |   | (649,038      | ) |   | 630,774       |  
|Consulting
      expense recorded in exchange for shares to be issued     |   | -                  |   |   | -             |   |   | 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        |  
|Debt conversion
      expense                                             |   | 504,160            |   |   |               |   |   | 504,160       |  
|Loss on settlement of accounts
      payable                              |   | -                  |   |   | -             |   |   | 444,000       |  
|Loss on extinguishment
      of debt                                      |   | -                  |   |   | -             |   |   | 487,469       |  
|Rent contributed                                                          |   | -                  |   |   | -             |   |   | 3,750         |  
|Changes in non-cash working capital
      balances related to operations: |   |                    |   |   |               |   |   |               |  
|VAT receivable                                                            |   | 37,820             |   |   | -             |   |   | -             |  
|Prepaid expenses                                                          |   | (38,636            | ) |   | 3             |   |   | (61,905       | )
|Accounts payable and accrued
      liabilities                            |   | 111,205            |   |   | (21,459       | ) |   | 2,473,408     |  
|Net cash used in operating activities                                     |   | (1,083,961         | ) |   | (779,960      | ) |   | (11,376,897   | )
|                                                                          |   |                    |   |   |               |   |   |               |  
|Cash Flows provided by Financing Activities                               |   |                    |   |   |               |   |   |               |  
|Issuance of common shares                                                 |   | 1,183,075          |   |   | 300,000       |   |   | 7,412,146     |  
|Share subscriptions received                                              |   | 60,000             |   |   | -             |   |   | 60,000        |  
|Proceeds from promissory notes                                            |   | -                  |   |   | 150,000       |   |   | 4,067,500     |  
|Repayment of promissory notes                                             |   | -                  |   |   | -             |   |   | (100,000      | )
|Due to related parties                                                    |   | -                  |   |   | -             |   |   | 33,665        |  
|Shareholder advances                                                      |   | -                  |   |   | -             |   |   | 333,000       |  
|Net cash provided by financing activities                                 |   | 1,243,075          |   |   | 450,000       |   |   | 11,806,311    |  
|                                                                          |   |                    |   |   |               |   |   |               |  
|Cash Flows used in Investing Activities                                   |   |                    |   |   |               |   |   |               |  
|Acquisition of equipment                                                  |   | -                  |   |   | -             |   |   | (5,631        | )
|Net cash used in investing activities                                     |   | -                  |   |   | -             |   |   | (5,631        | )
|                                                                          |   |                    |   |   |               |   |   |               |  
|Increase (decrease) in cash during the period                             |   | 159,114            |   |   | (329,960      | ) |   | 423,783       |  
|Cash, beginning of period                                                 |   | 264,669            |   |   | 350,994       |   |   | -             |  
|Cash, end of period                                                       | $ | 423,783            |   | $ | 21,034        |   | $ | 423,783       |  

Supplemental Cash Flow Information  Note 7

SEE ACCOMPANYING NOTES

---

|ANAVEX LIFE SCIENCES CORP.                                                    
|------------------------------------------------------------------------------
|(A Development Stage Company)                                                 
|INTERIM CONSOLIDATED STATEMENT OF CHANGES IN CAPITAL DEFICIT                  
|for the period January 23, 2004 (Date of Inception) to December
      31, 2010
|(Stated in US Dollars)                                                        
|(Unaudited)                                                                   

|                                                                                                |  |              |  |   |             |  |   |            |  |   |           |  |   | Deficit     |   |   |            |  
|----------------------------------------------------------------------------------------------- |  | ------------ |  | - | ----------- |  | - | ---------- |  | - | --------- |  | - | ----------- | - | - | ---------- | -
|                                                                                                |  | Common Stock |  |   | Accumulated |  |   |            | 
|                                                                                                |  |              |  |   |             |  |   | Additional |  |   | Common    |  |   | During the  |   |   |            |  
|                                                                                                |  |              |  |   |             |  |   | Paid-in    |  |   | Shares to |  |   | Development |   |   |            |  
|                                                                                                |  | Shares       |  |   | Par Value   |  |   | Capital    |  |   | be Issued |  |   | Stage       |   |   | Total      |  
|                                                                                                |  |              |  |   |             |  |   |            |  |   |           |  |   |             |   |   |            |  
|Capital stock issued for cash on January 23,
      2004 - at $0.0033                            |  | 12,000,000   |  | $ | 12,000      |  | $ | 28,000     |  | $ | -         |  | $ | -           |   | $ | 40,000     |  
|Net loss from January 23, 2004 to September
      30, 2004                                      |  | -            |  |   | -           |  |   | -          |  |   | -         |  |   | (14,395     | ) |   | (14,395    | )
|Balance, September 30, 2004                                                                     |  | 12,000,000   |  |   | 12,000      |  |   | 28,000     |  |   | -         |  |   | (14,395     | ) |   | 25,605     |  
|Capital stock issued for cash on December
      31, 2004 - at $0.0033                           |  | 7,200,000    |  |   | 7,200       |  |   | 16,800     |  |   | -         |  |   | -           |   |   | 24,000     |  
|Management fees contributed                                                                     |  | -            |  |   | -           |  |   | 13,000     |  |   | -         |  |   | -           |   |   | 13,000     |  
|Rent contributed                                                                                |  | -            |  |   | -           |  |   | 3,000      |  |   | -         |  |   | -           |   |   | 3,000      |  
|Net loss for the year                                                                           |  | -            |  |   | -           |  |   | -          |  |   | -         |  |   | (91,625     | ) |   | (91,625    | )
|Balance, September 30, 2005                                                                     |  | 19,200,000   |  |   | 19,200      |  |   | 60,800     |  |   | -         |  |   | (106,020    | ) |   | (26,020    | )
|Management fees contributed                                                                     |  | -            |  |   | -           |  |   | 1,625      |  |   | -         |  |   | -           |   |   | 1,625      |  
|Rent contributed                                                                                |  | -            |  |   | -           |  |   | 750        |  |   | -         |  |   | -           |   |   | 750        |  
|Debt forgiven by directors                                                                      |  | -            |  |   | -           |  |   | 33,666     |  |   | -         |  |   | -           |   |   | 33,666     |  
|Net loss for the year                                                                           |  | -            |  |   | -           |  |   | -          |  |   | -         |  |   | (25,532     | ) |   | (25,532    | )
|Balance, September 30, 2006                                                                     |  | 19,200,000   |  |   | 19,200      |  |   | 96,841     |  |   | -         |  |   | (131,552    | ) |   | (15,511    | )
|Capital stock issued for research and development
    services on September 24, 2007 - at $3.60 |  | 222,222      |  |   | 222         |  |   | 799,778    |  |   | -         |  |   | -           |   |   | 800,000    |  
|Capital stock issued for settlement of
    loan payable on September 25, 2007 - at $3.60        |  | 92,500       |  |   | 93          |  |   | 332,907    |  |   | -         |  |   | -           |   |   | 333,000    |  
|Net loss for the year                                                                           |  | -            |  |   | -           |  |   | -          |  |   | -         |  |   | (1,579,993  | ) |   | (1,579,993 | )
|Balance, September 30, 2007  Carried
      forward                                             |  | 19,514,722   |  | $ | 19,515      |  | $ | 1,229,526  |  | $ | -         |  | $ | (1,711,545  | ) | $ | (462,504   | )

SEE ACCOMPANYING NOTES

---

|ANAVEX LIFE SCIENCES CORP.                                                    
|------------------------------------------------------------------------------
|(A Development Stage Company)                                                 
|INTERIM CONSOLIDATED STATEMENT OF CHANGES IN CAPITAL DEFICIT                  
|for the period January 23, 2004 (Date of Inception) to December
      31, 2010
|(Stated in US Dollars)                                                        
|(Unaudited)                                                                   

|                                                                                  |  |              |  |   |             |  |   |            |  |   |           |   |   | Deficit     |     |  |            |  
|--------------------------------------------------------------------------------- |  | ------------ |  | - | ----------- |  | - | ---------- |  | - | --------- | - | - | ----------- | --- |  | ---------- | -
|                                                                                  |  | Common Stock |  |   | Accumulated |  |   |            | 
|                                                                                  |  |              |  |   |             |  |   | Additional |  |   | Common    |   |   | During the  |     |  |            |  
|                                                                                  |  |              |  |   |             |  |   | Paid-in    |  |   | Shares to |   |   | Development |     |  |            |  
|                                                                                  |  | Shares       |  |   | Par Value   |  |   | Capital    |  |   | be 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 debt 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         |  |   | 606,325    |  |   | -         |   |   | -           |     |  | 606,467    |  
|Stock based compensation                                                          |  | -            |  |   | -           |  |   | 1,493,937  |  |   | -         |   |   | -           |     |  | 1,493,937  |  
|Net loss for the year                                                             |  | -            |  |   | -           |  |   | -          |  |   | -         |   |   | (5,351,269  | )   |  | (5,351,269 | )
|Balance, September 30, 2008 - carried forward                                     |  | 19,957,420   |  | $ | 19,957      |  | $ | 4,624,838  |  | $ | 125,849   |   | $ | (7,062,814  | ) $ |  | (2,292,170 | )

SEE ACCOMPANYING NOTES

---

|ANAVEX LIFE SCIENCES CORP.                                                    
|------------------------------------------------------------------------------
|(A Development Stage Company)                                                 
|INTERIM CONSOLIDATED STATEMENT OF CHANGES IN CAPITAL DEFICIT                  
|for the period January 23, 2004 (Date of Inception) to December
      31, 2010
|(Stated in US Dollars)                                                        
|(Unaudited)                                                                   

|                                                                                   |  |              |   |   |             |   |   |            |   |   |           |   |   | Deficit     |   |       |                |      
|---------------------------------------------------------------------------------- |  | ------------ | - | - | ----------- | - | - | ---------- | - | - | --------- | - | - | ----------- | - | ----- | -------------- | -----
|                                                                                   |  | Common Stock |   |   | Accumulated |   |   |            |  
|                                                                                   |  |              |   |   |             |   |   | Additional |   |   | Common    |   |   | During the  |   |       |                |      
|                                                                                   |  |              |   |   |             |   |   | Paid-in    |   |   | Shares to |   |   | Development |   |       |                |      
|                                                                                   |  | Shares       |   |   | Par Value   |   |   | Capital    |   |   | be 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 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 - carried forward                                      |  | 20,746,761   |   | $ | 20,747      |   | $ | 8,383,663  |   | $ | 300,000   |   | $ | (12,562,233 | ) | **$** | **(3,857,823** | **)**

SEE ACCOMPANYING NOTES

---

|ANAVEX LIFE SCIENCES CORP.                                                    
|------------------------------------------------------------------------------
|(A Development Stage Company)                                                 
|INTERIM CONSOLIDATEDSTATEMENT OF CHANGES IN CAPITAL DEFICIT                   
|for the period January 23, 2004 (Date of Inception) to December
      31, 2010
|(Stated in US Dollars)                                                        
|(Unaudited)                                                                   

|                                                                                             |  |              |  |   |             |  |   |            |   |   |           |   |   | Deficit     |   |   |            |  
|-------------------------------------------------------------------------------------------- |  | ------------ |  | - | ----------- |  | - | ---------- | - | - | --------- | - | - | ----------- | - | - | ---------- | -
|                                                                                             |  | Common Stock |  |   | Accumulated |  |   |            |  
|                                                                                             |  |              |  |   |             |  |   | Additional |   |   | Common    |   |   | During the  |   |   |            |  
|                                                                                             |  |              |  |   |             |  |   | Paid-in    |   |   | Shares to |   |   | Development |   |   |            |  
|                                                                                             |  | Shares       |  |   | Par Value   |  |   | Capital    |   |   | be Issued |   |   | Stage       |   |   | Total      |  
|                                                                                             |  |              |  |   |             |  |   |            |   |   |           |   |   |             |   |   |            |  
|Balance, September 30, 2009 - brought forward                                                |  | 20,746,761   |  | $ | 20,747      |  | $ | 8,383,663  |   | $ | 300,000   |   | $ | (12,562,233 | ) | $ | (3,857,823 | )
|Cumulative effect of accounting changes                                                      |  | -            |  |   | -           |  |   | (333,056   | ) |   | -         |   |   | (550,804    | ) |   | (883,860   | )
|Capital stock issued for
      cash on October 2, 2009  at $2.25                            |  | 266,666      |  |   | 267         |  |   | 599,733    |   |   | (300,000  | ) |   | -           |   |   | 300,000    |  
|Capital stock issued in settlement of promissory
      note on February 2, 2010  at $2.02   |  | 49,505       |  |   | 49          |  |   | 99,951     |   |   | -         |   |   | -           |   |   | 100,000    |  
|Capital stock issued for
      cash on April 9, 2010 - at $2.60                              |  | 92,499       |  |   | 93          |  |   | 240,405    |   |   | -         |   |   | -           |   |   | 240,498    |  
|Capital stock issued in settlement of debt
      on April 30, 2010 - at $2.85                |  | 9,825        |  |   | 9           |  |   | 27,991     |   |   | -         |   |   | -           |   |   | 28,000     |  
|Finders fees paid
      in cash                                                             |  | -            |  |   | -           |  |   | (24,050    | ) |   | -         |   |   | -           |   |   | (24,050    | )
|Capital stock issued for cash on June 29,
      2010 - at $2.50                              |  | 941,000      |  |   | 941         |  |   | 2,351,559  |   |   | -         |   |   | -           |   |   | 2,352,500  |  
|Finders fees paid
      in cash                                                             |  | -            |  |   | -           |  |   | (206,500   | ) |   | -         |   |   | -           |   |   | (206,500   | )
|Capital stock issued in settlement of debt
      on July 5, 2010  at $2.50                  |  | 400,000      |  |   | 400         |  |   | 999,600    |   |   | -         |   |   | -           |   |   | 1,000,000  |  
|Capital stock issued for
      cash on September 3, 2010  at $2.75                          |  | 163,000      |  |   | 163         |  |   | 448,087    |   |   | -         |   |   | -           |   |   | 448,250    |  
|Capital stock issued for finders
      fees on September 3, 2010  at $2.75                 |  | 9,000        |  |   | 9           |  |   | (9         | ) |   | -         |   |   | -           |   |   | -          |  
|Finders fees paid
      in cash                                                             |  | -            |  |   | -           |  |   | (15,125    | ) |   | -         |   |   | -           |   |   | (15,125    | )
|Shares issued on conversion of promissory
    note on September 30, 2010  at $2.25  Note 4 |  | 328,058      |  |   | 328         |  |   | 737,802    |   |   | -         |   |   | -           |   |   | 738,130    |  
|Shares issued on conversion of promissory
    note on September 30, 2010  at $2.35  Note 4 |  | 510,638      |  |   | 511         |  |   | 1,199,489  |   |   | -         |   |   | -           |   |   | 1,200,000  |  
|Reclassification of derivative liability
      on modification of note terms                 |  | -            |  |   | -           |  |   | 3,144,520  |   |   | -         |   |   | -           |   |   | 3,144,520  |  
|Settlement of accounts
      payable                                                         |  | -            |  |   | -           |  |   | 444,000    |   |   | -         |   |   | -           |   |   | 444,000    |  
|Stock-based compensation                                                                     |  | -            |  |   | -           |  |   | 770,055    |   |   | -         |   |   | -           |   |   | 770,055    |  
|Equity component of convertible
      interest bearing promissory note                       |  | -            |  |   | -           |  |   | 44,220     |   |   | -         |   |   | -           |   |   | 44,220     |  
|Net loss for the year                                                                        |  | -            |  |   | -           |  |   |            |   |   | -         |   |   | (8,783,037  | ) |   | (8,783,037 | )
|Balance, September 30, 2010 - carried forward                                                |  | 23,516,952   |  | $ | 23,517      |  | $ | 18,912,335 |   | $ | -         |   | $ | (21,896,074 | ) | $ | (2,960,222 | )

SEE ACCOMPANYING NOTES

---

|ANAVEX LIFE SCIENCES CORP.                                                    
|------------------------------------------------------------------------------
|(A Development Stage Company)                                                 
|INTERIM CONSOLIDATEDSTATEMENT OF CHANGES IN CAPITAL DEFICIT                   
|for the period January 23, 2004 (Date of Inception) to December
      31, 2010
|(Stated in US Dollars)                                                        
|(Unaudited)                                                                   

|                                                                                            |  |            |  |   |              |  |   |            |   |   |             |  |   | Deficit     |   |   |            |  
|------------------------------------------------------------------------------------------- |  | ---------- |  | - | ------------ |  | - | ---------- | - | - | ----------- |  | - | ----------- | - | - | ---------- | -
|                                                                                            |  |            |  |   | Common Stock |  |   |            |   |   | Accumulated |  |   |             |  
|                                                                                            |  |            |  |   |              |  |   | Additional |   |   | Common      |  |   | During the  |   |   |            |  
|                                                                                            |  |            |  |   |              |  |   | Paid-in    |   |   | Shares to   |  |   | Development |   |   |            |  
|                                                                                            |  | Shares     |  |   | Par Value    |  |   | Capital    |   |   | be Issued   |  |   | Stage       |   |   | Total      |  
|                                                                                            |  |            |  |   |              |  |   |            |   |   |             |  |   |             |   |   |            |  
|Balance, September 30, 2010 - brought forward                                               |  | 23,516,952 |  | $ | 23,517       |  | $ | 18,912,335 |   | $ | -           |  | $ | (21,896,074 | ) | $ | (2,960,222 | )
|Capital stock issued for cash on November
      18, 2010  at $2.75                         |  | 393,846    |  |   | 394          |  |   | 1,082,681  |   |   | -           |  |   | -           |   |   | 1,083,075  |  
|Capital stock issued for
      finders fees on November 18, 2010  at $2.75                |  | 3,636      |  |   | 4            |  |   | (4         | ) |   | -           |  |   | -           |   |   | -          |  
|Shares issued on conversion of promissory
    note on November 18, 2010  at $2.25  Note 3 |  | 44,444     |  |   | 44           |  |   | 99,956     |   |   | -           |  |   | -           |   |   | 100,000    |  
|Shares issued on conversion of promissory
    note on November 18, 2010  at $2.25  Note 3 |  | 808,631    |  |   | 809          |  |   | 1,818,609  |   |   | -           |  |   | -           |   |   | 1,819,418  |  
|Debt conversion expense - Note 3                                                            |  | -          |  |   | -            |  |   | 504,160    |   |   | -           |  |   | -           |   |   | 504,160    |  
|Shares issued on conversion
    of promissory note on November 18, 2010  at $2.75  Note 3 |  | 145,063    |  |   | 145          |  |   | 398,777    |   |   | -           |  |   | -           |   |   | 398,922    |  
|Capital stock issued in
      settlement of debt on November 18, 2010  at $2.75            |  | 181,818    |  |   | 182          |  |   | 499,818    |   |   | -           |  |   | -           |   |   | 500,000    |  
|Capital stock issued for cash on November
      25, 2010  at $3.35                         |  | 29,851     |  |   | 30           |  |   | 99,970     |   |   | -           |  |   | -           |   |   | 100,000    |  
|Capital stock issued for
      finders fees on November 25, 2010  at $3.35                |  | 2,985      |  |   | 3            |  |   | (3         | ) |   | -           |  |   | -           |   |   | -          |  
|Stock based compensation - Note 6(b)                                                        |  | -          |  |   | -            |  |   | 187,750    |   |   | -           |  |   | -           |   |   | 187,750    |  
|Share subscriptions received                                                                |  | -          |  |   | -            |  |   | -          |   |   | 60,000      |  |   | -           |   |   | 60,000     |  
|Net loss for the period                                                                     |  | -          |  |   | -            |  |   | -          |   |   | -           |  |   | (1,886,751  | ) |   | (1,886,751 | )
|Balance, December 31, 2010                                                                  |  | 25,127,226 |  | $ | 25,128       |  | $ | 23,604,049 |   | $ | 60,000      |  | $ | (23,782,825 | ) | $ | (93,648    | )

SEE ACCOMPANYING NOTES

---

|ANAVEX LIFE SCIENCES CORP.                    
|----------------------------------------------
|(A Development Stage Company)                 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|December 31, 2010                             
|(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
  diseases of the central nervous system and cancer.

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, 2010, the Company had an accumulated deficit
  of $23,782,825  (September 30, 2010 - $21,896,074) since its inception, has a
  working capital deficit of $97,249 (September 30, 2009 - $2,964,313) 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 but considers obtaining additional funds by equity financing
  and/or from issuing promissory notes. Management expects the Companys
  cash requirement over the twelve-month period ended December 30, 2011 to be
  approximately $10,000,000. 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, 2010. The interim results are not necessarily indicative
  of the operating results expected for the fiscal year ending on September 30,
  2011. 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.

|Note 2 | Recent Accounting Pronouncements
|------ | --------------------------------

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 adoption of this guidance
  did not have a material impact on the Companys consolidated financial
  statements.

In January 2010, the FASB issued Accounting
  Standards Update 2010-06, Fair Value Measurements and Disclosures (Topic
  820): Improving Disclosures about Fair Value Measurements. The ASU amends
  Subtopic 820-10 with new disclosure requirements and clarification of existing
  disclosure requirements. New disclosures required include the amount of significant
  transfers in and out of levels 1 and 2 fair value measurements and the reasons
  for the transfers. In addition, the reconciliation for level 3 activity will
  be required on a gross rather than net basis. The ASU provides additional guidance
  related to the level of disaggregation in determining classes of assets and
  liabilities and disclosures about inputs and valuation techniques. The amendments
  are effective for annual or interim reporting periods beginning after December
  15, 2009, except for the requirement to provide the reconciliation for level
  3 activities on a gross basis, which will be effective for fiscal years beginning
  after December 15, 2010. The Company is currently assessing the impact of ASU
  2010-6 and does not expect the adoption of this guidance to have a material
  impact on its consolidated financial statements.

---

|Anavex Life Sciences Corp.                    
|----------------------------------------------
|(A Development Stage Company)                 
|Notes to the Consolidated Financial Statements
|December 31, 2010                             
|(Stated in US Dollars)                        
|Unaudited  Page 2                            

|Note 3 | Promissory Notes Payable
|------ | ------------------------

| |                                                                      |   | December 31, |   |   | September 30, |  
| | -------------------------------------------------------------------- | - | ------------ | - | - | ------------- | -
| |                                                                      |   |              |   |   |               |  
| |                                                                      |   | 2010         |   |   | 2010          |  
| |                                                                      |   |              |   |   |               |  
| | Convertible non-interest bearing promissory
      notes payable      | $ | -            |   | $ | 1,919,418     |  
| |                                                                      |   |              |   |   |               |  
| | Interest bearing promissory notes payable                            |   | 200,000      |   |   | 572,890       |  
| |                                                                      |   |              |   |   |               |  
| | Less: fair value of derivative liabilities
      on date of issuance |   | -            |   |   | (2,489,422    | )
| | Less: equity component of convertible note                           |   | -            |   |   | (44,220       | )
| | Add: accumulated accretion                                           |   | -            |   |   | 2,533,642     |  
| |                                                                      |   | 200,000      |   |   | 2,492,308     |  
| | Less:  current portion                                               |   | (200,000     | ) |   | (2,492,308    | )
| |                                                                      |   |              |   |   |               |  
| |                                                                      | $ | -            |   | $ | -             |  

Convertible non-interest bearing
  promissory notes

The convertible non-interest bearing
  promissory notes were due on demand and were convertible into units at $2.25
  per unit with respect to $100,000 and at $2.50 per unit with respect to $1,819,418.
  Each unit was 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 were recorded as separate derivative liability along
  with a corresponding debt discount and were determined to have a cumulative
  fair value of $1,698,631 at their respective issuance dates. During the twelve
  months ended September 30, 2010, the Company recorded accretion expense of $1,202,816
  in respect of the debt discount on these notes.

During the year ended September 30,
  2010, the Company and the respective note-holders agreed to amend the notes
  by removing certain dilutive issuance clauses with the result that, as at September
  30, 2010, the embedded conversion features were no longer required to be recorded
  as a separate derivative liability. In accordance with the guidance of ASC 815-15-50-3,
  Embedded Conversion Option that Is No Longer Bifurcated,the
  Company re-measured the fair value of the derivative liability associated with
  the embedded conversion features in these notes on the date the notes were amended
  and determined it to be $3,144,520 which was then reclassified from liabilities
  to additional paid-in capital.

During the year ended September 30,
  2009, the promissory note of $1,669,418 was issued in exchange for a promissory
  note of the same amount that had matured as a result of the Company renegotiating
  this debt. The Company recorded the transaction as a debt extinguishment with
  a loss on extinguishment of $487,469 recorded as a result of recognizing the
  new promissory note as its fair value of $2,156,887. The premium of the fair
  value of the note over its principal balance in the amount of $487,469 was recorded
  as additional paid-in capital.

During the three months ended December
  31, 2010, a convertible non-interest bearing promissory note in the amount of
  $100,000 was converted to 44,444 units at $2.25, pursuant to the terms of the
  note. Each unit consisted of one share of the Companys common stock and
  one share purchase warrant exercisable at $3.00 until November 18, 2012.

During
  the three months ended December 31, 2010, the remaining two convertible non-interest
  bearing promissory notes in the amount of $1,819,418 were converted to 808,631
  units at $2.25. The original conversion price of the notes was $2.50. The company
  agreed to convert these notes at $2.25 as an inducement to the note holders
  to convert at that time. Each unit consisted of one share of the Companys
  common stock and one share purchase warrant exercisable at $3.00 until November
  18, 2012. As a result of the reduction in the conversion price, the Company
  issued 80,864 more units than it would have had it converted the notes at the
  original $2.50. The Company recorded the fair value of the additional units as a debt conversion expense of $504,160 using a fair value of $4.12 for the shares based on the their quoted market price and $2.09 for each warrant based on their fair value using the Black Scholes model with the following assumptions: Stock price - $4.12; Strike price - $3.00; expected life – 2 Years; expected volatility – 78.33%; risk-free discount rate – 0.52% .

Interest bearing promissory notes

During the year ended September 30,
  2009, the Company issued a promissory note in the amount of $150,000 bearing
  interest at 8% and which matured on December 31, 2009. On January 1, 2010, the
  Company exchanged this note with a new note bearing interest at 8%, having a
  principal balance of $157,890 representing principal and accrued interest on
  the promissory note that had matured and having a maturity date of December
  31, 2010. During the three months ended December 31, 2010, this promissory note,
  in the amount of $168,998, including accrued interest of $11,108 was converted to common stock through
        the issuance of 61,454 shares at their fair value of $2.75 per share which was the value of the units issued in a private offering on the same date.

---

|Anavex Life Sciences Corp.                    
|----------------------------------------------
|(A Development Stage Company)                 
|Notes to the Consolidated Financial Statements
|December 31, 2010                             
|(Stated in US Dollars)                        
|Unaudited  Page 3                            

|Note 3 | Promissory Notes Payable  (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|       | During the twelve months ended
        September 30, 2010, the Company issued additional 8% interest bearing
        notes totaling $415,000 which were to mature on December 5, 2010 as to
        $50,000, December 22, 2010 as to $100,000, February 17, 2011 as to $65,000
        and May 4, 2011 as to $200,000. During the three months ended December
        31, 2010, interest bearing promissory notes totaling $229,924, including
        accrued interest of $14,924 were converted to common stock through the
    issuance of 83,609 shares at their fair value of $2.75 per share which was the value of the units issued in a private offering on the same date.
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Note 4 | 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.                                                                                                                                                                                                                                                                                                                                                           
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|       | 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, 2010                             
|(Stated in US Dollars)                        
|Unaudited  Page 4                            

|Note 4 | 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 in the same amount at which they were originally issued.

On June 11, 2009 the Company issued
  36,000 units at $2.25 per unit for proceeds of $81,000 pursuant to private placement
  agreements. Each unit consisted of one common share and one common share purchase
  warrant entitling the holder to purchase an additional common share at $4.00
  per share until June 11, 2010. The Company paid 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 fair value of the Companys
  common stock on the issuance date of the shares.

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

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

On August 19, 2009, the Company issued
  128,888 units at $2.25 per Unit for total proceeds of $289,998. Of these placements,
  40,000 Units consisted of one common share and one share purchase warrant entitling
  the holder to purchase an additional common share at $4.00 per share until July
  9, 2010 and 88,888 Units consisted 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 totalling $19,000 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 agreement. 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. The Company had received
  $300,000 of this amount in the year ended September 30, 2010.

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

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

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

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

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

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

---

|Anavex Life Sciences Corp.                    
|----------------------------------------------
|(A Development Stage Company)                 
|Notes to the Consolidated Financial Statements
|December 31, 2010                             
|(Stated in US Dollars)                        
|Unaudited  Page 5                            

|Note 4 | Capital Stock  (contd)
|------ | ------------------------

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

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

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

On September 30, 2010, the Company issued
  245,748 units at $2.25 per unit pursuant to the terms of the convertible notes
  payable. Each unit consisted of one common share and one common share purchase
  warrant entitling the holder to purchase an additional common share at $3.00
  per share until September 30, 2012.

On November 18, 2010, the Company issued
  393,846 units at $2.75 per unit for proceeds of $1,083,075 pursuant to a private
  placement agreement. Each unit consisted of one common share and one-half common
  share purchase warrant entitling the holder to purchase an additional common
  share at $4.50 per share until May 18, 2012.

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

On November 18, 2010, the Company issued
  44,444 units at $2.25 per unit pursuant to the terms of a convertible note payable.
  Each unit consisted of one common share and one common share purchase warrant
  entitling the holder to purchase an additional common share at $3.00 per share
  until November 18, 2012.

On November 18, 2010, the Company issued 808,631 units at $2.25 per unit in the conversion of two notes payable originally convertible at $2.50.  The Company recorded debt conversion expense of $504,160, related to the fair value of the additional units issued as a result of converting at the lower conversion price.  Each unit consisted of one common share and one common share purchase warrant entitling the holder to purchase an additional common share at $3.00 per share until November 18, 2012.

On November 18, 2010, the Company issued
  145,063 shares of common stock at their fair value of $2.75 per share based
  on the value of units issued in a private placement on the same date pursuant
  to non-convertible interest bearing notes payable outstanding in the amount
  of $398,923, including accrued interest of $26,032.

On November 18, 2010, the Company issued
  181,818 shares of common stock at their fair value of $2.75 per share based
  on the value of units issued in a private placement on the same date to one
  creditor in settlement of $500,000 of debt owing.

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

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

|Note 5 | Related Party Transactions
|------ | --------------------------

The following amounts were contributed
  to the Company by the directors and officers of the Company:

| |                            |   |                |  |   |                |  |   | January 23, 2004    | 
| | -------------------------- | - | -------------- |  | - | -------------- |  | - | ------------------- | 
| |                            |   | Three Months   |  |   | Three Months   |  |   | (Date of Inception) | 
| |                            |   | ended December |  |   | ended December |  |   | to December 31,     | 
| |                            |   | 31,
      2010 |  |   | 31,
      2009 |  |   | 2009                | 
| |                            |   |                |  |   |                |  |   |                     | 
| | Management fees            | $ | -              |  | $ | -              |  | $ | 14,625              | 
| | Rent                       |   | -              |  |   | -              |  |   | 3,750               | 
| | Debt forgiven by directors |   | -              |  |   | -              |  |   | 33,666              | 
| |                            | $ | -              |  | $ | -              |  | $ | 52,041              | 

---

|Anavex Life Sciences Corp.                    
|----------------------------------------------
|(A Development Stage Company)                 
|Notes to the Consolidated Financial Statements
|December 31, 2010                             
|(Stated in US Dollars)                        
|Unaudited  Page 6                            

|Note 5 | Related Party Transactions  (contd)
|------ | -------------------------------------

During the three months ended December
  31, 2010 and 2009 the Company was charged consulting fees totalling $248,541
  (2009: $170,657) by directors, officers and a significant shareholder of the
  Company.

As at December 31, 2010, included in
  accounts payable and accrued liabilities is $61,624 (September 30, 2010: $9,521)
  owing to directors and officers of the Company.

|Note 6 | 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, 2009 |  | 983,448   |   |  | $2.93    | 
| | Expired                     |  | (325,948  | ) |  | $4.46    | 
| | Issued                      |  | 1,389,651 |   |  | $3.16    | 
| | Balance, September 30, 2010 |  | 2,047,151 |   |  | $2.84    | 
| | Expired                     |  | -         |   |  | -        | 
| | Issued                      |  | 1,068,235 |   |  | $3.30    | 
| |                             |  |           |   |  |          | 
| | Balance, December 31, 2010  |  | 3,115,386 |   |  | $3.02    | 

At December 31, 2010 the Company has
  3,115,386 currently exercisable share purchase warrants outstanding as follows:

Number
      Exercise Price
      Expiry Date557,501
      $2.25
      June 19, 201199,999
      $2.25
      August 4, 201146,249
      $3.50
      April 9, 201141,155
      $3.50
      September 30, 2011299,999
      $2.25
      October 2, 2011470,500
      $3.50
      December 29, 2011200,000
      $3.50
      January 5, 201286,000
      $3.75
      March 3, 2012198,741
      $4.50
      May 18, 2012245,748
      $3.00
      September 30, 2012853,075
      $3.00
      November 18, 201216,419
      $4.50
      November 25, 20123,115,386


---

|Anavex Life Sciences Corp.                    
|----------------------------------------------
|(A Development Stage Company)                 
|Notes to the Consolidated Financial Statements
|December 31, 2010                             
|(Stated in US Dollars)                        
|Unaudited  Page 7                            

|Note 6 | 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, 2010
  is as follows:

| |                                                               |  |           |   |   | Weighted | 
| | ------------------------------------------------------------- |  | --------- | - | - | -------- | 
| |                                                               |  |           |   |   | Average  | 
| |                                                               |  | Number of |   |   | Exercise | 
| |                                                               |  | Shares    |   |   | Price    | 
| |                                                               |  |           |   |   |          | 
| | Outstanding at September 30, 2009                             |  | 3,195,000 |   | $ | 3.37     | 
| | Cancelled                                                     |  | (820,000  | ) | $ | 2.50     | 
| | Granted                                                       |  | 400,000   |   | $ | 3.48     | 
| |                                                               |  |           |   |   |          | 
| | Outstanding at September 30, 2010 and December
      31, 2010 |  |           |   |   |          | 
| |                                                               |  | 2,775,000 |   | $ | 3.29     | 
| |                                                               |  |           |   |   |          | 
| | Exercisable at December 31, 2010                              |  | 1,738,332 |   | $ | 3.52     | 
| |                                                               |  |           |   |   |          | 
| | Exercisable at September 30, 2010                             |  | 1,613,333 |   | $ | 3.52     | 

At December 31, 2010, the following
  stock options were outstanding:

Number of Shares
      
      
      Aggregate
      RemainingIntrinsic
      contractualTotal
      Number
      Exercise
      Expiry Date
      Value
      life (yrs)Vested
      Price400,000 (1)
      400,000
      $ 5.25
      May 20, 2011
      $                -
      0.3850,000 (2)
      50,000
      $ 3.75
      November 1, 2012
      14,500
      1.84100,000 (3)
      -
      $ 3.86
      December 1, 2012
      18,000
      1.92150,000 (4)
      150,000
      $ 3.10
      December 3, 2012
      141,000
      1.93450,000 (5)
      450,000
      $ 3.10
      June 3, 2013
      423,000
      2.4250,000 (6)
      50,000
      $ 2.75
      January 14, 2014
      64,500
      3.045,000 (7)
      5,000
      $ 2.50
      March 2, 2014
      7,700
      3.17400,000 (8)
      400,000
      $ 2.50
      May 12, 2012
      616,000
      1.36500,000 (9)
      -
      $ 2.50
      June 11, 2014
      770,000
      2.80200,000 (10)
      200,000
      $ 3.50
      June 29, 2015
      108,000
      4.50200,000 (11)
      33,332
      $ 3.45
      September 1, 2015
      118,000
      4.67270,000 (12)
      -
      $ 3.00
      February 8, 2017
      280,800
      6.112,775,000
      1,738,332
      
      
      $
        2,561,500


The aggregate intrinsic value is calculated
  as the difference between the exercise price of the underlying awards and the
  quoted market price of the Companys stock for the options that were in-the-money
  at September 30, 2010.

| | (1) | As at December 31, 2010 and September 30, 2010, these
        options had fully vested. The Company did not recognize any stock-based
        compensation for these options during the three month period ended December
        31, 2010 (three months ended December 31, 2009: $nil).                                                                                                                                                                                                                                         
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (2) | As at December 31, 2010 and September 30, 2010, these
        options had fully vested. The Company did not recognize any stock-based
        compensation for these options during the three month period ended December
        31, 2010 (three months ended December 31, 2009: $nil).                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (3) | As at December 31, 2010 and September 30, 2010, 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
        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.

---

|Anavex Life Sciences Corp.                    
|----------------------------------------------
|(A Development Stage Company)                 
|Notes to the Consolidated Financial Statements
|December 31, 2010                             
|(Stated in US Dollars)                        
|Unaudited  Page 8                            

|Note 6 | Commitments  (contd)
|------ | ----------------------

| | b) | Stockbased Compensation Plan 
        (contd)
| | -- | ------------------------------------------------
| |    |                                                 
| |    | (4)                                             
| |    |                                                 
| |    | (5)                                             
| |    |                                                 
| |    | (6)                                             
| |    |                                                 
| |    | (7)                                             
| |    |                                                 
| |    | (8)                                             
| |    |                                                 
| |    | (9)                                             
| |    |                                                 
| |    | (10)                                            
| |    |                                                 
| |    | (11)                                            
| |    |                                                 
| |    | (12)                                            
| |    |                                                 
| |    | (13)                                            

---

|Anavex Life Sciences Corp.                    
|----------------------------------------------
|(A Development Stage Company)                 
|Notes to the Consolidated Financial Statements
|December 31, 2010                             
|(Stated in US Dollars)                        
|Unaudited  Page 9                            

|Note 6 | Commitments  (contd)
|------ | ----------------------

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

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, | 
| | ------------------------ |  | ------------ |  |  | ------------- | 
| |                          |  | 2010         |  |  | 2010          | 
| |                          |  |              |  |  |               | 
| | Risk-free interest rate  |  | -            |  |  | 1.41%         | 
| | Expected life of options |  | -            |  |  | 5.00 years    | 
| | Annualized volatility    |  | -            |  |  | 96.45%        | 
| | Dividend rate            |  | -            |  |  | 0%            | 

The volatility in the past was determined
  based on an index of volatility from comparable companies. Going forward, the
  Company expects to calculate volatility based on historical fluctuations in
  its own stock. 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, 2010, 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, 2010 |  | 1,161,667 |   | $ | 2.98     |  | $ | 1.80       | 
| | Vested                                 |  | (124,999  | ) | $ | 3.49     |  | $ | 2.50       | 
| |                                        |  |           |   |   |          |  |   |            | 
| | Unvested options at December 31, 2010  |  | 1,036,668 |   | $ | 2.91     |  | $ | 1.74       | 

| |    | As at December 31, 2010, there was a total of $418,333
        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 years ended September 30, 2011 and 2012. There
        has been no stock-based compensation recognized in the financial statements
        for the period ended December 31, 2010 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.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | c) | Share Subscriptions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    | As at December 31, 2010 the Company had received $60,000
        in respect of a private placement for 16,000 units at $3.75 per unit.
        Each unit will consist of one common share and one half common share purchase
        warrant entitling the holder thereof to purchase an additional common
        share for each whole warrant held at a price of $5.25 for a period of
        18 months from closing date - Note 8(b).                                                                                                                                                                                                                                                                                                                                                                                                                                              

|Note 7 | 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,
  2010:

| | a) | The Company issued 3,636 units at $2.75 per unit for
        finders fees related to the private placement of the same date.
        Each unit consists of one common share and one-half common share purchase
        warrant entitling the holder to purchase an additional common share at
        $4.50 per share until May 18, 2012.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|Anavex Life Sciences Corp.                    
|----------------------------------------------
|(A Development Stage Company)                 
|Notes to the Consolidated Financial Statements
|December 31, 2010                             
|(Stated in US Dollars)                        
|Unaudited  Page 10                           

|Note 7 | Supplemental Cash flow Information  (contd)
|------ | ---------------------------------------------

| | b) | The Company issued 44,444 units at $2.25 per unit pursuant
        to the terms of a convertible note payable. Each unit consisted of one
        common share and one common share purchase warrant entitling the holder
        to purchase an additional common share at $3.00 per share until November
        18, 2012.                                                                                                                                                                     
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | c) | c)	The Company issued 808,631 units at $2.25 per unit in the conversion of two notes payable originally convertible at $2.50.  The Company recorded debt conversion expense of $504,160, related to the fair value of the additional units issued as a result of converting at the lower conversion price.  Each unit consisted of one common share and one common share purchase warrant entitling the holder to purchase an additional common share at $3.00 per share until November 18, 2012.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | d) | The Company issued 145,063 shares of common stock at
        their fair value of $2.75 per share based on the value of units issued
        in a private placement on the same date pursuant to non-convertible interest
        bearing notes payable outstanding in the amount of $398,923, including
        accrued interest of $26,032.                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | e) | The Company issued 181,818 shares of common stock at
        their fair value of $2.75 per share based on the based on the value of
        units issued in a private placement on the same date to one creditor in
        settlement of $500,000 of debt owing.                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | f) | The Company issued 2,985 units at $3.35 per unit for
        finders fees related to the private placement of the same date.
        Each unit consisted of one common share and one-half common share purchase
        warrant entitling the holder to purchase an additional common share at
        $4.50 per share until November 25, 2012.                                                                                                                                                 

|Note 8 | Subsequent Events
|------ | -----------------

Subsequent to December 31, 2010, the
  Company:

| | a) | Terminated a consultant services agreement with Genesis
        BioPharma Group, LLC, a corporation that was providing the Company with
        clinical development services. Consideration for terminating the agreement
        is a payment of $45,000.                                                                                                                                                                                                                                      
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | b) | Issued 61,014 units of the Companys securities
        at a purchase price of $3.75 per unit for gross proceeds of $228,800.
        Each unit consists of one share of our common stock and one-half of one
        share purchase warrant. Each whole share purchase warrant entitles the
        holder to purchase one share of the Companys common stock at a purchase
        price of $5.25 per share for a period of 18 months. A finders fee
        of 10% of the proceeds was paid.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | c) | Entered into a consulting agreement with its President,
        Chief Operating Officer, Secretary and Director for another two year period
        at the annual compensation of $150,000 paid on a monthly basis.                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | d) | Entered into a consulting agreement with its Vice President,
        Clinical Development and Medical Affairs for a period of two years at
        the annual compensation amount of $130,000 paid monthly.                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | e) | Issued 400,000 common purchase share options exercisable
        at $4.28 per share for a period of five years to vest upon the achievement
        of certain development milestones to its Vice President, Clinical Development
        and Medical Affairs. The Vice President, Clinical Development and Medical
        Affairs is also eligible for up to 100,000 additional bonus stock options
        upon the achievement of certain development milestones.                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | f) | Extended the expiry date of stock options issued to
        its Executive Chairman for two years giving them a total life of five
        years.                                                                                                                                                                                                                                                                                                                                                 

---

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 Current 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) in the
first quarter of 2011. Scale-up manufacturing and preclinical development of
ANAVEX 2-73 has been completed. Genesis BioPharma Group LLC and ABX-CRO Advanced
Pharmaceutical Services have been contracted to carry out our phase I and phase
IIa clinical trials. We plan to commence preclinical work on other CNS compounds
such as those targeting epilepsy, depression and neuropathic pain in 2011
provided sufficient capital is available. Additionally, we intend to further
develop compounds in earlier preclinical phases, which target various types of
cancer and continue to develop and expand our Sigmaceptortmplatform.

---

3

Our Pipeline

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 AD,
depression, epilepsy, pain 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
disease.

With our SIGMACEPTOR-N program, we are focused on developing
disease-modifying treatments for CNS conditions using sigma-1 receptor ligands.
Among our lead CNS drug candidates, we have made significant progress with
ANAVEX 2-73, our lead drug candidate for the treatment of Alzheimers disease
(AD), and ANAVEX 19-144, a 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 as well as ion channels, indicating a unique mode of action.
In AD, ANAVEX 2-73 has pharmacological, histological and behavioral evidence as
a potential neuroprotective, anti-amnesic, anti-convulsive and anti depressive
therapeutic agent, due to its potent affinity to sigma-1 receptors and moderate
affinities to M1-4 types muscarinic receptors. In epilepsy, ANAVEX 19-144
controls seizures and the epileptogenesis process in animal models. 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 for depression and a back up
compound for AD. Preclinical tests revealed significant neuroprotective benefits
(i.e. protects nerve cells from degeneration or death) through the modulation of
endoplasmic reticulum, mitochondrial and oxidative stress, which damages and
destroys cells and is believed by some scientists to be a primary cause of AD.
In addition, in animal models, ANAVEX 1-41 prevented the expression of
caspase-3, an enzyme that plays a key role in apoptosis (programmed cell death)
and in the loss of cells in the hippocampus, the part of the brain that
regulates learning, emotion and memory. These activities involve both muscarinic
and sigma-1 receptor systems through a novel mechanism of action. ANAVEX 1-41
may offer disease-modifying options that reverse memory and learning deficits
and protect nerve cells from death through its anti-amnesic and neuroprotective
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 may allow us to develop a new
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.

---

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, 2010 and
2009 were as follows:

|                             |   | Three Months Ended | 
|---------------------------- | - | ------------------ | 
|                             |   | December 31,       | 
|                             |   | 2010               | 
|Accounting and audit fees    | $ | 48,948             | 
|Amortization                 |   | 491                | 
|Bank charges and interest    |   | 2,043              | 
|Consulting fees              |   | 652,201            | 
|Investor Relations           |   | 54,535             | 
|Legal fees                   |   | 19,747             | 
|Office and miscellaneous     |   | 6,469              | 
|Insurance                    |   | 4,815              | 
|Registration and filing fees |   | 9,062              | 
|Rent and administration      |   | 41,819             | 
|Research and development     |   | 497,290            | 
|Travel                       |   | 31,725             | 
|Total expenses               | $ | 1,369,145          | 

Three Months Ended December 31, 2010 and 2009

Expenses for the three months ended December 31, 2010 increased
by $487,438 over the same period in 2009. Accounting and audit fees increased by
$27,089 from $21,859 for the three months ended December 31, 2009 to $48,948
for the same period in 2009, primarily due to the acceleration of audit work for
the year ended September 30, 2010 over the prior year. Consulting fees increased
by $179,017 from $473,184 for the three months ended December 31, 2009 to
$652,201 for the same period in 2010, primarily as a result of increased
management infrastructure and an increase in stock based compensation from
additional option issuances resulting therefrom. Rent and administration
increased by $41,819 from $nil for the three months ended December 31, 2009 to
$41,819 for the same period in 2010, primarily as a result of establishing
office and infrastructure in North America. Research and development expenses
increased by $285,811 from $211,479 for the three months ended December 31, 2009
to $497,290 for the same period in 2010 primarily as a result of commencement of
clinical trial activities associated with Anavex 2-73. Travel expense decreased
by $49,312 from $81,037 for the three months ended December 31, 2009 to $31,725
for the same period in 2010 due to the establishment of office infrastructure in
North America and a resulting decrease in international travel.

Other Income and loss

Other income and (loss) for the three months ended December 31, 2010, was $(517,606) as compared to income of $414,096 for the comparable three months ended December 31, 2009. The increase in loss of ($931,702) is primarily attributable to a)  the gain from the change in fair value of the derivative liability of $649,038 recognized in the three month period ended December 31, 2009 with no corresponding gain recognized in the same period in 2010, b) the debt conversion expense of ($504,160) recognized in the three month period ended December 31, 2010 with no corresponding expense recognized in the same period in 2010, and c) offset by the accretion of debt discount expense of ($220,410) recognized in the three month period ended December 31, 2009 with no corresponding expense recognized in the same period in 2010.

---

5

Change in fair value of derivative liability

We recognized a gain on derivative financial instruments of $
Nil for the three months ended December 31, 2010, as compared to a gain of $
649,038 for the prior years comparable period. The non-cash gain in the prior
year arose 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 were 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. The promissory notes were amended as of September 30, 2010 and as a
result, the derivative liabilities were reversed to additional paid-in capital
during the same period.

Liquidity and Capital Resources

Working Capital

|                          |   | December 31, 2010 |   |   | September 30, 2010 |  
|------------------------- | - | ----------------- | - | - | ------------------ | -
|Current Assets            |   | 485,688           |   |   | 325,758            |  
|Current Liabilities       |   | 582,937           |   |   | 3,290,071          |  
|Working Capital (Deficit) | $ | (97,249           | ) | $ | (2,964,313         | )

As at December 31, 2010, we had $423,783 in cash, an increase
of $159,114 from September 30, 2010. The principal component of this increase in
cash resulted from private placements of equity during the three month period
ended December 31, 2010 as described below for total proceeds of $1,183,075.As at December 31, 2010, we had a working capital deficit of $97,249, a
decrease in deficit of $2,867,064 from September 30, 2010. The principal
component of this decrease in working capital deficit was the reduction in our
current liabilities due to a) the reduction of accounts payable and accrued
liabilities of $414,826 and b) the conversion of promissory notes of
$2,292,308.

On November 18, 2010 we issued an aggregate of 393,846 units of
our securities at a purchase price of $2.75 per unit for total proceeds of
$1,083,075. Each unit consists of one share of common stock in the capital of
our company and one-half of one common share purchase warrant. One full warrant
entitles the holder to purchase one additional share of common stock at a price
of $4.50 per warrant share for a period of two years.

On November 25, 2010 we issued an aggregate of 29,851 units of
our securities at a purchase price of $2.75 per unit for total proceeds of
$100,000. Each unit consists of one share of common stock in the capital of our
company and one-half of one common share purchase warrant. One full warrant
entitles the holder to purchase one additional share of common stock at a price
of $4.50 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, 2011 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, 2010  |   |  | December 31, 2009  |  
|Cash flows used in operating activities | $ | (1,083,961         | ) |  | (779,960           | )
|Cash flows from financing activities    | $ | 1,243,075          |   |  | 450,000            |  
|Cash flows from investing activities    | $ | -                  |   |  | -                  |  
|Increase (decrease) in cash             | $ | 159,114            |   |  | (329,960           | )

---

6

Cash flow used in operating activities

Our cash used in operating activities for the three months
ended December 31, 2010 compared to our cash used in operating activities for
the three months ended December 31, 2009 increased by 39% largely due to our
increased research and development expenses related to clinical trials
activities and the increase in management infrastructure resulting in increased
consulting fees and stock based compensation expense.

Cash flow provided by financing activities

Our cash provided by financing activities for the three months
ended December 31, 2010 compared to our cash provided by financing activities
for the three months ended December 31, 2009 increased by 176% largely due to
private placement activity during the quarter.

Cash Provided by Investing Activities

No cash was used in or provided by investing activities for the
three months ended December 31, 2010 or 2009.

Going Concern

At December 31, 2010, we had an accumulated deficit of $23,782,825 since our inception and incurred a net loss of $1,886,751 for  the three month period ended December 31, 2010.   We 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 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, 2010.

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 are able to 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.

---

7

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.

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.

---

8

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.

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 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 adoption of this guidance did not have
a material impact on our consolidated financial statements.

In January 2010, the FASB issued Accounting Standards Update
2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving
Disclosures about Fair Value Measurements. The ASU amends Subtopic 820-10
with new disclosure requirements and clarification of existing disclosure
requirements. New disclosures required include the amount of significant
transfers in and out of levels 1 and 2 fair value measurements and the reasons
for the transfers. In addition, the reconciliation for level 3 activity will be
required on a gross rather than net basis. The ASU provides additional guidance
related to the level of disaggregation in determining classes of assets and
liabilities and disclosures about inputs and valuation techniques. The
amendments are effective for annual or interim reporting periods beginning after
December 15, 2009, except for the requirement to provide the reconciliation for
level 3 activities on a gross basis, which will be effective for fiscal years
beginning after December 15, 2010. We are currently assessing the impact of ASU
2010-6 and does not expect the adoption of this guidance to have a material
impact on our consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures about
Market Risks.

Not Applicable.

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9

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 effective.

Changes in Internal Control over Financial Reporting

We disclosed certain material weaknesses in our annual report
on Form 10-K filed on December 27, 2010. We have developed a plan of action to
correct those material weaknesses and have taken steps to implement that
plan.

Specifically, we noted in our annual report that we had
insufficient segregation of duties in our finance and accounting functions due
to limited personnel, that there has been a lack of sufficient supervision and
review by our management, that there has been insufficient corporate governance
policies and that our companys accounting staff has not had sufficient
technical accounting knowledge relating to accounting for income taxes and
complex US GAAP matters.

We have corrected these weaknesses through the hiring of a
Chief Financial Officer who is a certified public accountant with over thirty
years of public and private accounting experience. We have segregated duties in
a manner that ensures that there is complete and proper review and approval of
all transactions through an appropriate management hierarchy. We have also
implemented appropriate corporate governance policies to ensure that decisions
made by our board and management are properly documented and communicated on a
timely basis to reduce the likelihood of any misunderstandings regarding key
decisions affecting our operations and management.

We believe that these changes have corrected the material
weaknesses that existed in prior reporting periods and we will continue to
monitor our systems and procedures to ensure that no material weaknesses are
present.

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.

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10

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 incurred aggregate
net losses of $23,232,021  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. 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 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 condition 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.

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11

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 for the fiscal year ended September 30, 2010
that we have incurred substantial losses since inception, which raises
substantial doubt about 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.

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

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12

- 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 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.

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13

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.

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:

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14

- 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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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.

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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:

| | 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.

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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.

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. Legislations 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.

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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.

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 stock exchange
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 classed as 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 (excluding the value of the primary residence of such individuals) 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.

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19

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.

None.

Item 3. Defaults upon Senior Securities.

None.

Item 4. (Removed and Reserved).

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibit 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 Contracts10.1
    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)


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20

Exhibit Number
    Description10.3
    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)10.26
    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)


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21

Exhibit Number
    Description10.29
    Promissory note issued to Stonehedge Limited on January
      1, 2010 (incorporated by reference to an exhibit to our Quarterly Report
      on Form 10-Q filed on March 31, 2010)10.30
    Second Amended Consulting Agreement with Dr. Cameron
      Durrant dated January 2, 2010 (incorporated by reference to an exhibit to
      our Current Report on Form 8-K filed on April 9, 2010)10.31
    Contract Lease Agreement with Euro Genet Labs SA dated
      February 1, 2010 (incorporated by reference to an exhibit to our Current
      Report on Form 8-K filed on April 9, 2010)10.32
    Form of Subscription Agreement (incorporated by reference
      to an exhibit to our Current Report on Form 8-K filed on April 9, 2010)10.33
    Form of Warrant Certificate (incorporated by reference to
      an exhibit to our Current Report on Form 8-K filed on April 9, 2010)10.34
    Form of Convertible Loan Agreement (incorporated by
      reference to an exhibit to our Current Report on Form 8-K filed on April
      9, 2010)10.35
    Form of Subscription Agreement for US subscribers
      (incorporated by reference to an exhibit to our Current Report on Form 8-K
      filed on July 6, 2010)10.36
    Form of Subscription Agreement for non-US subscribers
      (incorporated by reference to an exhibit to our Current Report on Form 8-K
      filed on July 6, 2010)10.37
    Form of Warrant Certificate for US warrant holders
      (incorporated by reference to an exhibit to our Current Report on Form 8-K
      filed on July 6, 2010)10.38
    Form of Warrant Certificate for non-US warrant holders
      (incorporated by reference to an exhibit to our Current Report on Form 8-K
      filed on July 6, 2010)10.39
    Shares for Services Agreement dated July 5, 2010 with
      Eurogenet Labs SA (incorporated by reference to an exhibit to our Current
      Report on Form 8-K filed on July 9, 2010)10.40
    Form of Warrant Certificate for non-US warrant holders
      (incorporated by reference to an exhibit to our Current Report on Form 8-K
      filed on July 9, 2010)10.41
    Agreement for Services with Genesis Biopharma Group LLC
      dated August 10, 2010 (incorporated by reference to an exhibit of our
      Current Report on Form 8-K filed on August 18, 2010) (portions of
      the exhibit have been omitted pursuant to a request for
      confidential treatment)10.42
    Agreement for Services with ABX-CRO Advanced
      Pharmaceutical Services dated August 10, 2010 (incorporated by reference
      to an exhibit of our Current Report on Form 8-K filed on August 18, 2010)
      (portions of the exhibit have been omitted pursuant to a request for
      confidential treatment)10.43
    Form of Subscription Agreement (US Purchasers)
      (incorporated by reference to an exhibit to our Current Report on Form 8-K
      filed on September 9, 2010)10.44
    Form of Subscription Agreement (Canadian and Offshore
      Purchasers) (incorporated by reference to an exhibit to our Current Report
      on Form 8-K filed on September 9, 2010)10.45
    Form of Warrant Certificate (US warrant
      holders)(incorporated by reference to an exhibit to our Current Report on
      Form 8-K filed on September 9, 2010)10.46
    Form of Warrant Certificate (Canadian and Offshore
      warrant holders) (incorporated by reference to an exhibit to our Current
      Report on Form 8-K filed on September 9, 2010)10.47
    Consulting Agreement dated August 2, 2010 with Tom
      Skarpelos (incorporated by reference to an exhibit to our Current Report
      on Form 8-K filed on September 27, 2010)10.48
    Independent Contractor Agreement dated September 1, 2010
      with David Tousley (incorporated by reference to an exhibit to our Current
      Report on Form 8-K filed on September 27, 2010)10.49
    Sublease Contract with Genesis Research LLC dated
      September 15, 2010 (incorporated by reference to an exhibit to our Current
      Report on Form 8-K filed on September 27, 2010)10.50
    Form of Subscription Agreement (US Purchasers)
      (incorporated by reference to an exhibit to our Current Report on Form 8-K
      filed on November 22, 2010)10.51
    Form of Subscription Agreement (non-US Purchasers)
      (incorporated by reference to an exhibit to our Current Report on Form 8-K
      filed on November 22, 2010)10.52
    Form of Warrant Certificate (US Warrant Holders) (US
      Purchasers) (incorporated by reference to an exhibit to our Current Report
      on Form 8-K filed on November 22, 2010)10.53
    Form of Warrant Certificate (non-US Warrant Holders) (US
      Purchasers) (incorporated by reference to an exhibit to our Current Report
      on Form 8-K filed on November 22, 2010)


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22

|Exhibit Number | Description                                                                                                                                                                                                                     
|-------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.54          | Shares for Service and Subscription
          Agreement dated November 1, 2010 with Eurogenet Labs SA (incorporated
          by reference to an exhibit to our Current Report on Form 8-K filed on
          November 22, 2010)
|10.55          | Subscription Agreement with
          Stonehedge Limited dated November 17, 2010 (incorporated by reference
          to an exhibit to our Current Report on Form 8-K filed on November 22,
          2010)                     
|10.56          | Form of Subscription Agreement
          (incorporated by reference to an exhibit to our Current Report on Form
          8-K filed on November 30, 2010)                                                                       
|10.57          | Form of Warrant Certificate
          Form of Subscription Agreement (incorporated by reference to an exhibit
          to our Current Report on Form 8-K filed on November 30, 2010)                                           
|10.58          | Shares for Services Agreement
          Form of Subscription Agreement (incorporated by reference to an exhibit
          to our Current Report on Form 8-K filed on November 30, 2010)                                         
|10.59          | Form of Subscription Agreement
          (non-US Purchasers) (incorporated by reference to an exhibit to our
          Current Report on Form 8-K filed on February 7, 2011)                                                    
|10.60          | Form of Warrant Certificate
          (non-US Warrant Holders) (incorporated by reference to an exhibit to
          our Current Report on Form 8-K filed on February 7, 2011)                                                  
|10.61          | Termination Agreement dated
          February 2, 2011 with Genesis BioPharma Group, LLC (incorporated by
          reference to an exhibit to our Current Report on Form 8-K filed on February
          7, 2011)              
|10.62          | Independent Contractor Agreement
          with Harvey Lalach dated February 1, 2011 (incorporated by reference
          to an exhibit to our Current Report on Form 8-K filed on February 7,
          2011)                  
|10.63          | Independent Contractor Agreement
          with Dr. Angelos Stergiou dated February 1, 2011 (incorporated by reference
          to an exhibit to our Current Report on Form 8-K filed on February 7,
          2011)           
|10.64          | Amended and Restated 2007 Stock
          Option Plan (incorporated by reference to an exhibit to our Current
          Report on Form 8-K filed on February 8, 2011)                                                           
|(14)           | Code
          of Ethics                                                                                                                                                                                                        
|14.1           | Code of Conduct (incorporated
          by reference to an exhibit to our Current Report on Form 8-K filed on
          September 28, 2007)                                                                                     
|(21)           | Subsidiaries                                                                                                                                                                                                                    
|21.1           | Anavex
          Life Sciences (France) SA, incorporated under the laws of France                                                                                                                                               
|(31)           | Section
          302 Certifications                                                                                                                                                                                            
|31.1*          | Section
          302 Certification of Dr. Cameron Durrant                                                                                                                                                                      
|31.2*          | Section
          302 Certification of David Tousley                                                                                                                                                                            
|(32)           | Section
          906 Certifications                                                                                                                                                                                            
|32.1*          | Section
          906 Certification of Dr. Cameron Durrant                                                                                                                                                                      
|32.2*          | Section
          906 Certification of David Tousley                                                                                                                                                                            
|(99)           | Additional
          Exhibits                                                                                                                                                                                                   
|99.1           | Insider Trading Policy Adopted
          August 27, 2010 (incorporated by reference to an exhibit to our Current
          Report on Form 8-K filed on September 27, 2010)                                                      

* Filed herewith.

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23

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/ Cameron Durrant                                                  | 
|Dr. Cameron Durrant                                                  | 
|Executive Chairman and Director                                      | 
|(Principal Executive Officer)                                        | 
|Date: February 14, 2011                                              | 
|                                                                     | 
|                                                                     | 
|                                                                     | 
|/s/ David Tousley                                                    | 
|David Tousley                                                        | 
|Chief Financial Officer and Director                                 | 
|(Principal Financial Officer and Principal Accounting
      Officer) | 
|Date: February 14, 2011                                              | 

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