UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended May 31, 2021

 

or

 

☐    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from [ ] to [ ]

 

Commission file number

 

LEXARIA BIOSCIENCE CORP.

(Exact name of registrant as specified in its charter)

 

Nevada

 

20-2000871

State or other jurisdiction of incorporation or organization

 

(I.R.S. Employer Identification No.)

 

 

 

#100 - 740 McCurdy Road, Kelowna BC Canada

 

V1X 2P7

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s Telephone number, including area code: 250-765-6424

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Name of Each Exchange On Which Registered

N/A

 

N/A 

 

Securities registered pursuant to Section 12(g) of the Act:

 

Title of Class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, Par Value $0.001

LEXX

NASDAQ

Warrants

LEXXW

NASDAQ

 

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 last 90 days. Yes ☒     No ☐

 

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted 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 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 definition 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

Smaller reporting company

 

 

Emerging growth company

  

If an emerging growth company, indicate by a check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

 

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

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date.

 

5,104,332 common shares as of July 15, 2021

 

DOCUMENTS INCORPORATED BY REFERENCE

None.

 

 

 

 

TABLE OF CONTENTS

 

PART I-FINANCIAL INFORMATION

 

3

 

 

 

 

 

 

Item 1.

Financial Statements

 

3

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

20

 

 

 

 

 

 

Item 3.

Controls and Procedures

 

29

 

 

 

 

 

 

PART II-OTHER INFORMATION

30

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

30

 

 

 

 

 

 

Item 1A.

Risk Factors

 

30

 

 

 

 

 

 

Item 2.

Exhibits

 

30

 

 

LXRP_10QIMG1.JPG

 

 
Page 2 of 31

Table of Contents

 

PART I-FINANCIAL INFORMATION

 

 

 

LEXARIA BIOSCIENCE CORP.

CONSOLIDATED BALANCE SHEET

(Expressed in U.S. Dollars)

 

 

May 31

 

 

August 31

 

 

 

2021

 

 

2020

 

ASSETS

 

(Unaudited)

 

 

(Audited)

 

Current

 

 

 

 

 

 

Cash

 

$ 8,108,512

 

 

$ 1,293,749

 

Marketable securities (Note 21)

 

 

400,744

 

 

 

19,321

 

Accounts receivable (Note 9)

 

 

954,097

 

 

 

208,925

 

Inventory (Note 10)

 

 

51,738

 

 

 

116,871

 

Prepaid expenses and deposit (Note 20)

 

 

170,439

 

 

 

182,095

 

Current assets from discontinued operations (Note 22)

 

 

-

 

 

 

105,250

 

Total Current Assets

 

 

9,685,560

 

 

 

1,926,211

 

 

 

 

 

 

 

 

 

 

Non-current assets, net

 

 

 

 

 

 

 

 

Lease right of use (Note 19)

 

 

100,256

 

 

 

126,920

 

Intellectual property (Note 11)

 

 

366,340

 

 

 

292,000

 

Property & equipment (Note 12)

 

 

395,397

 

 

 

483,357

 

Total Non-current Assets

 

 

861,993

 

 

 

902,277

 

TOTAL ASSETS

 

$ 10,547,553

 

 

$ 2,828,488

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities (Note 13)

 

$ 173,901

 

 

$ 86,920

 

Deferred revenue

 

 

-

 

 

 

44,255

 

Due to a related party (Note 17)

 

 

1,324

 

 

 

58,704

 

Loan payable

 

 

7,507

 

 

 

-

 

Lease payable (Note 19)

 

 

38,485

 

 

 

36,038

 

Current liabilities from discontinued operations (Note 22)

 

 

-

 

 

 

250

 

Total Current Liabilities

 

 

221,217

 

 

 

226,167

 

 

 

 

 

 

 

 

 

 

Long Term

 

 

 

 

 

 

 

 

Lease payable (Note 19)

 

 

60,164

 

 

 

89,393

 

Loan payable

 

 

-

 

 

 

30,670

 

Total Long Term Liabilities

 

 

60,164

 

 

 

120,063

 

TOTAL LIABILITIES

 

 

281,381

 

 

 

346,230

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Share Capital (Note 14) Authorized: 220,000,000 common voting shares with a par value of $0.001 per share Issued and outstanding: 5,104,332 common shares at May 31, 2021 and 3,001,476 common shares at August 31, 2020

 

 

5,104

 

 

 

3,001

 

Additional paid-in capital (Notes 14, 15)

 

 

40,989,692

 

 

 

30,324,398

 

Deficit

 

 

(30,651,112 )

 

 

(27,802,198 )

Equity attributable to shareholders of the Company

 

 

10,343,684

 

 

 

2,525,201

 

Non-controlling Interest

 

 

(77,512 )

 

 

(42,943 )

Total Stockholders' Equity

 

 

10,266,172

 

 

 

2,482,258

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$ 10,547,553

 

 

$ 2,828,488

 

  

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

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Table of Contents

 

LEXARIA BIOSCIENCE CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Expressed in U.S. Dollars, except number of shares)

 

 

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED

 

 

NINE MONTHS ENDED

 

 

 

May 31

 

 

May 31

 

 

May 31

 

 

May 31

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

Revenue (Notes 16, 18)

 

$ 204,055

 

 

$ 36,423

 

 

$ 691,717

 

 

$ 250,804

 

Cost of Goods Sold

 

 

59,989

 

 

 

20,319

 

 

 

155,037

 

 

 

86,278

 

Gross profit

 

 

144,066

 

 

 

16,104

 

 

 

536,680

 

 

 

164,526

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounting and audit

 

 

6,472

 

 

 

17,113

 

 

 

64,382

 

 

 

43,642

 

Depreciation and amortization (Notes 10, 11, 12)

 

 

27,929

 

 

 

28,081

 

 

 

83,788

 

 

 

83,875

 

Advertising and promotions

 

 

325,500

 

 

 

48,124

 

 

 

410,273

 

 

 

128,295

 

Bad debt

 

 

-

 

 

 

25,000

 

 

 

37,000

 

 

 

25,000

 

Consulting (Notes 14, 15)

 

 

1,268,668

 

 

 

944,210

 

 

 

1,960,468

 

 

 

1,949,234

 

Investor relations

 

 

134,540

 

 

 

-

 

 

 

212,691

 

 

 

21,277

 

Legal and professional

 

 

120,434

 

 

 

149,257

 

 

 

529,776

 

 

 

289,614

 

Office and miscellaneous

 

 

106,621

 

 

 

55,402

 

 

 

365,433

 

 

 

193,857

 

Research and development

 

 

454,443

 

 

 

24,557

 

 

 

823,102

 

 

 

318,577

 

Travel

 

 

-

 

 

 

2,566

 

 

 

850

 

 

 

46,178

 

Wages and salaries

 

 

196,153

 

 

 

125,274

 

 

 

343,812

 

 

 

303,635

 

Gain on disposal of assets (Note 22)

 

 

-

 

 

 

18,198

 

 

 

(1,522,704 )

 

 

18,198

 

Unrealized (gain)/loss on marketable securities (Note 21)

 

 

69,858

 

 

 

(19,654 )

 

 

86,810

 

 

 

20,937

 

Inventory write-off (Note 10)

 

 

-

 

 

 

8,240

 

 

 

2,482

 

 

 

8,240

 

 

 

 

2,710,618

 

 

 

1,426,368

 

 

 

3,398,368

 

 

 

3,450,559

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss from continuing operations

 

 

(2,566,552 )

 

 

(1,410,264 )

 

 

(2,861,483 )

 

 

(3,286,033 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations (Note 22)

 

 

-

 

 

 

19,611

 

 

 

(22,000 )

 

 

83,795

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss and comprehensive loss for the period

 

$ (2,566,552 )

 

$ (1,390,653 )

 

$ (2,883,483 )

 

$ (3,202,238 )

Net loss and comprehensive loss attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shareholders

 

$ (2,556,997 )

 

$ (1,361,381 )

 

$ (2,848,914 )

 

$ (3,108,368 )

Non-controlling interest

 

$ (9,555 )

 

$ (29,272 )

 

$ (34,569 )

 

$ (93,870 )

Basic and diluted income (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$ (0.40 )

 

$ (0.50 )

 

$ (0.70 )

 

$ (1.19 )

Discontinued operations

 

 

-

 

 

 

(0.01

 

 

(0.01 )

 

 

(0.03

Total

 

$ (0.50 )

 

$ (0.50 )

 

$ (0.71 )

 

$ (1.23 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

5,104,332

 

 

 

2,769,488

 

 

 

4,056,755

 

 

 

2,698,763

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Table of Contents

 

LEXARIA BIOSCIENCE CORP.

 

 

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

 

 

 

 

(Expressed in U.S. Dollars)

 

 

 

 

 

 

NINE MONTHS ENDED

 

 

 

May 31

 

 

May 31

 

 

 

2021

 

 

2020

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Cash flows used in operating activities

 

 

 

 

 

 

Net loss and comprehensive loss

 

$ (2,861,483 )

 

$ (3,286,033 )

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Stock based compensation

 

 

410,007

 

 

 

1,139,270

 

Depreciation and amortization

 

 

83,788

 

 

 

83,875

 

Inventory write-off

 

 

2,482

 

 

 

8,240

 

Bad debt expense

 

 

37,000

 

 

 

25,000

 

Noncash right of use lease expense

 

 

26,664

 

 

 

-

 

Gain on asset disposal

 

 

(1,522,704 )

 

 

-

 

Realized loss on disposal of investment

 

 

-

 

 

 

18,198

 

Unrealized loss on marketable securities

 

 

86,810

 

 

 

20,937

 

Warrants issued for services

 

 

785,895

 

 

 

168,833

 

Change in working capital

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(1,106 )

 

 

(30,815 )

Inventory

 

 

71,976

 

 

 

(13,396 )

Prepaid expenses and deposits

 

 

11,656

 

 

 

(20,013 )

Accounts payable and accrued liabilities

 

 

86,981

 

 

 

(81,284 )

Due to related parties

 

 

(57,380 )

 

 

(18,501 )

Operating lease liability

 

 

(26,782 )

 

 

-

 

Deferred revenue

 

 

(44,255 )

 

 

6,250

 

Net cash (used in) by operating activities

 

$ (2,910,451 )

 

$ (1,979,439 )

 

 

 

 

 

 

 

 

 

Cash flows used in investing activities

 

 

 

 

 

 

 

 

Sale of marketable securities 

 

 

-

 

 

 

6,802

 

Intellectual property

 

 

(79,493 )

 

 

(20,007 )

Disposal of assets 

 

 

273,375

 

 

 

-

 

Net cash provided by (used in) investing activities

 

$ 193,882

 

 

$ (13,205 )

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Repayment of loan payable

 

 

(23,163 )

 

 

28,756

 

Proceeds from issuance of equity

 

 

9,471,495

 

 

 

2,714,627

 

Net cash from financing Activities

 

$ 9,448,332

 

 

$ 2,743,383

 

 

 

 

 

 

 

 

 

 

Net cash from discontinued operations

 

$ 83,000

 

 

$ (1,875

)

 

 

 

 

 

 

 

 

 

Net change in cash for the period

 

 

6,814,763

 

 

 

748,864

 

Cash at beginning of period

 

 

1,293,749

 

 

 

1,285,147

 

Cash at end of period

 

$ 8,108,512

 

 

$ 2,034,011

 

 

 

 

 

 

 

 

 

 

Supplemental information of cash flows:

 

 

 

 

 

 

 

 

Income taxes paid in cash

 

$ 3,540

 

 

$ (10,459 )

Non-cash consideration on asset disposal

 

$ 1,171,599

 

 

$ -

 

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

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Table of Contents

 

LEXARIA BIOSCIENCE CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Expressed in U.S. Dollars)

                                      

 

 

COMMON STOCK

 

 

ADDITIONAL

PAID-IN

 

 

 

 

 

 

 

 

TOTAL

STOCKHOLDERS'

 

 

 

SHARES

 

 

AMOUNT

 

 

CAPITAL

 

 

DEFICIT

 

 

NCI

 

 

EQUITY

 

 

 

 

 

 

$

 

 

 $

 

 

 

 

$

 

 

$

 

Balance As At August 31, 2019

 

 

2,626,236

 

 

 

2,626

 

 

 

26,248,614

 

 

 

(23,868,202 )

 

 

107,674

 

 

 

2,490,712

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

162,414

 

 

 

-

 

 

 

-

 

 

 

162,414

 

Warrants issued for services

 

 

-

 

 

 

-

 

 

 

70,752

 

 

 

-

 

 

 

-

 

 

 

70,752

 

Private placement

 

 

60,792

 

 

 

61

 

 

 

815,959

 

 

 

 

 

 

 

 

 

 

 

816,020

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(907,313 )

 

 

-

 

 

 

(907,313 )

Non-controlling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(17,450 )

 

 

(17,450 )

Balance As At November 30, 2019

 

 

2,687,028

 

 

 

2,687

 

 

 

27,297,739

 

 

 

(24,775,515 )

 

 

90,224

 

 

 

2,615,135

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

294,293

 

 

 

-

 

 

 

-

 

 

 

294,293

 

Exercise of stock options

 

 

3,667

 

 

 

4

 

 

 

10,996

 

 

 

-

 

 

 

-

 

 

 

11,000

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(950,344 )

 

 

-

 

 

 

(950,344 )

Non-controlling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(47,148 )

 

 

(47,148 )

Balance As At February 29, 2020

 

 

2,690,695

 

 

 

2,691

 

 

 

27,603,028

 

 

 

(25,725,859 )

 

 

43,076

 

 

 

1,922,936

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

682,563

 

 

 

-

 

 

 

-

 

 

 

682,563

 

Warrants issued for services

 

 

-

 

 

 

-

 

 

 

98,081

 

 

 

-

 

 

 

-

 

 

 

98,081

 

Private placement

 

 

295,540

 

 

 

296

 

 

 

1,887,310

 

 

 

-

 

 

 

-

 

 

 

1,887,606

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,361,381 )

 

 

-

 

 

 

(1,361,381 )

Non-controlling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(29,272 )

 

 

(29,272 )

Balance As At May 31, 2020

 

 

2,986,235

 

 

 

2,986

 

 

 

30,270,983

 

 

 

(27,087,240 )

 

 

13,804

 

 

 

3,200,533

 

Exercise of stock options

 

 

3,667

 

 

 

4

 

 

 

19,026

 

 

 

-

 

 

 

-

 

 

 

19,030

 

Shares issued for service

 

 

11,574

 

 

 

12

 

 

 

99,988

 

 

 

-

 

 

 

-

 

 

 

100,000

 

Private placement

 

 

-

 

 

 

-

 

 

 

(65,600 )

 

 

-

 

 

 

-

 

 

 

(65,600 )

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(714,958 )

 

 

-

 

 

 

(714,958 )

Non-controlling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(56,747 )

 

 

(56,747 )

Balance As At August 31, 2020

 

 

3,001,476

 

 

 

3,001

 

 

 

30,324,398

 

 

 

(27,802,198 )

 

 

(42,943 )

 

 

2,482,258

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

48,887

 

 

 

-

 

 

 

-

 

 

 

48,887

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(696,028 )

 

 

-

 

 

 

(696,028 )

Non-controlling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(14,093 )

 

 

(14,093 )

Balance As At November 30, 2020

 

 

3,001,476

 

 

 

3,001

 

 

 

30,373,285

 

 

 

(28,498,226 )

 

 

(57,036 )

 

 

1,821,024

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

17,154

 

 

 

-

 

 

 

-

 

 

 

17,154

 

Brokered placement

 

 

2,102,856

 

 

 

2,103

 

 

 

9,469,392

 

 

 

-

 

 

 

-

 

 

 

9,471,495

 

Net Income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

404,111

 

 

 

-

 

 

 

404,111

 

Non-controlling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(10,921 )

 

 

(10,921 )

Balance As At February 28, 2021

 

 

5,104,332

 

 

 

5,104

 

 

 

39,859,831

 

 

 

(28,094,115 )

 

 

(67,957 )

 

 

11,702,863

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

343,966

 

 

 

-

 

 

 

-

 

 

 

343,966

 

Warrants issued for services

 

 

-

 

 

 

-

 

 

 

785,895

 

 

 

-

 

 

 

-

 

 

 

785,985

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,556,997 )

 

 

-

 

 

 

(2,378,420 )

Non-controlling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(9,555 )

 

 

(9,555 )

Balance As At May 28, 2021

 

 

5,104,332

 

 

 

5,104

 

 

 

40,989,692

 

 

 

(30,651,112 )

 

 

(77,512 )

 

 

10,266,172

 

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

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LEXARIA BIOSCIENCE CORP.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2021

(Expressed in U.S. Dollars)

 

 

1.

Organization and Description of Business

 

 

 

Lexaria Bioscience Corp. (“Lexaria”, “we”, “our” or “the “Company”) was incorporated in the State of Nevada on December 9, 2004. In March 2014, the Company began work in the field of enhanced delivery of active ingredients and drugs. In May 2016, the Company commenced out-licensing its patented DehydraTECH™ technology (the “Technology”) for improved delivery of bioactive compounds that promotes healthy ingestion methods, lower overall dosing and higher effectiveness in active molecule delivery.

 

The Company is headquartered in Kelowna, British Columbia, Canada. The corporate website is www.lexaribioscience.com

 

On December 9, 2020, the Company completed the sale of the business assets underlying its Lexaria CanPharm ULC THC related segment. As a result, the related financial results are reflected in our consolidated statement of operations, retrospectively, as discontinued operations beginning in the first quarter of fiscal 2021. The assets and liabilities associated with the discontinued operations in the prior year consolidated balance sheet are classified as discontinued operations. See “Note 22 - Discontinued Operations” for additional information.

 

On January 11, 2021, the Company effected  a 30:1 reverse stock split with no fractional shares issued. All share and per share information within these condensed interim consolidated financial statements have been retroactively restated accordingly.

 

On January 12, 2021, the Company closed an underwritten public offering for net proceeds of $9,471,495 and issued 2,102,856 common shares. (Note 2)

 

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2.

Liquidity and Uncertainties

 

 

 

The unaudited interim consolidated financial statements have been prepared in accordance with US GAAP applicable to a going concern, which assumes the Company will have sufficient funds to pay it operational and capital expenditures for a period of at least 12 months from the date this financial report was issued.

 

Since inception, we have incurred significant operating and net losses. Our net losses were $3.9 million, $4.1 million and $6.6 million for the years ended August 31, 2020, 2019 and 2018, respectively. As of May 31, 2021, we had an accumulated deficit of $30.6 million. We expect to continue to incur significant expenses and operating and net losses in upcoming 12 months. Our net losses may fluctuate significantly from quarter to quarter and year to year, depending on the stage and complexity of our R&D studies, the receipt of additional milestone payments, if any, the receipt of payments under any current or future collaborations we may enter into, and our expenditures on other R&D activities.

 

In the second quarter of 2021, the Company completed an underwritten public offering of common stock for net proceeds of approximately $9.5 million (the “Offering”). As of May 31, 2021, working capital was approximately $9.5 million, an increase of approximately $7.8 million from August 2020. The Company has evaluated whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern. With the Offering, the Company is reasonably certain it has sufficient liquidity to support operations in the upcoming 12 months. We may offer additional securities for sale during our fiscal year 2021 or thereafter in response to market conditions or other circumstances if we believe such a plan of financing is required to advance the Company’s business plans and is in the best interests of our stockholders.

 

 

3.

COVID-19

 

 

 

The emergence of the COVID-19 pandemic in January of 2020 continues to present uncertainty and unforecastable new risks to the Company and its business plan. Restrictions on national and international travel and required business closures present challenges in carrying out normal business activities related to corporate finance efforts and the pursuit of new customers throughout North America who might otherwise access the retail products of our licensees. As a result, the pandemic has increased the risk of lower revenues and higher losses.

 

We have made modifications to our normal operations including requiring team members to work remotely on a rotational basis. To the extent possible, we are conducting business as usual, with necessary or advisable modifications to employee travel. At this time, these measures will continue in force for the near term.

     

We will continue to actively monitor the rapidly evolving situation related to COVID-19 and may take further actions that alter our operations, including those that may be required by federal, state, provincial, or local authorities, or that we determine are in the best interests of our employees and other third parties with which we do business. We do not know when, or if, it will become practical to relax or eliminate some or all these measures entirely.

 

 

4.

Significant Accounting Policies

 

 

 

The significant accounting policies of the Company are consistent with those of our audited financial statements on Form 10-K for the year ended August 31, 2020.

 

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5.

Basis of Consolidation

 

 

 

These interim consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries; Lexaria CanPharm ULC, PoViva Corp., Lexaria Hemp Corp., Kelowna Management Services Corp., and Lexaria Pharmaceutical Corp., and our 83.333% owned subsidiary Lexaria Nicotine LLC (16.667% Altria Ventures Inc., an indirect wholly owned subsidiary of Altria Group, Inc.). All significant intercompany balances and transactions have been eliminated.

 

 

6.

Basis of Presentation

 

 

 

The Company’s unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with United States generally accepted accounting principles (US GAAP) have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of results for a full year or any subsequent period.

 

These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated annual financial statements and notes thereto included in our annual report filed on Form 10-K for the year ended August 31, 2020.

 

 

7.

Estimates and Judgments

 

 

 

The preparation of financial statements in conformity with U.S GAAP requires us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Some of the Company’s accounting policies require us to make subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. These accounting policies involve critical accounting estimates because they are particularly dependent on estimates and assumptions made by management about matters that are highly uncertain at the time the accounting estimates are made. Although we have used our best estimates based on facts and circumstances available to us at the time, different estimates reasonably could have been used. Changes in the accounting estimates used by the Company are reasonably likely to occur from time to time, which may have a material effect on the presentation of financial condition and results of operations.

 

The Company reviews these estimates, judgments, and assumptions periodically and reflect the effects of revisions in the period in which they are deemed to be necessary. Although we believe that these estimates are reasonable actual results could differ.

 

In preparing these unaudited interim consolidated financial statements, the significant judgments made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those applied to the audited consolidated financial statements for the year ended August 31, 2020, with the addition of discontinued operations. (Note 22)

 

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8.

Recent Accounting Guidance

 

 

 

In June 2016, the FASB issued a new standard to replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For trade and other receivables, loans and other financial instruments, the Company will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects probable losses. Credit losses relating to available for sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. In November 2019 FASB issued ASU No 201910 revised the effective date based on updated criteria with the effective date for fiscal years beginning after December 15, 2022. Application of the amendments is through a cumulative effect adjustment to deficit as of the effective date. The Company is currently assessing the impact of the standard on its consolidated financial statements.

 

 

9.

Accounts and Other Receivables

 

 

 

 

 

May 31

 

 

August 31

 

 

 

2021

 

 

2020

 

 

 

$

 

 

$

 

Trade and deposits receivable

 

 

784,859

 

 

 

82,492

 

Intellectual property fees

 

 

113,905

 

 

 

38,250

 

Sales tax receivable

 

 

55,333

 

 

 

88,183

 

 

 

 

954,097

 

 

 

208,925

 

  

     

Trade and deposits receivable includes $781,067 from the asset sale (Note 22).

 

10.

Inventory

 

 

 

May 31

 

 

August 31

 

 

 

2021

 

 

2020

 

 

 

 

$

 

 

 

$

 

Raw materials

 

 

51,738

 

 

 

51,404

 

Work in progress

 

 

-

 

 

 

15,705

 

Finished goods

 

 

-

 

 

 

49,762

 

 

 

 

51,738

 

 

 

116,871

 

 

 

During the period ended May 31, 2021, the Company wrote down $44,851 in finished goods and allocated the amount to advertising and promotion as the goods were donated to charity. A further $2,482 (2020 - $8,240 full year) of finished goods inventory was write-off to reflect its net realisable value.

 

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11.

Intellectual Property

 

 

 

The following is a list of US capitalized patents held by the Company:

 

Issued Patent #

Patent Certificate Grant Date

Patent Family

US 9,474,725 B1

10/25/2016

Food and Beverage Compositions Infused With Lipophilic Active Agents and Methods of Use Thereof

 

US 9,839,612 B2

12/12/2017

US 9,972,680 B2

05/15/2018

US 9,974,739 B2

05/22/2018

US 10,084,044 B2

09/25/2018

US 10,103,225 B2

10/16/2018

US 10,381,440

08/13/2019

US 10,374,036

08/06/2019

US 10,756,180

08/25/2020

 

 

As at May 31, 2021 the Company held ten non-capitalized patents outside the US.  See Note 23.

 

 

 

A continuity schedule for capitalized patents is presented below:

 

 

 

May 31

 

 

August 31

 

 

 

2021

 

 

2020

 

 

 

 

$

 

 

 

$

 

Balance - beginning

 

 

292,000

 

 

 

265,127

 

Addition

 

 

79,493

 

 

 

33,645

 

Amortization

 

 

(5,153 )

 

 

(6,772 )

Balance - ending

 

 

366,340

 

 

 

292,000

 

Patents are amortized over their 20 year legal life.

 

 

 

 

 

 

 

 

 

12.

Property & Equipment

 

Nine Months Ended May 31, 2021

 

Cost

 

 

Period

Amortization

 

 

Disposal

 

 

Accumulated Amortization

 

 

Net Balance   
May 31,  2021

 

 

 

 

$

 

 

 

$

 

 

 

$

 

 

 

$

 

 

 

$

 

Leasehold improvements

 

 

259,981

 

 

 

(40,528 )

 

 

-

 

 

 

(127,138 )

 

 

132,843

 

Computers

 

 

63,964

 

 

 

(14,761 )

 

 

-

 

 

 

(46,630 )

 

 

17,334

 

Furniture fixtures & equipment

 

 

34,220

 

 

 

(4,813 )

 

 

(3,094 )

 

 

(14,816 )

 

 

16,310

 

Lab equipment

 

 

291,235

 

 

 

(27,858 )

 

 

-

 

 

 

(62,325 )

 

 

228,910

 

 

 

 

649,400

 

 

 

(87,960 )

 

 

(3,094 )

 

 

(250,909 )

 

 

395,397

 

 

Year Ended August 31, 2020

 

Cost

 

 

Period

Amortization

 

 

Accumulated Amortization

 

 

Net Balance
August 31, 2020

 

 

 

 

$

 

 

 

$

 

 

 

$

 

 

 

$

 

Leasehold improvements

 

 

259,981

 

 

 

(53,268 )

 

 

(86,610 )

 

 

173,371

 

Computers

 

 

63,964

 

 

 

(19,681 )

 

 

(31,869 )

 

 

32,095

 

Furniture fixtures & equipment

 

 

34,220

 

 

 

(7,036 )

 

 

(13,097 )

 

 

21,123

 

Lab equipment

 

 

291,235

 

 

 

(27,921 )

 

 

(34,467 )

 

 

256,768

 

 

 

 

649,400

 

 

 

(107,906 )

 

 

(166,043 )

 

 

483,357

 

 

 

During the nine-month period ended May 31, 2021, $9,325 of amortization was included in the cost of goods sold.

  

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13.

Accounts Payable and Accrued Liabilities

 

 

 

May 31

 

 

August 31

 

 

 

2021

 

 

2020

 

 

 

 

$

 

 

 

$

 

Accounts Payable

 

 

 

 

 

 

 

 

Trades payable

 

 

163,754

 

 

 

45,080

 

Accrued Liabilities

 

 

 

 

 

 

 

 

Corporate tax payable

 

 

4,755

 

 

 

3,834

 

Trades payable

 

 

5,392

 

 

 

38,006

 

Balance

 

 

173,901

 

 

 

86,920

 

 

14.

Common Shares and Warrants

 

 

 

The fair value of share purchase warrants granted was estimated as of the date of the grant by using the Black-Scholes option pricing model. This mathematical model for determining the value of derivatives was developed in 1973 and assumes a constant volatility skew. The value assigned to the warrants issued during the period reflects an anomaly inherent in this model.

 

During the quarter ended May 31, 2021, the Company issued the following warrants summarized below:

 

Type of Issuance

 

Number of

Shares

 

 

 Exercise

Price 

 

 

Total Value

 

Warrants

 

 

300,000

 

 

$9.00

 

 

$ 785,895

 

 

 

 

300,000

 

 

 

 

 

 

$ 785,895

 

 

 

A continuity schedule for warrants is presented below:

 

 

 

Number of Warrants

 

 

Weighted Average Exercise Price $

 

Balance August 31, 2019

 

 

94,177

 

 

 

41.40

 

Cancelled/expired

 

 

(25,000 )

 

 

44.90

 

Issued

 

 

402,431

 

 

 

12.74

 

Balance August 31, 2020

 

 

471,608

 

 

 

16.77

 

Cancelled/expired

 

 

(44,161 )

 

 

67.50

 

Issued

 

 

2,630,017

 

 

 

6.58

 

Balance May 31, 2021

 

 

3,057,464

 

 

 

7.87

 

 

 

A summary of warrants outstanding as of May 31, 2021, is presented below:

 

# of Warrants

 

 

Weighted Average

Remaining Contractual Life

 

Weighted Average

Exercise Price $

 

 

25,000

 

 

0.36 years

 

 

4.20

 

 

292

 

 

0.45 years

 

 

36.00

 

 

7,500

 

 

1.43 years

 

 

24.00

 

 

300,000

 

 

2.88 years

 

 

9.00

 

 

51,814

 

 

3.46 years

 

 

36.00

 

 

8,984

 

 

3.50 years

 

 

36.00

 

 

16,667

 

 

3.79 years

 

 

9.00

 

 

317,190

 

 

3.93 years

 

 

10.50

 

 

2,330,017

 

 

4.63 years

 

 

6.58

 

 

3,057,464

 

 

4.32 years

 

 

7.85

 

 

 

The fair value of purchase warrants was estimated using the following assumptions:

  

 

 

May 31

2021

 

 

 

 

 

Expected volatility

 

 

103 %

Risk-free interest rate

 

 

0.16 %

Expected life

 

3 years

 

Dividend yield

 

 

0 %

Estimated fair value per warrant

 

$ 2.62

 

 

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15.

Stock Options

 

 

 

The Company has established the 2014 Stock Option Plan whereby the board of directors may, from time to time, grant up to 62,917 stock options to directors, officers, employees, and consultants; and the 2019 Equity Incentive Plan whereby the board of directors may, from time to time, grant up to 261,290 stock options to directors, officers, employees, and consultants. Stock options granted must be exercised within five years from the date of grant or such lesser period as determined by the Company’s board of directors. The exercise price of an option is equal to or greater than the closing market price of the Company’s common shares on the day preceding the date of grant. The vesting terms of each grant are set by the board of directors.

 

The Company granted the following options during the quarter ended May 31, 2021:

 

Quantity

 

 

Exercise Price $

 

 

Life (Years)

 

 

12,000

 

 

 

5.04

 

 

 

5

 

 

43,500

 

 

 

5.31

 

 

 

5

 

 

26,000

 

 

 

5.88

 

 

 

5

 

 

81,500

 

 

 

5.22

 

 

 

 

 

 

 

A continuity schedule for stock options is presented below:

 

 

 

Options

 

 

Weighted Average Exercise Price $

 

 

Weighted Average Remaining Contractual Term (Years)

 

 

Aggregate Intrinsic Value $

 

Balance August 31, 2019

 

 

166,767

 

 

 

21.30

 

 

 

 

 

 

 

Cancelled/expired

 

 

(149,437 )

 

 

29.51

 

 

 

 

 

 

 

Exercised

 

 

(7,333 )

 

 

4.09

 

 

 

 

 

 

 

Granted

 

 

161,600

 

 

 

11.66

 

 

 

 

 

 

 

Balance August 31, 2020

 

 

171,604

 

 

 

11.17

 

 

 

 

 

 

 

Cancelled

 

 

(114,935 )

 

 

10.85

 

 

 

 

 

 

 

Granted

 

 

84,900

 

 

 

5.41

 

 

 

 

 

 

 

Balance May 31, 2021 (Outstanding)

 

 

141,569

 

 

 

7.98

 

 

 

4.44

 

 

 

56,827

 

Balance May 31, 2021 (Exercisable)

 

 

128,569

 

 

 

8.27

 

 

 

4.39

 

 

 

44,657

 

 

 

The fair value of share purchase options granted were estimated as of the date of the grant by using the Black-Scholes option pricing model with the following assumptions:

 

 

 

May 31

2021

 

Expected volatility

 

 

134 %

Risk-free interest rate

 

 

0.85 %

Expected life

 

5 years

 

Dividend yield

 

 

0 %

Estimated fair value per option

 

$ 4.63

 

 

 

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16.

Revenues

 

May 31

2021

$

 

 

May 31

2020

$

 

Product sales

 

 

360,558

 

 

 

119,709

 

Licensing revenue

 

 

326,474

 

 

 

130,509

 

Freight revenue

 

 

100

 

 

 

586

 

Interest revenue

 

 

4,585

 

 

 

-

 

Income from continuing operations

 

 

691,717

 

 

 

250,804

 

 

 

During the nine months ended May 31, 2021, the Company recognized $317,884 of usage fees from continuing operations and $22,000 of loss from discontinued operations (May 2020 - $73,759 licensing and $56,750 usage fees).

 

Our intermediate product sales significantly increased with licensees ramping up their production and increasing their orders of our intermediate product. Intermediate products are typically a DehydraTECH enabled powder that companies can purchase to include in their products. The licensing fees consist of intellectual property licensing fees for transfer of the Technology with the signing of definitive agreements for the DehydraTECH technology and usage fees. Interest revenue is derived from interest payments on the promissory note issued as a part of our subsidiary CanPharm’s sale of assets. (Note 22)

 

 

17.

Related Party Transactions

 

 

 

Due to related parties:

 

Related party transactions are recorded at the exchange amount established and agreed to between the related parties. As at May 31, 2021, $1,324 (August 31, 2020 - $58,704) was payable to and included in due to related parties.

 

 

18.

Segment Information

 

 

 

The Company’s operations involve the development and usage, including licensing, of its proprietary DehydraTECH Technology. Lexaria is centrally managed and its chief operating decision makers, being the president and the CEO, use the consolidated and other financial information supplemented by revenue information by category of alternative health consumer products and technology licensing to make operational decisions and to assess the performance of the Company. The Company has identified two reportable segments: Intellectual Property and Products. Licensing revenues are significantly concentrated on one licensee.

 

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IP Licensing
$

 

 

Products
$

 

 

Corporate
$

 

 

Consolidated Total
$

 

Revenue

 

 

326,474

 

 

 

360,658

 

 

 

4,585

 

 

 

691,717

 

Cost of goods sold

 

 

-

 

 

 

(155,037 )

 

 

-

 

 

 

(155,037 )

Operating expenses

 

 

914,485

 

 

 

(402,846 )

 

 

(3,909,802 )

 

 

(3,398,163 )

Discontinued operations

 

 

(22,000 )

 

 

-

 

 

 

-

 

 

 

(22,000 )

Segment income(loss)

 

 

1,218,959

 

 

 

(197,225 )

 

 

(3,905,217 )

 

 

(2,883,483 )

Total assets

 

 

709,155

 

 

 

51,738

 

 

 

9,786,659

 

 

 

10,547,553

 

 

Capital Asset by Region

 

Cost
US

 

 

Disposal US

 

 

Net Balance
US

 

 

Cost
Canada

 

 

Net Balance Canada

 

 

Total Net Balance

 

Nine Months Ended May 31, 2021

 

$

 

 

 $

 

 

$

 

 

 $

 

 

$

 

 

 $

 

Leasehold Improvements

 

 

-

 

 

 

-

 

 

 

-

 

 

 

259,981

 

 

 

132,843

 

 

 

132,843

 

Computers

 

 

-

 

 

 

-

 

 

 

-

 

 

 

63,964

 

 

 

17,334

 

 

 

17,334

 

Furniture Fixtures Equipment

 

 

3,094

 

 

 

3,094

 

 

 

-

 

 

 

31,126

 

 

 

16,309

 

 

 

16,310

 

Lab Equipment

 

 

98,050

 

 

 

-

 

 

 

71,899

 

 

 

193,185

 

 

 

157,010

 

 

 

228,910

 

 

 

 

101,144

 

 

 

3,094

 

 

 

71,899

 

 

 

548,256

 

 

 

323,496

 

 

 

395,397

 

 

Capital Asset by Region

 

Cost
US

 

 

Net Balance
US

 

 

Cost
Canada

 

 

Net Balance Canada

 

 

Total Net Balance

 

Year Ended August 31, 2020

 

 $

 

 

 $

 

 

$

 

 

$

 

 

$

 

Leasehold Improvements

 

 

-

 

 

 

-

 

 

 

259,981

 

 

 

173,371

 

 

 

173,371

 

Computers

 

 

-

 

 

 

-

 

 

 

63,964

 

 

 

32,095

 

 

 

32,095

 

Furniture Fixtures Equipment

 

 

3,094

 

 

 

-

 

 

 

31,126

 

 

 

21,123

 

 

 

21,123

 

Lab Equipment

 

 

98,050

 

 

 

85,263

 

 

 

193,185

 

 

 

171,505

 

 

 

256,768

 

 

 

 

101,144

 

 

 

85,263

 

 

 

548,256

 

 

 

398,094

 

 

 

483,357

 

 

 

19.

Commitments, Significant Contracts and Contingencies

 

 

 

Right of Use Assets - Operating Lease

 

 

 

The Corporate office and R&D lab space located in Kelowna, British Columbia, Canada is leased until November 15, 2023, with a five-year renewal option. In addition to minimum lease payments, the lease requires us to pay property taxes and operating costs which are subject to annual adjustments.

 

Right of use assets - operating leases:

 

$

 

February 28, 2021

 

 

109,306

 

Amortization

 

 

(9,050 )

Total right of use assets

 

 

100,256

 

Liabilities:

 

 

 

 

February 28, 2021

 

 

107,738

 

Lease payments

 

 

(10,987 )

Interest accretion

 

 

1,898

 

Total lease liabilities

 

 

98,649

 

 

Operating lease cost as at May 31, 2021

 

 

 

Operating cash flows for lease

 

 

10,948

 

Remaining lease term (years)

 

 

2.42

 

Discount rate

 

 

7.25 %

 

 

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Pursuant to the terms of the Company’s lease agreements in effect, the following table summarizes the Company’s maturities of operating lease liabilities as of May 31, 2021:

 

2021

 

 

10,987

 

2022

 

 

44,599

 

2023

 

 

44,816

 

2024

 

 

7,469

 

Thereafter

 

 

-

 

Total lease payments

 

 

107,871

 

Less: imputed interest

 

 

(9,222 )

Present value of operating lease liabilities

 

 

98,649

 

Less: current obligations under leases

 

 

(38,485 )

Total

 

 

60,164

 

 

20.

Prepaid Expenses and Deposit

 

 

 

Prepaid expenses consist of the following at May 31, 2021 and August 31, 2020:

 

 

 

May 31

 

 

August 31

 

 

 

2021

 

 

2020

 

 

 

$

 

 

 $

 

Advertising & conferences

 

 

65,350

 

 

 

21,878

 

Consulting

 

 

24,962

 

 

 

-

 

Legal fees

 

 

24,370

 

 

 

47,498

 

Licence, filing fees, dues

 

 

41,375

 

 

 

8,541

 

Office & insurance

 

 

14,382

 

 

 

78,792

 

Research & development

 

 

-

 

 

 

25,386

 

 

 

 

170,439

 

 

 

182,095

 

 

21.

Marketable Securities

 

 

 

The components of Marketable Securities were as follows:

 

 

 

Cost Basis

$

 

 

Unrealized Gains

$

 

 

Unrealized Losses

$

 

 

Total

$

 

August 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

56,250

 

 

 

9,997

 

 

 

(38,584 )

 

 

 

Total

 

 

56,250

 

 

 

9,997

 

 

 

(46,926 )

 

 

19,321

 

May 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

524,513

 

 

 

24,410

 

 

 

(111,220 )

 

 

 

 

Total

 

 

524,513

 

 

 

34,407

 

 

 

(158,146 )

 

 

400,774

 

 

 

Unrealized gains and losses from common stock are due to market price movements. Management does not believe any remaining unrealized losses represent other-than-temporary impairments based on our evaluation of available evidence.

 

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22.

Discontinued Operations

 

 

 

Judgement is required in determining whether a subsidiary or group of assets qualifies as a business and as discontinued operations. A business is presumed to be an integrated set of activities and assets capable of being conducted and managed for the purpose of providing economic benefits. The Company determined that the assets sold were a business. The Company derecognizes a subsidiary or a group of assets only when the rights to the cash flows from the asset expire, or when it transfers the subsidiary or group of asset and substantially all the risks and rewards of ownership of the assets to another entity.

 

Determination of the date of recognition was based on the closing date, final clearance and approval by the TSX Venture Exchange (TSXV) of the share issuances forming part of the consideration. As all consideration is in C$ and the share value is based on fixed C$ values, regardless of the share price of the underlying stock, the amounts were translated at the spot foreign exchange rate on the closing date. The valuation of the note receivable was included at its nominal value of $NIL as payment of the note is not determinable.

 

On November 19, 2020, the Company entered a definitive asset sale agreement through its wholly owned subsidiary Lexaria CanPharm ULC to sell certain non-core business assets to Hill Street Beverage Company (“Hill Street”) (TSXV: BEER) for gross proceeds of $3,850,000.

 

With the closing of the sale on December 10, 2020, the Company received C$350,000 in cash, 6,031,363 restricted common shares at a fair value of C$500,000 as the first required equity-based payment, and a C$2,000,000 promissory note bearing interest at 10% per annum. The promissory note was included at its nominal value of $NIL. Pursuant to the terms of the transaction, the Company will receive an additional C$1,000,000 worth of common shares of Hill Street in two equal tranches at eight and sixteen months post-closing.

 

Gain on asset disposal

 

 

 

Book value of assets sold

 

$ -

 

Cash consideration

 

 

273,373

 

Shares received

 

 

468,264

 

Shares receivable

 

 

781,067

 

Promissory note

 

 

-

 

 

 

$ 1,522,704

 

 

 

The financial results of the group of assets sold are presented as income (loss) from discontinued operations, net of income taxes in our consolidated statement of income. The following table presents financial results of the assets:

 

 

 

 NINE MONTHS ENDED

 

 

 

 May 31

 

 

 May 31

 

 

 

2021

 

 

2020

 

Revenue

 

$ 3,000

 

 

$ 114,750

 

Operating expenses

 

 

(25,000

 

 

(30,795

Net income (loss)

 

$ (22,000 )

 

$ 83,795

 

 

  

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The following table presents cash flows of discontinued operations:

 

 

 

NINE MONTHS ENDED

 

 

 

May 31

 

 

May 31

 

 

 

2021

 

 

2020

 

Cash flows used in discontinued operating activities

 

 

 

 

 

 

Net income (loss)

 

$ (22,000

 

$ 83,795

 

Change in working capital

 

 

105,000

 

 

(85,670 )

Net cash used in discontinued operating activities

 

$ 83,000

 

$ (1,875 )

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) discontinued operations

 

 

83,000

 

$ (1,875 )

 

 

The following table presents the aggregate carrying amounts of the classes of assets and liabilities of discontinued operations of the assets:

 

 

 

May 31

 

 

August 31

 

 

 

2021

 

 

2020

 

Current Assets

 

 

 

 

 

 

Accounts receivable

 

$ -

 

 

$ 105,250

 

Total assets classified as discontinued operations in the consolidated balance sheet

 

 

-

 

 

 

105,250

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

 

-

 

 

 

250

 

Total liabilities classified as discontinued operations in the consolidated balance sheet

 

$ -

 

 

$ 250

 

 

 

23.

Subsequent Events

 

 

 

On June 8, 2021, the Company announced the issuance of 87,935 stock options at $7.08 for a period of five years. The Options were issued pursuant to the Company’s registered Incentive Equity Plan and bear a four-month restrictive hold period pursuant to the policies of the Canadian Securities Exchange (“CSE”).

 

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On June 29, 2021, the Company announced the results of its Annual General Meeting held on June 28, 2021. The shareholders approved an amendment to the Company’s Equity Incentive Plan for the issuance of an additional 249,143 common shares.

      

 

Since Lexaria’s listing on the NASDAQ in January 2021 we have noted a significant reduction in its Canadian stockholders’ base and associated low trading volumes of the Company’s shares (CSE:LXX) on the CSE. As such the Company announced it had requested approval for a voluntary delisting from the CSE. On June 30, 2021, the Company received preliminary approval for delisting from the CSE and on July 8, 2021, the shares ceased to be traded on that exchange.

      

On July 13, 2021 the Company announced it had been granted its first patent in Japan.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Cautionary Note Regarding Forward-Looking Statements

 

This quarterly report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not statements of historical fact may be forward-looking statements. These statements relate to future events or our future financial performance. Any forward-looking statements are based on our present beliefs and assumptions as well as the information currently available to us. In some cases, forward-looking statements are identified by terminology such as “may”, “will”, “should”, “could”, “targets”, “goal”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” set forth in Item 1(A) in our annual report on Form 10-K, as filed with the Securities and Exchange Commission on October 14, 2020, that may cause our 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.

 

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. We caution you not to place undue reliance on any forward-looking statements as they speak only as of the date on which such statements were made, and we undertake no obligation to update any forward-looking statement or to reflect the occurrence of an unanticipated event. New factors may emerge and it is not possible to predict all factors that may affect our business and prospects. Further, management cannot assess the impact of each factor on the 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.

 

Our unaudited interim consolidated financial statements are stated in United States Dollars (“US$”) and are prepared in accordance with United States Generally Accepted Accounting Principles (“US GAAP”). The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report.

 

In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars. All references to “C$” refer to Canadian dollars and all references to “common shares” and “shares” refer to the common shares in our capital stock, unless otherwise indicated. The terms “Lexaria” “we”, “us”, “our” and “Company” mean Company and/or our subsidiaries, unless otherwise indicated.

 

The following discussion should be read in conjunction with our condensed financial statements and accompanying notes in this quarterly report on Form 10-Q, and our audited financial statements with notes in our annual report on Form 10-K for the year ended August 31, 2020.

 

Overview

 

We are a biotechnology research and development (“R&D”) company focused on developing and out licensing our patented DehydraTECH™ technology. DehydraTECH improves delivery orally and topically of active ingredients and drugs. The Company is focusing its capital and management time on its pursuit of intellectual property, the development of strategic partnerships with licensees for our patented DehydraTECH technology in exchange for up front and/or staged licensing fees and/or royalty payments over time, and an expanding portfolio of patent pending applications.

 

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Our current patent portfolio includes patent family applications or grants pertaining to our method of improving bioavailability and taste, and the use of DehydraTECH as a delivery platform for a wide variety of Active Pharmaceutical Ingredients (“APIs”) including, but not limited to, fat soluble vitamins; nonsteroidal anti-inflammatory drugs (“NSAIDs”); anti-viral drugs; phosphodiesterase inhibitors; human hormones; regulated cannabinoids, and nicotine and its analogs.

 

The Company currently has over 50 patent applications pending worldwide and on April 30, 2021 the Company was granted its first patent in India for its third patent family titled “Stable ready-to-drink beverage compositions comprising lipophilic active agents” representing its 19th patent granted to date.

         

On July 13, 2021, the Company announced its first patent issued in Japan for its third patent family titled “Stable ready-to-drink beverage compositions comprising lipophilic active agents” and becomes the 20th patent granted to Lexaria.

       

The Company’s issued patents in the United States, Australia, Europe, India and Japan are as follows:

 

Issued Patent #

Patent Certificate Grant Date

Patent Family

US 9,474,725 B1

10/25/2016

Food and Beverage Compositions Infused With

Lipophilic Active Agents and Methods of Use Thereof

 

US 9,839,612 B2

12/12/2017

US 9,972,680 B2

05/15/2018

US 9,974,739 B2

05/22/2018

US 10,084,044 B2

09/25/2018

US 10,103,225 B2

10/16/2018

US 10,381,440

08/13/2019

US 10,374,036

08/06/2019

US 10,756,180

08/25/2020

AUS 2015274698

06/15/2017

AUS 2017203054

08/30/2018

AUS 2018202562

08/30/2018

AUS 2018202583

08/30/2018

AUS 2018202584

01/10/2019

AUS 2018220067

07/30/2019

EP 3164141

11/11/2020

AUS 2016367036

07/30/2019

Methods for Formulating Orally Ingestible Compositions Comprising Lipophilic Active Agents

AUS 2016367037

08/15/2019

Stable Ready-to-Drink Beverage Compositions Comprising Lipophilic Active Agents

IN 365854

04/30/2021

JP 2017-554607

 06/30/2021

 

Due to the complexity of pursuing patent protection, the quantity of patent applications will vary continuously as each application advances or stalls. The Company is also filing new patent applications for new discoveries that arise from the Company’s R&D programs and, due to the inherent unpredictability of scientific discovery, it is not possible to predict if or how often such new applications might be filed.

 

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Reverse Stock Split

 

On June 23, 2020, our stockholders approved a reverse stock split within the range of 1-for-2 to 1-for-30 of our issued and outstanding shares of common stock and authorized the Board, in its discretion, to determine the final ratio, effective date, and date of filing of the certificate of amendment to our articles of incorporation in connection with the reverse stock split.

 

On January 11, 2021, the Company filed an amendment and restatement of its articles of incorporation, effective 4:30 P.M. Eastern time, to effectuate a 1-for-30 reverse split of the issued and outstanding shares of common stock of the Company. The purpose of the reverse stock split was to meet Nasdaq’s minimum stock price requirement. The reverse stock split did not change the number of authorized shares of common stock, which remains at 220,000,000 shares.

 

Amendment to Bylaws

 

Effective January 12, 2021, the Company amended its amended and restated bylaws to increase the quorum for holding shareholder meetings from 10% to 33 1/3% of shares issued.

 

Public Offering and NASDAQ Listing

 

On January 12, 2021, the Company conducted an underwritten public offering (the “Offering”) of 1,828,571 shares (the “Initial Shares”) of the Company’s common stock, par value $0.001 per share, at a public offering price of $5.25 per share, less underwriting discounts and commissions. Each Initial Share was sold with one five-year warrant (each an “Initial Warrant”) to purchase one share of common stock at an exercise price of $6.58. On January 13, 2021, the representative of the underwriters for the Offering exercised its over-allotment option to purchase an additional 274,285 shares of common stock (the “Option Shares” and, together with the Initial Shares, the “Shares”) at a public offering price of $5.25 per share, less underwriting discounts and commissions. Each Option Share was sold with one five-year warrant (each an “Option Warrant”) to purchase one share of common stock at an exercise price of $6.58. The Initial Warrants and Option Warrants are immediately exercisable. The Offering closed on January 14, 2021.

 

The Company agreed to pay the underwriters an underwriting discount equal to 8% of the gross proceeds of the offering and a management fee equal to 1% of the gross proceeds of the offering, reimbursement for a non-accountable expense allowance of $50,000, up to $100,000 in legal fees and up to $12,900 for clearing expenses. Additionally, as partial compensation for the underwriter’s services as underwriter in the Offering, the Company also issued to the underwriter five-year warrants (the “Representative Warrants” and together with the Initial Warrants and Option Warrants, the “Warrants”) to purchase 166,781 shares of common stock with an exercise price of $6.58 per share.

 

The net proceeds to the Company from the Offering, including proceeds received upon exercise of the over-allotment option and after deducting the underwriting discount and the underwriters’ fees and expenses, were approximately $9,629,490. The Company plans to use approximately $3,700,000 of the net proceeds for research and development studies and the patent and legal costs associated thereto, with the remaining net proceeds to be used for general working capital purposes.

 

Effective as of the opening of market trading on January 12, 2021, the Company’s common stock and the Warrants began trading on the Nasdaq Capital Market under the symbols LEXX and LEXXW, respectively.

 

The Shares and Warrants were offered by the Company pursuant to a registration statement on Form S-1, as amended (File No. 333-250326), filed with the Securities and Exchange Commission (the “Commission”), which was declared effective by the Commission on January 11, 2021, and a registration statement on Form S-1 (File No. 333-252031) filed with the Commission on January 11, 2021 pursuant to Rule 462(b) and immediately declared effective.

 

Because certain investors in the Company’s May 2020 financing participated in the Offering, the Company paid 8% of the gross proceeds received from these investors in the Offering to the placement agent for the May 2020 financing and issued to the placement agent restricted warrants to purchase shares of common stock equal to 8% of the shares issued to those investors in the Offering.

 

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Asset Sale

 

On December 10, 2020 the Company announced that it closed the sale of its non-pharmaceutical THC-related assets (“the Assets”) held within Lexaria CanPharm ULC to Hill Street Beverage Company Inc. Lexaria received C$350,000 in cash, 6,031,363 restricted common shares of Hill Street at fair value of C$500,000 as the first required equity-based payment, a promissory note having a principal amount of C$2,000,000 and bearing interest at the rate of 10% per annum, and a limited license to use the DehydraTECH technology outside of Canada and the US for certain non-pharmaceutical, therapeutic and medicinal products that contain 0.3% or greater THC which are not classified by a national regulator as drug, pharmaceutical or biopharmaceutical product. Pursuant to the terms of the transaction, Lexaria will receive another C$1,000,000 worth of common shares of Hill Street over a period sixteen months in C$500,000 issuances eight and sixteen months after the closing date.

 

Impact of COVID-19

 

The COVID-19 pandemic continues to present uncertainty and unforecastable new risks to the Company and its’ business plan. Restrictions on national and international travel and required business closures present challenges in carrying out normal business activities related to corporate finance efforts and the pursuit of new customers throughout North America who might otherwise access the retail products of our licensees. As a result, the pandemic has increased risk of lower revenues and higher losses. To date, we have not experienced a material impact on our financial statements, impairments of any of our assets or any major business disruptions, including with our vendors.

 

We have made modifications to our normal operations including requiring team members to work remotely on a staggered basis. To the extent possible, we are conducting business as usual, with necessary or advisable modifications to employee travel. At this time, these measures will continue in force for the near term.

 

We will continue to actively monitor the rapidly evolving situation related to COVID-19 and may take further actions that alter our operations, including those that may be required by federal, state, provincial, or local authorities, or that we determine are in the best interests of our employees and other third parties with whom we do business. We do not know when, or if, it will become practical to relax or eliminate some or all these measures entirely.

 

Research and Development

 

During the quarter ended May 31, 2021, Lexaria incurred $454,443 (May 2020 $24,577) in R&D expenditures. Specific R&D programs are in ongoing development and align to our financial ability to undertake each research phase for each API. Due to our expanding portfolio coverage, we continually examine accelerated timetable options for testing, research, and development of each API.

 

The Company continually focuses on new R&D programs to investigate the potential of additional commercial applications for its Technology. These include, but are not limited to, ongoing programs to explore methods to integrate nanoemulsification chemistry techniques together with its Technology and to further enhance intestinal bioabsorption rates with its Technology, as well as ongoing programs to expand the types and breadth of product form factors into which its Technology can be applied. Depending on how many of these tests are undertaken, R&D budgets are expected to vary significantly. It is in our best interests to remain flexible at this early stage of our R&D efforts in order to capitalize on potential novel findings from early-stage tests and thus re-direct research into specific avenues that offer the most rapid path to and/or highest likelihood of commercial revenue generation.

 

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Historically the Company has conducted in vitro and in vivo absorption tests of our DehydraTECH technology of molecules such as: CBD, ibuprofen, and nicotine which supplied us with knowledge and understanding to perform subsequent testing on nicotine and CBD with generally positive results. Our work during 2018 wherein we conducted our first ever human clinical absorption tests on CBD also yielded positive results and we discovered that DehydraTECH-processed CBD was effective in lowering human blood pressure, leading to expanded plans to evaluate DehydraTECH-processed CBD during 2021 for potential blood pressure reduction outcomes. In our first tests of representative drugs from two classes of antiviral therapies we had positive results which we announced in December of 2020. During the second quarter ended May 31, 2021, the Company announced the positive results of its CBD DehydraTECH 2.0 enhanced formulations. Ongoing testing plans are proceeding to further define molecular compatibility, absorption rates, timing and viable formats of delivery. Our R&D is conducted with the goal of further defining DehydraTECH’s value with the goal of commercialization and revenue generation.

 

During the period ended May 31, 2021, the Company received results from certain of its animal studies which tested new formulations of DehydraTECH (“DehydraTECH 2.0”) enabled cannabidiol (“CBD”) for the purposes of future use in human clinical trial studies focusing on the efficacy of DehydraTECH 2.0 formulations for treating hypertension. The Company was also able to report generally positive results from pharmacokinetic testing in the R&D studies and most recent advancements with antiviral and hypertension drugs in our investigatory programs.

 

The Company continues to report progress on its R&D programs through its filing of Form 8-Ks and other public releases. These results of these programs can also be found on the Company’s website: www.LexariaBioscience.com.

 

Off-Balance Sheet Arrangements

 

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

 

Critical Accounting Estimates

 

Our consolidated financial statements and accompanying notes are prepared in accordance with US GAAP. These accounting principles require management to make certain estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses during the periods reported. These estimates, judgments and assumptions are reasonable based on information available to management at the time that such estimates, judgments and assumptions are made. We believe that understanding the basis and nature of the estimates, judgments and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financials. For a discussion of our critical accounting estimates, please read Note 3 to our financial statements in our Annual Report on Form 10-K for the year ended August 31, 2020. There have been no material changes to the critical accounting estimates previously disclosed in our Annual Report on Form 10-K for the year ended August 31, 2020.

 

Capital Assets

 

Capital assets are stated at cost less accumulated depreciation and depreciated using the straight-line method over their useful lives or otherwise by units of production.

 

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Patents

 

Capitalized patent costs represent legal costs incurred to establish patents. When patents reach a mature stage, any associated legal costs are typically maintenance fees and expensed as incurred. Capitalized patent costs are amortized on a straight-line basis over the remaining life of the patent.

 

Revenue Recognition

 

Product Revenue

 

Revenue from the sale of products is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured, which typically occurs upon shipment. The Company reports its sales net of the amount of actual sales returns.

 

Licensing Revenue from Intellectual Property

 

We recognize revenue for license fees at a point in time following the transfer of our intellectual property, our patented lipid nutrient infusion technology DehydraTECH for infusing APIs, to the licensee, which typically occurs on delivery of documentation.

 

Usage Fees from Intellectual Property

 

We recognize revenue for usage fees when usage of our DehydraTECH intellectual property occurs by licensees infusing an API into one or more of their product lines for sale.

 

Funding Requirements

 

We anticipate that our expenses will increase substantially in connection with our ongoing R&D program, specifically with respect to our animal and human clinical trials of our DehydraTECH formulations for the purposes of treating hypertension and infectious diseases. We also anticipate incurring additional costs associated with operating a Nasdaq listed company. Accordingly, we expect to incur operating losses and negative cash flows for the foreseeable future.

 

Through May 31, 2021, we have funded our operations primarily with proceeds from the sale of our common stock. The Company has consistently incurred recurring losses and negative cash flows from operations, including net losses of $2,883,483 and $3,202,238 for the nine months ended May 31, 2021 and 2020, respectively.

 

The continuation of our Company as a going concern is dependent upon our Company attaining and maintaining profitable operations and/or raising additional capital. The accompanying financial statements do not include any adjustment relating to the recovery and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should our Company discontinue operations. The recurring losses from operations and net capital deficiency do raise doubt about the Company’s ability to continue as a going concern within one year following the date that these consolidated financial statements are issued. As of the issuance date of these consolidated interim financial statements, we expect our cash and cash equivalents of approximately $8.1m as at May 2021 will be sufficient to fund our operating expenses and capital expenditure requirements into the third quarter of fiscal 2022.

 

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Results of Operations for our Period Ended May 31, 2021, and 2020

 

Our net loss and comprehensive loss for the nine months ended and the changes between those periods for the respective items are summarized as follows:

 

 

 

 NINE MONTHS ENDED

 

 

 

 

 

May 31

 

 

 May 31

 

 

 

 

 

2021

 

 

2020

 

 

Change

 

 

 

 $

 

 

$

 

 

$

 

Revenue

 

 

691,717

 

 

 

250,804

 

 

 

440,913

 

Consulting fees & salaries

 

 

1,960,468

 

 

 

1,949,234

 

 

 

11,234

Legal and professional

 

 

529,776

 

 

 

289,614

 

 

 

240,162

 

Other general and administrative

 

 

540,230

 

 

 

934,721

 

 

 

394,491

 

Discontinued operations

 

 

(22,000 )

 

 

83,795

 

 

 

105,795

 

Net Loss

 

 

(2,861,483 )

 

 

(3,286,033 )

 

 

(424,550

)

   

Revenue

 

Product revenues of $360,558 and licensing usage fees of $326,474 represent significant increases in intermediate product sales and related licensing usage fees during period ended May 31, 2021, that exclusively consist of sales to business customers. Intermediate products we produce are typically a DehydraTECH processed powder which easily allows consumer product third-party companies to include it in their product’s manufacturing process for their existing products.. The majority of our revenue was based on one licensee as they ramped up their production and product distribution.

 

A number of our licensees are experiencing suspended business activities due to the impact of COVID-19 on markets and consumer spending; however this phenomenon was substantially mitigated following the sale of our THC-related business division that closed on December 9, 2020. The abilities of other licensees to generate ongoing sales, thereby increasing usage fees are expected to increase as the effects of the pandemic are eventually diminished . We have continued strong interest in our intermediate products but cannot predict how long the pandemic will affect purchasing decisions of retail customers that ultimately affect the consumer product manufacturers that utilize our intermediate products. Nor can we predict when recovery of the general economy will translate into increasing licensing or usage revenues.

 

Our licensing revenues consist of IP licensing fees for the transfer of the Technology and usage fees that occur over time. IP licensing fees are due at the signing of definitive agreements for the Technology and can include payments due upon transfer of the Technology and installment payments that are receivable within 12 months (Note 7).

 

General and Administrative

 

Our total general and administrative expenses decreased by $394,491 during the period ended May 31, 2021, over the same period last year. The increase is primarily comprised of increases to outreach programs, patent filings and licenses, fees and dues  offset by reductions in consulting and related incentive costs, and travel expenses.

 

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Research and Development

 

 Expenditures on R&D increased by $504,525 for the period ended May 31, 2021, as the company undertook several studies within its 2021 applied research and development program.

 

Consulting Fees

     

Our consulting fees increased by $11,234 primarily due to non-cash stock-based compensation on warrants and options granted which were included in 2020 and were partially offset by management bonuses paid in 2021.

      

Legal and Professional Fees

 

Our professional fees increased by $240,162 during the period primarily compared to the same period in the prior year due to increased patent and trademark filings, the up list to the Nasdaq Capital Markets, and additional advisory services utilized. We recognize certain legal fees, tax advice fees, and accounting services all as “Professional Fees.”

 

Liquidity and Financial Condition

 

Working Capital

 

May 31

 

 

August 31

 

 

 

2021

 

 

2020

 

 

 

 $

 

 

 $

 

Current assets

 

 

9,685,560

 

 

 

1,926,211

 

Current liabilities

 

 

(221,217 )

 

 

(226,167 )

Net Working Capital

 

 

9,464,343

 

 

 

1,700,044

 

 

The Company’s working capital balance increased significantly during the period due to the underwritten public offering on January 12, 2021.

 

Cash Flows

 

May 31

 

 

May 31

 

 

2021

 

2020

 

 

 

$

 

$

Cash flows (used in) provided by operating activities

 

 

(2,910,451 )

 

 

(1,926,211 )

Cash flows (used in) provided by investing activities

 

 

193,882

 

 

 

(13,205 )

Cash flows (used in) provided by financing activities

 

 

9,448,332

 

 

 

2,743,383

 

Net cash flows (used in) discontinued operations

 

 

83,000

 

 

 

(1,875 )

Increase (decrease) in cash

 

 

6,814,763

 

 

 

740,262

 

 

Operating Activities

 

Net cash used in operating activities increased by $984,240 for the period compared with cash used in operating during the same period in 2020. This difference was largely due to the increased costs pertaining to professional fees, listing on the NASDAQ, outreach programs and other costs related to required filings.

 

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Investing Activities

 

Net cash from investing activities increased by $207,087 over 2020 from the disposition of assets offset through the capitalization of patent filings.

 

Financing Activities

 

Net cash provided from financing activities increased $6,704,949 during the period ended May 31, 2021, primarily relating to the difference between the underwritten public offerings in 2021 vs 2020.

 

Liquidity and Capital Resources

 

We have accumulated a large deficit since inception that has primarily resulted from executing our business plan including R&D expenditures, we have made in seeking to identify and develop our intellectual property patents for licensing and product creation. We expect to continue to incur losses for at least the short term.

 

To date, we have obtained cash and funded our operations primarily through equity financings and limited amounts from revenue generation while our licensees ramp up production and market expansions. We expect to continue to evaluate various funding alternatives on an ongoing basis as needed to maintain operations, to continue our research programs and to expand our patent portfolio. If we determine it is advisable to raise additional funds, there is no assurance that adequate funding will be available to us or, if available, that such funding will be available on terms that we or our stockholders view as favorable. Market volatility and global economics may have a significant impact on the availability of funding sources and the terms at which any funding may be available.

 

Short Term Liquidity

 

On January 12, 2021, we closed an underwritten public offering for net proceeds of $9,471,495, issuing 1,828,571 units consisting of one common share and one warrant for $5.25. On May 31, 2021, we had $8,108,512 in cash and cash equivalents and working capital of $9,464,343. Based on our current research and development programs, we project cash resources are sufficient to allow us to continue operations for at least the next twelve months from the date of this Quarterly Report.

 

Long Term Liquidity

 

It will require substantial cash to achieve our objectives for developing and patenting our intellectual property across all applicable market and industry segments. This process typically takes many years and potentially millions of dollars for each segment. If we pursue full commercial exploitation of all applicable market and industry segment opportunities, we will need to obtain significant funding from existing or new relationships, increasing revenue streams or from other sources of liquidity such as the sale of equity, issuance of debt or other transactions.

 

Cash requirements will vary depending on the results of research programs and the requirements of each industry segment pursued. Pursuit of each segment will progress or be curtailed based on available sources of cash with which to execute individual segment business plans. The requirements will also be affected by transactions with existing or new relationships and the depth of regulatory requirements in each segment for compliance required to approve our IP and to market and license it. These changes to requirements and transactions may impact our liquidity as well as affect our expenditures.

 

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Item 3. Controls and Procedures

 

Management’s Report on Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our President and Chief Executive Officer (Principal Executive Officer) and our Chief Financial Officer (Principal Financial and Accounting Officer) to allow for timely decisions regarding required disclosure.

 

As of May 31, 2021, the quarter covered by this report, we carried out an evaluation, under the supervision and with the participation of our CEO, President and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our President, CEO and the CFO concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of May 31, 2021.

 

Management’s Report on Internal Control over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of control procedures. The objectives of internal control include providing management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management’s authorization and recorded properly to permit the preparation of consolidated financial statements in conformity with US GAAP. Our management assessed the effectiveness of our internal control over financial reporting as of May 31, 2021. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Our management has concluded that, as of May 31, 2021, our internal control over financial reporting is effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US GAAP. Our management reviewed the results of their assessment with our Board.

 

Inherent limitations on Effectiveness of Controls

 

Internal control over financial reporting has inherent limitations which include but is not limited to the use of independent professionals for advice and guidance, interpretation of existing and/or changing rules and principles, regulations, segregation of management duties, scale of organization, and personnel factors. Internal control over financial reporting is a process which involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human error. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis, however these inherent limitations are known features of the financial reporting process and it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

      

Changes in Internal Control over Financial Reporting

 

During the quarter ended May 31, 2021 our controls and controls processes remained consistent with August 31, 2020. There have been no changes in our internal controls over financial reporting that occurred during the quarter ended May 31, 2021 that have materially or are reasonably likely to materially affect our internal controls over financial reporting.

 

Our control processes are designed to include remote workers, which we have utilized for many years. The advent of the COVID-19 pandemic has not materially impacted our internal controls over financial reporting other than increasing requirements for social distancing and some additional remote working requirements for staff.

   

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PART II-OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We know of no material, existing or pending legal proceedings against our Company, nor are we involved as a plaintiff in any other material proceeding or pending litigation. There are no proceedings in which any of our directors, executive officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest.

 

Item 1A. Risk Factors

 

Much of the information included in this quarterly report includes or is based upon estimates, projections or other “forward looking statements”. Such forward looking statements include any projections or estimates made by us and our management in connection with our business operations. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein.

 

The risks associated with our business, common stock and other factors were with those described in the consolidated financial statements for the year ended August 31, 2020.

 

Item 2. Exhibits, Financial Statement Schedules

 

a)

Financial Statements

 

 

1)

Financial statements for our Company are listed in the index under Item 1 of this document

 

 

 

 

2)

All financial statement schedules are omitted because they are not applicable, not material or the required information is shown in the financial statements or notes thereto.

 

 

 

b)

Exhibits

    

Exhibit

Number

 

Description

(3)

 

Articles of Incorporation and Bylaws

3.1*

 

Articles of Incorporation

3.2*

 

Bylaws

3.3

 

Amendment to Articles of Incorporation - Share Consolidation (Filed on Form 8-K May 29th, 2009 Exh 3.1)

3.4

 

Amendment to Articles of Incorporation - Share Expansion (Filed on Form 8-K March 10th, 2010)

3.5

 

Amendment to Articles of Incorporation -Share Forward Split (Filed on Form 8-K December 16th, 2015 Exh 3-1)

3.6

 

Amendment to Articles of Incorporation - Name Change (Filed on Form 8-K May 11th, 2016 Exh 99.1)

(4)

 

Instruments Defining the Rights of Security Holders, including Indentures

4.1

 

Equity Incentive Plan as amended on June 28, 2021

(10)

 

Material Contracts

10.1

 

Employment Agreement dated April 15, 2021 with Gregory Downey

(21)

 

Subsidiaries

21.1

 

Lexaria Canpharm ULC, a British Columbia Canada corporation

21.2

 

Poviva Corp, a Nevada corporation

21.3

 

Lexaria Hemp Corp., a Delaware corporation

21.4

 

Lexaria Nicotine LLC, a Delaware corporation

21.5

 

Lexaria Canpharm Holding Corp., a Nevada corporation

21.6

 

Lexaria Pharma Corp., a Delaware corporation

 

 

 

(31)

 

Rule 13(a) - 14 (a)/15(d) - 14(a)

31.1

 

Section 302 Certifications under Sarbanes-Oxley Act of 2002 of Principal Executive Officer

31.2

 

Section 302 Certifications under Sarbanes-Oxley Act of 2002 of Principal Financial Officer and Principal Accounting Officer

(32)

 

Section 1350 Certifications

32.1

 

Section 906 Certification under Sarbanes Oxley Act of 2002 of Principal Executive Officer

32.2

 

Section 906 Certification under Sarbanes Oxley Act of 2002 of Principal Financial Officer and Principal Accounting Officer

 

 

 

(101)**

 

Interactive Data Files

101.INS

 

XBRL Instance Document

101.SCH

 

XBRL Taxonomy Extension Schema Document

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

*Incorporated by reference to same exhibit filed with the Company’s Registration Statement on Form SB-2 dated January 10, 2006.

 

** Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of any registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise are not subject to liability under those sections.

  

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SIGNATURES

  

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

LEXARIA BIOSCIENCE CORP.

     
By: /s/ Christopher Bunka

 

Christopher Bunka

 
 

Chief Executive Officer, Chairman and Director

 
  (Principal Executive Officer)  

 

Date: July 15, 2021

 

  

In accordance with the Exchange Act, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By: /s/ Christopher Bunka

 

Christopher Bunka  
  Chief Executive Officer, Chairman and Director  
  (Principal Executive Officer)  

 

Date: July 15, 2021

 

 

 

 

By:

/s/ John Docherty

 

 

John Docherty

 

 

President and Director

 

 

Date: July 15, 2021

 

 

 

 

By:

/s/ Greg Downey

 

 

Greg Downey CPA, CMA

 

 

Chief Financial Officer

 

 

(Principal Financial and Accounting Officer)

 

 

Date: July 15, 2021

 

  

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