☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 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
LXX
NASDAQ
CSE
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 and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See 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.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
February 28, 2021
(Expressed in U.S. Dollars)
1.
Organization, Business and Going Concern
Lexaria Bioscience Corp. (“Lexaria”, or the “Company”) was formed on December 9, 2004 under the laws of the State of Nevada. In March of 2014, the Company began work in the fields 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 has its office in Kelowna, BC, Canada.
The Company’s unaudited interim consolidated financial statements included herein 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.
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.
The Company’s unaudited interim consolidated financial statements have been prepared in accordance with US GAAP applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has recurring losses from operations and net capital deficiency. On January 12, 2021 the Company closed an underwritten public offering for net proceeds of $9,471,495 (Note 12).
The Company will require additional funds or revenues to maintain its operations and developments in the future. Management’s plans in this regard are to raise equity and debt financing as required, but there is no certainty that such financing will be available or that it will be available at acceptable terms in the future. The outcome of these matters cannot be predicted at this time.
In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak and any related adverse public health developments may adversely affect workforces, economies, and financial markets globally, potentially leading to an economic downturn. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or results of operations at this time.
During November of 2020, our Board of Directors ("Board") approved a plan to sell the businesses assets underlying our Canpharm THC related segment. As a result, the related financial results were reflected in our consolidated statement of operations, retrospectively, as discontinued operations beginning in the first quarter of fiscal 2021. On November 18, 2020, we signed a definitive agreement to sell the assets and the transaction was completed during December 2020. As a result, the related assets and liabilities associated with the discontinued operations in the prior year consolidated balance sheet are classified as discontinued operations. See "Note 20 - Discontinued Operations" for additional information.
On January 11, 2021, the Company approved 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 to reflect the effects of the approved reverse stock split.
2.
Business Risk and Liquidity
The Company is subject to several categories of risk associated with its operating activities. Although we intend to develop our businesses in accordance with best ethical practices, we may suffer negative publicity if we, our partners, contractors, or customers are found to have engaged in any environmentally insensitive practices or other business practices that are viewed as unethical.
Our operations may require licenses and permits from various governmental authorities. We believe that we will be able to continue to obtain all necessary licenses and permits under applicable laws and regulations for our operations and believe we will be able to comply in all material respects with the terms of such licenses and permits. However, such licenses and permits are subject to change in various circumstances. There can be no guarantee that we will be able to obtain or maintain all necessary licenses and permits and failing to obtain or retain required licenses could have a materially adverse effect on the Company.
Lexaria and its subsidiaries are not involved directly or indirectly in the cultivation, processing, distribution, or utilization of cannabis or cannabis derived components. Lexaria does have an ancillary involvement risk via out-licensing of its patented technology to licensees that choose to utilize DehydraTECH to manufacture products that contain locally or state approved but federally regulated and controlled contents. There can be no guarantee that changes in the regulatory framework and environment will not occur and such changes could have a materially adverse effect on the Company.
Lexaria and its subsidiaries are not involved directly or indirectly in the production or sale of any products containing nicotine. Products containing nicotine have historically been involved in litigation in the USA. Lexaria’s corporate licensee may introduce products containing nicotine that utilize DehydraTECH to the US consumer market, which could therefore introduce third-party risks to Lexaria.
Lexaria and its subsidiaries are not involved directly or indirectly in the production or sale of any pharmaceutical or antiviral products. Licensees may enhance their product’s delivery using our Technology, which could therefore introduce third-party risks to Lexaria.
3.
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.
4.
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% 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.
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. We believe that these estimates are reasonable; however, actual results could differ from these estimates.
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, aside from the following additions:
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 of the share issuances forming part of the consideration. As all consideration is in CDN$ and the share value is based on fixed CDN$ values, regardless of the share price of the underlying stock, the amounts were translated at the spot foreign exchange rate on the date of final closing. The valuation of the note receivable was included at its nominal value of $NIL as payment of the note is not determinable.
6.
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 losses that are probable. 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.
Short term trade and deposits receivable includes $390,533 of the current portion receivable from the asset sale (Note 20). $390,533 receivable related to the asset sale is also included in long term receivable as the payment is due greater than one year from February 28, 2021
8.
Inventory
February 28
August 31
2021
2020
$
$
Raw materials
51,739
51,404
Work in progress
40,692
15,705
Finished goods
44,851
49,762
137,282
116,871
During the period ended February 28, 2021, the Company wrote down $2,482 (2020 - $8,240 full year) of inventory to reflect its net realisable value.
9.
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
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 no later than 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 February 28, 2021:
Quantity
Exercise Price $
Life (Years)
3,400
4.80
5
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
(2,000
)
12.90
Granted
3,400
4.80
Balance February 28, 2021 (Outstanding)
173,004
11.03
3.82
30,812
Balance February 28, 2021 (Exercisable)
164,970
10.30
3.86
41,550
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:
During the six months ended February 28, 2021, the Company recognized $255,844 of usage fees from continuing operations. Revenues are significantly concentrated on one customer.
Our intermediate product sales significantly increased to $231,718 with licensees increasing their orders of our intermediate product. Intermediate products are typically a DehydraTECH enabled powder that companies can purchase to include in their products. Intermediate product sales and licensing revenue constituted the majority of our revenue. 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.
15.
Related Party Transactions
Management, consulting and director services
February 28, 2021
February 29, 2020
Contract
Non Cash
Total
Contract
Non Cash
Total
$
$
$
$
$
$
CAB Financial Services(1)
136,566
-
136,566
131,557
-
131,557
M&E Services Ltd.(1)
62,559
-
62,559
58,785
-
58,785
Docherty Management Limited(1)
124,987
-
124,987
113,569
187,069
300,638
Directors
37,533
13,612
51,145
35,214
-
35,214
361,645
13,612
375,257
339,125
187,069
526,194
(1) C.A.B. Financial Services is owned by the CEO of the Company, M&E Services Ltd. is owned by the CFO of the Company, and Docherty Management Limited is owned by the President of the Company.
All related party transactions pertain to management and director agreements entered into in the normal course of business (Note 17).
Due to related parties:
Related party transactions are recorded at the exchange amount established and agreed to between the related parties. As at February 28, 2021, $206,806 (August 31, 2020 - $58,704) was payable to related parties and included in due to related parties.
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.
IP Licensing $
Products$
Corporate$
Consolidated
Total$
Revenue
255,844
231,818
-
487,662
Cost of goods sold
-
(95,048
)
-
(95,048
)
Operating expenses
1,142,518
(278,374
)
(1,551,689
)
(687,545
)
Discontinued operations
(22,000
)
-
-
(22,000
)
Segment income(loss)
1,376,362
(141,604
)
(1,551,689
)
(316,931
)
Total assets
696,493
137,282
11,338,633
12,172,408
Capital Asset by Region
Cost US
Disposal US
Net Balance US
Cost Canada
Net Balance Canada
Total Net Balance
Six Months Ended February 28, 2021
$
$
$
$
$
$
Leasehold Improvements
-
-
-
259,981
146,352
146,352
Computers
-
-
-
63,964
22,255
22,255
Furniture Fixtures Equipment
3,094
3,094
-
31,126
17,914
17,914
Lab Equipment
98,050
-
74,843
193,185
161,841
236,684
101,144
3,094
74,843
548,256
348,362
423,205
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
17.
Commitments, Significant Contracts and Contingencies
Management and Service Agreements:
As at February 28, 2021, the Company is party to the following contractual commitments:
Corporate office and R&D lab space leased in Kelowna, British Columbia, Canada until November 15, 2023 with an option to extend an additional five years. 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:
$
Additions
118,193
Amortization
(8,887
)
Total right of use assets (February 28, 2021)
109,306
Liabilities:
Additions
116,664
Lease payments
(10,987
)
Interest accretion
2,061
Total lease liabilities (February 28, 2021)
107,738
Operating lease cost as at February 28, 2021
Operating cash flows for lease
10,948
Remaining lease term
2.5 Years
Discount rate
7.25
%
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 February 28, 2021:
Prepaid expenses consist of the following at February 28, 2021 and August 31, 2020:
February 28
August 31
2021
2020
$
$
Advertising & conferences
170,165
21,878
Investor relations
71,667
-
Legal fees
-
47,498
Licence, filing fees, dues
59,967
8,541
Office & insurance
36,561
78,792
Research & development
25,386
25,386
363,746
182,095
19.
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
February 28, 2021
Common stock
524,513
24,410
(41,362
)
Total
524,513
34,407
(88,288
)
470,632
During the period ended February 28, 2021, the Company added $468,263 in marketable securities as a component of the sale of assets (Note 20).
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. The COVID-19 pandemic has caused significant market turbulence and it is possible that our evaluation will change dependent upon new information as it arises.
20.
Discontinued Operations
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 for gross proceeds of C$3,850,000.
On December 10, 2020 the sale closed. The Company received from Hill Street Beverage Company C$350,000 in cash, 6,031,363 restricted common shares at a deemed price of C$0.0829 per share 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. Pursuant to the terms of the transaction, the Company will receive another C$1,000,000 worth of common shares over a period sixteen months in C$500,000 issuances eight months and sixteen months after the closing date. The C$ were converted at the spot rate of 0.78107 at the closing date. The promissory note was included at its nominal value of $NIL.
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:
SIX MONTHS ENDED
February 28
February 29
2021
2020
Revenue
$
3,000
$
69,750
Operating Expenses
25,000
5,566
Net Income
$
(22,000
)
$
64,184
The following table presents cash flows of discontinued operations:
SIX MONTHS ENDED
February 28
February 29
2021
2020
Cash flows used in discontinued operating activities
Net income
$
(22,000
)
$
64,184
Change in working capital
105,000
(99,000
)
Net cash provided by (used in) discontinued operating activities
$
83,000
$
(34,816
)
Net cash provided by (used in) discontinued operations
$
83,000
$
(34,816
)
The following table presents the aggregate carrying amounts of the classes of assets and liabilities of discontinued operations of the assets:
February 28
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
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$”) and are prepared in accordance with United States Generally Accepted Accounting Principles (“US GAAP”). The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report.
In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars. All references to "C$" or "CDN$" 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.
Company and Business Overview
We are a biotechnology R&D company incorporated in 2004 in Nevada and 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, technology licensing opportunities, and an expanding portfolio of patent pending applications.
The Company developed a variety of demonstration products throughout 2015 to demonstrate the potential uses for DehydraTECH to both consumers and potential licensees. The Company subsequently developed additional demonstration products including powder filled capsules and mix and serve powders for beverage incorporation also utilizing DehydraTECH for the more palatable and efficient delivery of bioactive molecules. The Company gained extensive experience and knowledge from the formulation and production of these demonstration products that facilitates assisting our licensees with the integration of DehydraTECH in their products.
In the manufacturing of our intermediate ingredients for Consumer Packaged Goods (“CPG”) companies to use, each raw material, intermediate stage and completed product is assessed for compliance with all applicable regulations. The inputs and the finished ingredients meet all applicable legal and quality standards including and as it relates to content; molds and mildews; heavy metals; and other additional components.
Lexaria hopes to reduce other common but less healthy administration methods, such as smoking, as manufacturers embrace the benefits of DehydraTECH for public health. The Company is aggressively pursuing patent protection in national jurisdictions around the world. The Company currently has more than 60 patent applications pending worldwide and, due to the complexity of pursuing patent protection, the quantity of patent applications will vary continuously as each application advances or stalls. Lexaria 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.
As at February 28, 2021, we have identified two reportable operating segments: Intellectual Property and Products.
The following discussion should be read in conjunction with our condensed financial statements and accompanying notes in this quarterly report on Form 10-Q, our audited financial statements with notes in our annual report on Form 10-K for the year ended August 31, 2020.
Our business plan is currently focused on 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. We continue to investigate national and international opportunities to investigate expansions and additions to our intellectual property portfolio. We plan to perform additional human clinical investigations in 2021 related to enhanced DehyraTECH formulations of cannabidiol in pre- and mildly-hypertensive middle-aged subjects to gather additional information on blood pressure reduction potential. The Company also plans to conduct during calendar 2021 evaluations of DehydraTECH’s ability to improve the oral delivery characteristics and pharmacological performance of certain anti-viral drugs. We will continue to seek beneficial acquisitions of intellectual property if and when we believe it is advisable to do so.
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; NSAIDs pain medications; and nicotine and its analogs.
The Company hopes to reduce common but less healthy administration methods, such as smoking cigarettes as a delivery method for nicotine, by way of enabling development of safer and effective oral nicotine dosage forms through licensing arrangements with major tobacco companies. The Company is aggressively pursuing patent protection in jurisdictions around the world. The Company currently has over 50 patent applications pending worldwide, with 18 patents granted to date. 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.
To date, the following patents have been awarded in the United States, Australia and Europe:
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
We are seeking additional patent protection for what we believe to be a unique process for oral delivery of certain molecules such as Cannabinoids, Nicotine, NSAIDs, and Vitamins. To achieve sustainable and profitable growth, our Company intends to control the timing and costs of our projects wherever possible. We have filed for patent protection of DehydraTECH for additional compounds such as phosphodiesterase inhibitors, human hormones such as estrogen and testosterone, antivirals and more. We are investigating other compounds and molecules for potential patent protection pursuit.
During the quarter ended February 28, 2021, and up to the date of this report, we experienced the following significant corporate developments:
On December 2, 2020, the Company announced that its DehydraTECH technology significantly improved delivery in study animals of representative drugs from two classes of antiviral therapies (a Protease Inhibitor and a Reverse Transcriptase Inhibitor) under investigation against SARS-CoV-2/COVID-19 and already in use against HIV/AIDS. The study animals were not infected with or treated for any diseases. These are the first two of a series of antiviral drugs to be tested using Lexaria’s DehydraTECH technology.
Drug
Drug Class
AUClast* Delivery &
Improvement
(hr∙ng/mL)
Control
(hr∙ng/mL)
AUC∞** Delivery &
Improvement
(hr∙ng/mL)
Control
(hr∙ng/mL)
Darunavir
Protease Inhibitor
721 ± 332
54%
(p=0.036)
469 ± 252
726 ± 211
35%
(p=0.062)
536 ± 223
Efavirenz
Non-nucleoside Reverse Transcriptase Inhibitor
752 ± 203
16%
(p=0.11)
650 ± 148
1072 ±40
42%
(p=0.028)
757 ±103
On February 11, 2021, the Company announced the addition of two new human clinical studies to its hypertension research and development program. The first study, HYPER-H21-2 has been added to the Lexaria hypertension program due to the increasing importance that this work could have on Company’s commercial prospects. The results of this study will contribute to the understanding of the effectiveness of patented DehydraTECH-processed CBD as a potential novel anti-hypertensive agent through the course of a full day of monitoring, which is expected to be complementary to the shorter-term monitoring in its previously announced HYPER-H21-1 study. The second study, HYPER-H21-3 is also a double-blinded, placebo controlled, randomized human clinical study that has been added to the Company’s hypertension program to complement the data set the Company intends to build. Data from this study may demonstrate utility of DehydraTECH-CBD for blood pressure reduction in circumstances where pulmonary edema/hypertension results as occurs, for instance, when people travel to high altitude regions of the world.
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 Listing on Nasdaq
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.
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 a deemed price of C$0.0829 per share 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 months and sixteen months after the closing date.
Impact of COVID-19
The emergence of COVID-19 beginning in January of 2020, now in over 220 countries and territories around the world, presents significant and unforecastable new risks to the Company and its business plan. Restrictions on national and international travel, and required business closures, have made it increasingly difficult to carry out normal business activities related to corporate finance efforts, to the pursuit of new customers, and to retail customers throughout North America who might otherwise access the products of our business partners and licensees. As a result, the COVID-19 pandemic will almost certainly increase risks of lower revenues and higher losses. We are monitoring our licensees and are working with them, where possible, to prevent default and contract terminations. In some cases, we have issued termination of contract notices in accordance to provisions within our contracts.
As a result of COVID-19, the Company is encountering significant challenges in executing its business plan and normal business operations and does not have sufficient resources to withstand a protracted term during which most business activities are curtailed. In addition, we have implemented cost containment initiatives to reduce operating expenses and preserve cash such as the dismissal of one employee, termination of contracts with two consultants and reduction of compensation payable to certain other consultants. The Company currently has six (6) employees and/or independent contractors who dedicate all or a majority of their time to the business of the Company and eight (8) consultants. We may need to dismiss additional employees or terminate services contracts to preserve resources. We have not had to close operations or locations as our contractors and staff can work remotely and our third-party facilities continue to operate. To date, we have not directly had to quarantine contractors or staff, however we have implemented additional safety precautions and measures for their protection. Due to our historic and current geographic diversity of our contractors and employees, we have long established and ongoing experience in remote work and collaboration. Our procedures and controls have been built over time to address remote working requirements.
We have not experienced any significant impacts on our material supply chains but have noted increased timelines from some third-party research facilities regarding their ability to conduct research and testing. To date, this has not significantly impacted our R&D programs, but we cannot predict whether our R&D programs will be impacted in the future.
The Company is simultaneously investigating emerging opportunities related to the COVID-19 crisis in relation to its patented DehydraTECH technology that has been tested for its superior delivery of other compounds and drugs, and whether any of these characteristics might be applicable to compounds or drugs used to treat symptoms caused by the Coronavirus. It is unknown at this time whether there is any such applicability.
On March 19, 2020 the Company announced that it intended to commence a program to conduct tests to research the benefits of DehydraTECH in connection with enhancing the delivery of certain antiviral drugs.
The tests are intended to include a pilot human pharmacokinetic exploratory study in healthy volunteers of two antiviral drugs that had previously been studied against other coronavirus strains, comparing DehydraTECH formulations to controls without DehydraTECH. The Company intends to conduct the study at a leading Canadian university where a study design and plan was submitted and ethics board approval was received. The study is subject to further government regulatory approval. The Company is currently in the process of pursuing the necessary steps to file for study approval from Canadian federal regulators.
In parallel, the Company launched a separate rodent antiviral study to evaluate pharmacokinetic benefits from the use of DehydraTECH in the delivery of representative drugs from two classes of antiviral drugs under investigation for treatment of COVID-19. The results of that animal study were released on December 1, 2020 whereby the DehydraTECH enhanced antiviral drug formulations demonstrated increased delivery effectiveness of the antiviral drugs into the bloodstream of the animals. The results of this animal study have encouraged the Company to conduct expanded investigations into antiviral drug delivery enhancement, with such investigations including remdesivir (a nucleotide reverse transcriptase inhibitor); as well as three additional drugs known to target the main protease associated with SARS-CoV-2 infection. The Company intends to make its research results available to researchers throughout the world looking to maximize the effectiveness of their own drug investigations. The Company’s business model relies on performing early stage studies like these to help support its efforts to form commercial relationships with more established companies.
The Company continues to monitor governmental programs being released to assist with the COVID-19 pandemic. To date, we have received a CDN$40,000 Canada Emergency Business Account (“CEBA”) for our subsidiary Kelowna Management Services Corp. This required CDN$30,000 portion of the loan was repaid during February 2021 and we are waiting confirmation for the CDN$10,000 forgivable portion of the loan from the Canadian government. We have also received $30,732 (CDN$42,076) from the Canada Emergency Wage Subsidy (“CEWS”) program for the employees in our subsidiary KMSC that reduced costs therein.
Subsequent to February 28, 2021
On March 15, 2021, the Company announced progress studies focused on the performance of DehydraTECH CBD as a treatment for hypertension.
·
The HYPER-A21-1 study dosing is complete and sample analysis is underway in this animal study. No observed behavioural tolerability issues were noted during or after dosing with results expected in the first half of May. This study is evaluating the rate of absorption and speed with which various new enhanced DehydraTECH experimental formulations deliver CBD to the bloodstream and brain.
·
The HYPER-A21-2 study dosing is expected to be completed in this animal study by March 30, with results expected in the first half of June. This study is also evaluating the rate of absorption and speed with which additional enhanced DehydraTECH formulations deliver CBD to the bloodstream and brain.
·
The HYPER-H21-1 study has received regulatory importation clearance for the clinical test articles for this human study which have arrived at the European research site. The volunteer human dosing is targeted for completion by May and final reporting on this study is expected in early September. This study examines time series blood pressure and heart rate analyses. Secondary objectives include speed and rate of absorption of the CBD and its main metabolites (pharmacokinetics or “PK” assessments), as well as evaluation of inflammatory markers associated with cardiovascular disease and gold-standard biomarkers of nitric oxide.
·
The HYPER-H21-2 study has received formal hospital and ethics board approval and test articles have been sent. Results are anticipated to be reported in late September. The primary objectives of this study are blood pressure and heart rate evaluation, while the secondary objectives include central arterial stiffness, physical activity and sleep quality.
·
The HYPER-H21-3 study has received formal hospital and ethics board approval and test articles have been sent. The primary objective of this study is to evaluate the effect of DehydraTECH CBD on pulmonary vascular function in normotensive individuals exposed to hypoxia. The magnitude of HPV, blood pressure, heart rate, blood samples and pulmonary gas exchange. Details will be furnished at a future date on the likely timing of reporting from this study once recruitment has begun.
On March 16, 2021, the Company announced progress in two of its antiviral drug studies in its 2021 applied research and development (R&D) program, comprised of one SARS-CoV-2 infected human cell culture study (VIRAL-C21-3) and one animal research pharmacokinetic study (VIRAL-A20-2). The VIRAL-A20-2 study has commenced dosing of the animals and is anticipated to be completed by late March. Results should be reported in or around the second half of May. The VIRAL-C21-3 study has all contract agreements in place with the third-party laboratory that will be conducting this study, and dosing is expected to commence in April with results anticipated around the first half of June.
On March 24, 2021, the Company announced positive results from its extended stability testing. The tested beverages maintained their CBD content which was verified at 93.4% of target potency one year after production, evidenced excellent microbial purity over this period, and demonstrated less than 1% variability in CBD potency in fractions sampled from the top, middle and bottom of the beverage formulation without physical mixing or agitation.
Research and Development
During the quarter ended February 28, 2021, Lexaria incurred $368,659 (February 2020 $294,020) in research and development expenditures. Specific R&D programs are in ongoing development and will be tightly related to our financial ability to undertake each research phase for each API. Due to our expanding portfolio coverage, we are continuing to examine accelerated timetable options for testing, research and development (“R&D”) of each API.
The Company’s historic plans to include in vitro and in vivo absorption tests of our patented technology of molecules such as: cannabidiol (“CBD”), ibuprofen, and nicotine supplied us knowledge and understanding to perform subsequent testing on Nicotine and CBD with generally positive results, all of which has supported early-stage commercial revenue generation during the most recent six months. 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. 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.
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.
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. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financials.
Capital Assets
Capital assets are stated at cost less accumulated depreciation and depreciated using the straight-line method over their useful lives or by units of production.
Patents
Capitalized patent costs represent legal costs incurred to establish patents. When patents reach a mature stage, any associated legal costs are comprised mostly of maintenance fees and are 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. Sales tax collected from customers is excluded from net sales.
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.
We have suffered recurring losses from operations. 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 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.
On January 12, 2021 the Company closed an underwritten public offering for net proceeds of $9,471,495 (Note 12). The net raised proceeds, based on our current research and development programs, are projected to fund the Company’s operations for at least the next twelve months from the date of this Quarterly Report.
Results of Operations for our Period Ended February 28, 2021 and February 29, 2020
Our net loss and comprehensive loss and the changes between those periods for the respective items are summarized as follows:
SIX MONTHS ENDED
February 28
February 29
2021
2020
Change
$
$
$
Revenue
487,662
99,631
388,031
Consulting fees & employees
839,459
1,183,385
(343,926
)
Legal and professional
409,342
140,357
268,985
Other general and administrative
(561,256
)
696,369
(1,257,625
)
Discontinued operations
(22,000
)
64,184
(86,184
)
Net Loss
(316,931
)
(1,922,255
)
1,605,324
Revenue
Product revenues of $231,718 and licensing usage fees of $255,844 represent significant increases in intermediate product sales and related licensing usage fees during period ended February 28, 2021, that almost 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, have simplified and enhanced the adoption of our Technology for manufacturers. The majority of our revenue was based on one licensee of our intermediate products ramping up their production and product distribution.
A significant 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 continue to be impacted by the pandemic. We are working with our licensees to assist them and prevent further license terminations. We have continued interest in our intermediate products but cannot predict how long the pandemic will affect purchasing decisions of retail customers that will affect the consumer product manufacturers that utilize our intermediate products or 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).
During the period ended February 28, 2021, our revenues were derived within the following categories: $231,718 (2020: $64,184 in discontinued operations) of intellectual property licensing revenue and $255,844 (2020: $99,191) in product revenues (Note 14, 16).
General and Administrative
Our total general and administrative expenses (consisting of consulting & wages, legal & professions, and all other) increased by $134,582 during the period ended February 28, 2021 excluding the gain from the asset sale over the same period last year. The increase is primarily comprised of increases to outreach programs, patent filings and contracted incentive payments offset by reductions in consulting expense, travel and wages due to staffing decreases.
Interest Expense
Interest expense for the period ended February 28, 2021 was $Nil (2019: $Nil). The Company has a C$40,000 noninterest-bearing loan until January 2023 (Note 19) that it has repaid the required C$30,000 portion and is awaiting clearance from the Canadian government for the forgivable portion of C$10,000.
Consulting Fees
Our consulting fees decreased by $82,199, which is primarily due to non-cash stock-based compensation included in 2020 of $233,166 that was not incurred in the current period.
Legal and Professional Fees
Our professional fees increased by $72,645 during the period primarily compared to the same period in the prior year due to increased patent and trademark filings, the uplist 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
February 28
August 31
2021
2020
$
$
Current assets
10,958,888
1,926,211
Current liabilities
(399,389
)
(226,167
)
Net Working Capital
10,559,499
1,700,044
The Company’s working capital balance increased significantly during the period due to the underwritten public offering that closed January 12, 2021, and Net Working Capital is now the highest in the Company’s history.
Cash flows (used in) provided by continuing activities
(1,742,757
)
(1,308,963
)
Cash flows (used in) provided by investing activities
264,609
(5,711
)
Cash flows (used in) provided by financing activities
9,448,332
827,020
Net cash flows (used in) discontinued operations
83,000
(57,508
)
Increase (decrease) in cash
8,053,184
(545,162
)
Operating Activities
Net cash used in continuing activities was $1,742,757 for the period compared with cash used in operating activities of $1,308,963 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.
Investing Activities
Net cash from investing activities was $264,609 (2020 $(5,711)) for the period from the disposition of assets and to support capitalized patent filings.
Financing Activities
Net cash provided from financing activities was $9,448,322 during the period ended February 28, 2021 primarily relating to the underwritten public offering that closed January 12, 2021.
Liquidity and Capital Resources
We have accumulated a large deficit since inception that has primarily resulted from executing our business plan including research and development 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 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 concerns over a global recession 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 February 28, 2021 we had $9,346,933 in cash and cash equivalents and working capital of $10,559,499. 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.
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.
The exact requirements will vary depending on the results of research programs and the requirements of each industry segment that we pursue. Pursuit of each segment will be prosecuted or 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, to market and license it. These changes to requirements and transactions may impact our liquidity as well as affect our expenses.
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 February 28, 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 February 28, 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 February 28, 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 February 28, 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 of Directors.
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 failures. 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 February 28, 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 February 28, 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.
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.
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.
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.
*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.
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: April 14, 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: April 14, 2021
By: /s/ John Docherty
John Docherty
President and Director
Date: April 14, 2021
By: /s/ Allan Spissinger
Allan Spissinger CPA, CA
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: April 14, 2021
Page 35 of 35
We use cookies on this site to provide a more responsive and personalized service. Continuing to browse, clicking I Agree, or closing this banner indicates agreement. See our Cookie Policy for more information.
