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
|
|
3 |
|
||
|
|
|
|
|
|
|
|
3 |
|
||
|
|
|
|
|
|
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
20 |
|
|
|
|
|
|
|
|
|
|
29 |
|
||
|
|
|
|
|
|
|
30 |
|
|||
|
|
|
|
|
|
|
|
30 |
|
||
|
|
|
|
|
|
|
|
30 |
|
||
|
|
|
|
|
|
|
|
30 |
|
||
| 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.
| Page 3 of 31 |
|
|
| 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.
| Page 4 of 31 |
|
|
| 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.
| Page 5 of 31 |
|
|
| 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.
| Page 6 of 31 |
|
|
| Table of Contents |
|
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) |
| Page 7 of 31 |
|
|
| Table of Contents |
|
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. |
| Page 8 of 31 |
|
|
| Table of Contents |
|
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) |
| Page 9 of 31 |
|
|
| Table of Contents |
|
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. |
| Page 10 of 31 |
|
|
| Table of Contents |
|
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
|
|
|||||
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
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
|
|
||||
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
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. |
| Page 11 of 31 |
|
|
| Table of Contents |
|
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 |
|
| Page 12 of 31 |
|
|
| Table of Contents |
|
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 |
|
| Page 13 of 31 |
|
|
| Table of Contents |
|
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. |
| Page 14 of 31 |
|
|
| Table of Contents |
|
|
|
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
|
|
|
Disposal US |
|
|
Net Balance
|
|
|
Cost
|
|
|
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
|
|
|
Net Balance
|
|
|
Cost
|
|
|
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 |
|
|
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 | % |
| Page 15 of 31 |
|
|
| Table of Contents |
|
|
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. |
| Page 16 of 31 |
|
|
| Table of Contents |
|
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 |
|
| Page 17 of 31 |
|
|
| Table of Contents |
|
|
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”). |
| Page 18 of 31 |
|
|
| Table of Contents |
|
|
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. |
| Page 19 of 31 |
|
|
| Table of Contents |
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.
| Page 20 of 31 |
|
|
| Table of Contents |
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.
| Page 21 of 31 |
|
|
| Table of Contents |
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.
| Page 22 of 31 |
|
|
| Table of Contents |
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.
| Page 23 of 31 |
|
|
| Table of Contents |
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.
| Page 24 of 31 |
|
|
| Table of Contents |
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.
| Page 25 of 31 |
|
|
| Table of Contents |
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.
| Page 26 of 31 |
|
|
| Table of Contents |
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.
| Page 27 of 31 |
|
|
| Table of Contents |
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.
| Page 28 of 31 |
|
|
| Table of Contents |
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.
| Page 29 of 31 |
|
|
| Table of Contents |
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 |
|
|
||
|
|
||
|
|
||
|
|
Amendment to Articles of Incorporation - Share Expansion (Filed on Form 8-K March 10th, 2010) |
|
|
|
||
|
|
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 |
|
|
||
|
(10) |
|
Material Contracts |
|
|
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) |
|
|
Section 302 Certifications under Sarbanes-Oxley Act of 2002 of Principal Executive Officer |
|
|
|
||
|
(32) |
|
Section 1350 Certifications |
|
|
Section 906 Certification under Sarbanes Oxley Act of 2002 of Principal Executive 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.
| Page 30 of 31 |
|
|
| Table of Contents |
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 |
|
| Page 31 of 31 |