UNITED STATES
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SECURITIES AND EXCHANGE COMMISSION
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Washington, D.C. 20549
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FORM S-1
Registration Statement under the Securities Act of
1933
LEXARIA CORP.
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(Exact name of registrant as specified in its charter)
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Nevada
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1311
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20-2000871
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(State or other jurisdiction of
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(Primary Standard Industrial
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(I.R.S. Employer
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incorporation or organization)
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Classification Code Number)
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Identification Number)
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1130 West Pender Street, Suite 950,
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Vancouver, British Columbia, V6E 4A4,
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Canada
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(604) 602-1675
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(Address, including zip code, and telephone number,
including area code, of registrants principal executive offices)
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Copy of communication to:
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William L. MacDonald
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Macdonald Tuskey Corporate & Securities Lawyers
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4
th
Floor, 570 Granville
Street, Vancouver, B.C., V6C 3P1, Canada
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Telephone: (604) 648-1670, Facsimile: (604) 681-4760
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Nevada Agency and Transfer Company
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50 West Liberty Street, Suite 880
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Reno, Nevada, 89501
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(775) 322-0626
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Approximate Date of Commencement of Proposed Sale to the Public:
As soon as practicable after this Registration Statement is declared
effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, please check the following box. [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act Prospectus number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company.
Large accelerated filer [ ] Accelerated filer
[ ] Non-accelerated filer [ ]
Smaller
reporting company
[X]
Title of Each
Class of
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Amount to be
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Proposed
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Proposed
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Amount of
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Securities to be
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Registered
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Maximum
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Maximum
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Registration Fee
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Registered (1)
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Offering Price
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Aggregate Offering
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($)
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per Security
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Price
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($)
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($)
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Units, each consisting of one common share and one warrant, par value $0.0001
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20,000,000 (2)
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0.25 (5)
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5,000,000
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573.00
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Common shares, par value $0.0001 underlying warrants included in the
units
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20,000,000 (2)
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-
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-
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(7)
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Previously issued common shares, par value $0.0001
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295,000 (3)
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0.24 (6)
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70,800
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8.11
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Common shares, par value $0.0001 underlying previously issued warrants
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699,893 (4)
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0.24 (6)
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167,974.32
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19.25
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Agents units, each consisting of one common share, par value $0.0001 and one warrant (8)
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1,600,000 (2)
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0.25 (5)
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400,000
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45.84
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Common shares, par value $0.0001 underlying warrants included in
agents units
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1,600,000 (2)
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-
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-
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(7)
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Total
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646.20
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An indeterminate number of additional shares of common stock
shall be issuable pursuant to Rule 416 to prevent dilution resulting from stock
splits, stock dividends or similar transactions and in such an event the number
of shares registered shall automatically be increased to cover the additional
shares in accordance with Rule 416 under the Securities Act.
(1)
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Represents units of our common stock being offered
directly by our Company. The units consist of one share of our common
stock and one warrant to purchase another share of our common stock at
$0.40 per share for a period of one year.
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(2)
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Represents shares of our common stock previously issued
to the Selling Shareholders in private transactions. All of these shares
are being offered by the Selling Shareholders.
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(3)
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Represents shares underlying previously issued
warrants.
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(4)
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Estimated solely for the purpose of calculating the
registration fee pursuant to Rule 457(a) under the Securities Act of 1933,
as amended, based on an estimate of the proposed maximum aggregate
offering price.
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(5)
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Estimated solely for the purpose of determining the
amount of the registration fee pursuant to Rule 457(c) based on the
average of the high and low prices of the common stock as reported on the
OTCQB on March 9, 2012.
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(6)
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No fee required, pursuant to Rule 457(g).
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(7)
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We have agreed to issue our agent an option to acquire
units of our common stock equal to 8% of the number of units sold pursuant
to the Canadian Prospectus (see Explanatory Note below). The option to
acquire the units is exercisable at $0.25 per unit. The units consist of
one share of our common stock and one warrant to purchase another share of
our common stock at $0.40 per share for a period of one
year.
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The registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said section 8(a), may determine.
EXPLANATORY NOTE
Lexaria Corp. has previously filed a registration statement No.
333-175689 to register (1) 14,285,714 units, each consisting of one common share
and one warrant, (2) 295,000 previously issued common shares and (3) 699,893
common shares underlying previously issued warrants. Pursuant to Rule 429 of the
Securities Act of 1933, this registration statement also serves as a
post-effective amendment to that prior registration statement (Registration
Statement No. 333-175689). This registration statement registers an additional
(1) 5,714,286 units, (2) 20,000,000 common shares underlying warrants included
in the units, (3) 1,600,000 agents units, each consisting of one common share
and one warrant, and (4) 1,600,000 common shares underlying warrants included in
the agents units, which have not previously been registered.
This registration statement contains two forms of prospectus:
one to be used in connection with the offering of the securities described
herein in the United States and one to be used in connection with the offering
of such securities in Canada. The form of the U.S. prospectus is included herein
and is followed by the additional pages to be used in the Canadian prospectus.
Each of the additional pages for the Canadian prospectus included herein is
labeled Additional Page for Canadian Prospectus. The form of the U.S.
prospectus is identical to the form of the Canadian prospectus except for these
additional pages.
The information in this prospectus is not complete and may be
changed. We and the selling shareholders may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is
declared effective. This prospectus is not an offer to sell these securities and
it is not a solicitation of an offer to buy these securities in any state or
jurisdiction where the offer or sale is not permitted by the law of such state
or jurisdiction.
Subject to Completion,
________________________, 2012
PROSPECTUS
LEXARIA CORP.
20,000,000 units of common stock at $0.25 per unit,
295,000 previously issued common shares and 699,893 shares of
common stock underlying previously issued warrants,
And
Up to 1,600,000 units of our common stock issuable to our
agent
Lexaria Corp. (Lexaria, we, us, our) is offering
20,000,000 units of common stock at $0.25 per unit as well as up to 1,600,000
units issuable to our agent. Each unit consists of one common share and one
warrant to purchase another common share at $0.40 per share for a period of one
year. The public offering price for units offered in the United States is
payable in US dollars and the public offering price for units offered in Canada
is payable in Canadian dollars at an exchange rate of CDN$1 equals US$1.
The offering of the 20,000,000 units is a best efforts
offering in the United States, which means that our directors and officers as
well as any agents we engage will use their best efforts to sell the units
offered in this Prospectus. There is no minimum number of units required to be
sold to close the offering in the United States. However, each individual
subscriber must purchase a minimum of 1,000 units. The offering period will be
open for 60 days and our management at their sole discretion may terminate the
offering at any time prior to the expiration of the initial 60 days of the
offering. Our management at their sole discretion may extend the period for an
additional 120 days of the offering if not all 20,000,000 units are sold at the
end of the initial 60-day offering period. Proceeds from the sale of the units
will be used to fund acquisition and development of oil and gas properties. This
offering will end no later than 180 days from the offering date. The offering
date is the date by which the registration statement of which this Prospectus
forms a part becomes effective. In the United States, this is a direct
participation offering since we, and not an underwriter, are offering the units.
Christopher Bunka, our President and CEO, Bal Bhullar, our CFO, and David
DeMartini, our director will be responsible for selling our direct primary
offering to the public in the United States.
We have also entered into an agents agreement with Leede
Financial Markets Inc. (Leede), Leede will offer the units to Canadian
investors on a reasonable commercial efforts basis. The minimum which must be
raised by Leede in the offering to Canadian investors is the greater of CDN
$500,000 or such amount as may be required for us to meet the TSX Venture Exchange
requirements for Tier 2 oil and gas issuers. If the minimum amount is not raised
within 90 days of the issuance of a receipt for the Canadian prospectus by
Canadian securities regulatory authorities or such other time as may be
consented to by persons who subscribed within that period, all subscription
monies will be returned to subscribers within three business days without
interest or deduction, unless the subscribers have otherwise instructed Leede.
After deducting the cash commission of 8% of the gross proceeds from the
offering, we expect the net proceeds of the offering to be $460,000 if the
minimum amount ($500,000) is raised and $4,600,000 if the maximum amount
($5,000,000) is raised. For purposes of determining whether we have received
minimum amount of $500,000 or maximum amount of $5,000,000, the Canadian dollar
amount of the public offering price will be translated into U.S. dollar
equivalents at an exchange rate of CDN$1 equals US$1.
Certain Selling Shareholders are also offering 295,000
previously issued common shares and 699,893 shares of common stock underlying
previously issued warrants, which may be resold from time to time by the Selling
Shareholders. These shares and warrants were acquired by the Selling
Shareholders directly from us in private offerings that were exempt from
registration requirements of the Securities Act of 1933. We have been advised by
the Selling Shareholders that they may offer to sell all or a portion of their
shares of common stock being offered in this prospectus from time to time.
Please see Plan of Distribution at page 23 for a detailed explanation of how
the securities may be sold. The Selling Shareholders may sell all or a portion
of their shares through public or private transactions at prevailing market
prices or at privately negotiated prices. We will not receive any of the
proceeds from the sale of shares by the Selling Shareholders. None of the
Selling Shareholders are affiliates of our company.
Our common stock is quoted in the United States on the OTCQB
and listed on the Canadian National Stock Exchange under the symbols LXRP and
LXX, respectively. On March 13, 2012, the closing prices of our common stock
on the OTCQB and Canadian National Stock Exchange were $0.23 and CDN$0.26,
respectively.
An investment in our securities is speculative. See the section
entitled "Risk Factors" beginning on Page 11 of this Prospectus.
Neither the Securities and
Exchange Commission nor any state securities commission has approved or
disapproved of these securities or passed upon the adequacy or accuracy of this
Prospectus. Any representation to the contrary is a criminal offense.
You should rely only on the information contained in this
Prospectus. We have not authorized anyone to provide you with information
different from that contained in this Prospectus. The information contained in
this Prospectus is accurate only as of the date of this Prospectus, regardless
of the time of delivery of this prospectus or of any sale of our common
shares.
The date of this prospectus is _____________, 2012.
Table of Contents
Prospectus Summary
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7
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Risk Factors
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10
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Use of Proceeds
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16
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Determination of Offering Price
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17
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Dilution
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18
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Selling Security Holders
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19
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Plan of Distribution
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22
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Description of Securities to be Registered
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27
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Legal Matters
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28
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Interests of Named Experts and Counsel
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28
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Description of Business
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28
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Description of Property
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41
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Legal Proceedings
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41
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Market for Common Equity and Related Stockholder Matters
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41
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Financial Statements
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43
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Managements Discussion and Analysis of Financial Position
and Results of Operations
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44
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Changes In and Disagreements with
Accountants on Accounting and Financial Disclosure
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48
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Directors and Executive Officers
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56
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Executive Compensation
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52
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Security Ownership of Certain Beneficial Owners and
Management
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53
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Certain Relationships and Related
Transactions
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53
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Disclosure of Commission Position on Indemnification of
Securities Act Liabilities
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54
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Prospectus Summary
This Prospectus, and any supplement to this Prospectus include
forward-looking statements. To the extent that the information presented in
this Prospectus discusses financial projections, information or expectations
about our business plans, results of operations, products or markets, or
otherwise makes statements about future events, such statements are
forward-looking. Such forward-looking statements can be identified by the use of
words such as intends, anticipates, believes, estimates, projects,
forecasts, expects, plans and proposes. Although we believe that the
expectations reflected in these forward-looking statements are based on
reasonable assumptions, there are a number of risks and uncertainties that could
cause actual results to differ materially from such forward-looking statements.
These include, among others, the cautionary statements in the Risk Factors
section beginning on page 8 of this Prospectus and the Managements Discussion
and Analysis of Financial Position and Results of Operations section elsewhere
in this Prospectus.
Our Business
We were incorporated in the State of Nevada on December 9,
2004. We are an exploration and development oil and gas company currently
engaged in the exploration for and development of petroleum and natural gas in
North America. We maintain our registered agents office and our U.S. business
office at Nevada Agency and Transfer Company, 50 West Liberty, Suite 880, Reno,
Nevada 89501. Our telephone number is (755) 322-0626.
The address of our principal executive office is Suite 950,
1130 West Pender Street, Vancouver, British Columbia V6E 4A4. Our telephone
number is (604) 602-1675. We have another office located in Kelowna. Our current
locations provide adequate office space for our purposes at this stage of our
development.
Our common stock is quoted on the OTCQB under the symbol "LXRP"
and on the Canadian National Stock Exchange under the symbol LXX
We are currently generating revenues from our business
operations in Mississippi. Our business plan is to focus on development of the
Belmont Lake oil field, in which we have working interests, in order to maximize
cash flow and use excess cash flow to pay debt and conduct additional
development well drilling. Eventually, if cash flows are strong enough, we
anticipate that we will once again be able to explore for additional oil and gas
by way of our existing 60% interest option to drill 38 exploratory wells (see
Oil & Gas Properties - Mississippi and Louisiana: Frio-Wilcox Project). To
accomplish this, we intend to focus on development drilling first. Eventually we
plan to seek a balance between exploration, development and exploitation
drilling. To achieve sustainable and profitable growth, we intend to control the
timing and costs of its projects wherever possible. We are not currently the
operator of any of our properties.
The Offering
The 295,000 previously issued common shares and 699,893 shares
of common stock underlying previously issued warrants offered by the Selling
Shareholders represent approximately 5.8% of our issued and outstanding stock as
of March 13, 2012, assuming all of the 699,893 warrants are exercised.
If we sell all 20,000,000 units in this offering, and the
warrants attached to the units are not converted, they will account for
approximately 54.49% of our issued and outstanding common shares after the close
of the offering. If the warrants are converted, the units will account for
70.88% of our issued and outstanding common shares, assuming no other shares are
issued during this time.
7
Securities Offered:
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20,000,000 units of common stock at $0.25 per
unit via public offering and up to 1,600,000 units to our agent. Each unit
consists of one common share and one warrant to purchase another common
share at $0.40 per share for a period of one year.
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250,000 previously issued common shares and
699,893 shares of common stock underlying previously issued warrants
offered by the Selling Shareholders.
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Initial Offering Price:
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We are offering 20,000,000 units at a price of
$0.25 per unit.
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The Selling Shareholders may sell all or a
portion of their shares through public or private transactions at
prevailing market prices or at privately negotiated prices.
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Minimum Number of
Securities to be
Sold
in this Offering:
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No minimum in the United States. The Selling
Shareholders may sell up to 250,000 previously issued common shares and
699,893 shares of common stock underlying previously issued warrants.
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We are offering a minimum of 2,000,000 units of
common stock and a maximum of 20,000,000 units of common stock to the
public in Canada and up to 1,600,000 units of our common stock to our
agent, Leede.
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Securities Issued and
to be
Issued:
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As of March
13, 2012 we had 16,431,452 shares of
our common stock, options to acquire 1,740,000 shares of our common stock
and warrants to acquire 2,471,322 shares of our common issued and
outstanding.
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We are offering a maximum of 20,000,000 units
of common stock at $0.25 per unit via public offering. Each unit consists
of one common share and one warrant to purchase another common share at
$0.40 per share for a period of one year.
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Proceeds:
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We will not receive any proceeds from the sale
of our common stock by the selling security holders.
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If we sell all of the 20,000,000 units we are
offering in the United States, we will receive proceeds of $5,000,000
minus any offering expenses. If we sell a minimum of 2,000,000 units and a
maximum of 20,000,000 units in Canada, we will receive proceeds of
$500,000 and $5,000,000, respectively, minus the cash commission of 8% of
the gross proceeds payable to our agent, Leede, and offering expenses.
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Terms of Offering:
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This is a BEST EFFORTS OFFERING in the United
States and a REASONABLE COMMERCIAL EFFORTS OFFERING in Canada. This is a
no minimum offering in the United States. Accordingly, as units are sold
we will use the money raised for our business. Each individual subscriber
must purchase a minimum of 1,000 units. We cannot be certain that we will
be able to sell enough units to sufficiently fund our operations
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Plan of Distribution:
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This is a public offering, with no commitment
by anyone to purchase any units. In the United States, the units in this
offering will be offered and sold by Christopher Bunka, our President and
CEO, Bal Bhullar, our CFO, and David DeMartini, our director. We have also
entered into an agents agreement with Leede Financial Markets Inc.
(Leede), Leede will offer the units to Canadian investors. As
compensation, Leede will be provided with a fee of 8% cash on the value of
all units sold by them as well as an option to acquire units of our common
stock equal to 8% of the number of units sold pursuant to this Prospectus.
The option to acquire the units is exercisable at $0.25 per unit. Leede
will also be paid a corporate finance fee of CDN $38,000, of which CDN
$20,000 has been paid on a non-refundable basis.
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8
Financial Summary Information
All references to currency in this Prospectus are to U.S.
Dollars, unless otherwise noted.
The following table sets forth selected financial information,
which should be read in conjunction with the information set forth in the
"Managements Discussion and Analysis of Financial Position and Results of
Operations" section and the accompanying financial statements and related notes
included elsewhere in this Prospectus.
Consolidated Statement of Expenses Data
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Year Ended October 31,
2010
($)
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Year Ended October 31,
2011
($)
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Three Months Ended
January 31, 2012
($)
(unaudited)
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Revenues
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362,471
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1,133,766
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249,383
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Total Expenses
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914,933
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1,671,992
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368,304
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Net Loss
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552,462
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538,226
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118,921
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Net Loss per share
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0.04
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0.04
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0.01
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Consolidated Balance Sheet Data
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As at October 31,
2010
($)
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As at October 31,
2011
($)
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As at January 31, 2012
($)
(unaudited)
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Working Capital
(Deficiency)
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(909,441)
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(814,355)
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(1,353,536)
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Total Assets
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3,278,300
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4,339,369
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4,228,370
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Total Liabilities
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1,124,647
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1,678,021
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1,676,354
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9
Risk Factors
Please consider the following risk factors before deciding
to invest in our common stock.
Any investment in our common stock involves a high degree of
risk. You should consider carefully the risks and uncertainties described below,
and all other information contained in this prospectus, before you decide
whether to purchase our common stock. The occurrence of any of the following
risks could harm our business. You may lose part or all of your investment due
to any of these risks or uncertainties.
This prospectus also contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including the risks we face as described below and elsewhere in this
Prospectus.
Risks Related to Our Business
We have a limited operating history and as a result there is
no assurance we can operate on a profitable basis.
We have a limited operating history. Our companys operations
will be subject to all the uncertainties arising from the absence of a
significant operating history. Potential investors should be aware of the
difficulties normally encountered by resource exploration companies and the high
rate of failure of such enterprises. The likelihood of success must be
considered in light of the problems, expenses, difficulties, complications and
delays encountered in connection with the exploration of the properties that we
plan to undertake. These potential problems include, but are not limited to,
unanticipated problems relating to exploration, and additional costs and
expenses that may exceed current estimates. The expenditures to be made by us in
the exploration of our properties may not result in the discovery of reserves.
Problems such as unusual or unexpected formations of rock or land and other
conditions are involved in resource exploration and often result in unsuccessful
exploration efforts. If the results of our exploration do not reveal viable
commercial reserves, we may decide to abandon our claims and acquire new claims
for new exploration or cease operations. The acquisition of additional claims
will be dependent upon us possessing capital resources at the time in order to
purchase such claims. If no funding is available, we may be forced to abandon
our operations. There can be no assurance that we will be able to operate on a
profitable basis.
If we do not obtain additional financing, our business will
fail and our investors could lose their investment.
We had cash in the amount of $140,482 and working capital
deficiency of $1,353,536 as of January 31, 2012. We currently do not generate
significant revenues from our operations. Any direct acquisition of a claim
under lease or option is subject to our ability to obtain the financing
necessary for us to fund and carry out exploration programs on potential
properties. The requirements are substantial. Obtaining additional financing
would be subject to a number of factors, including market prices for resources,
investor acceptance of our properties and investor sentiment. These factors may
negatively affect the timing, amount, terms or conditions of any additional
financing available to us. The most likely source of future funds presently
available to us is through the sale of equity capital and loans. Any sale of
share capital will result in dilution to existing shareholders.
10
Because there is no assurance that we will generate material revenues, we face a high risk of business failure.
For the fiscal year 2011, we have earned revenues of $1,133,766. We currently have only modest oil or gas reserves that are deemed proved, probable or possible pursuant to American standards of disclosure for oil and gas activities. All of our
existing wells are in Mississippi, USA.
There can be no assurance that our current or future drilling activities will be successful, and we cannot be sure that our overall drilling success rate or our production operations within a particular area will ever come to fruition, and if they
do, will not decline over time. We may not recover all or any portion of our capital investment in the wells or the underlying leaseholds. Unsuccessful drilling activities would have a material adverse effect upon our results of operations and
financial condition. The cost of drilling, completing and operating wells is often uncertain, and a number of factors can delay or prevent drilling operations, including: (i) unexpected drilling conditions; (ii) pressure or irregularities in
geological formation; (iii) equipment failures or accidents; (iv) adverse weather conditions; and (v) shortages or delays in the availability of drilling rigs and the delivery of equipment.
In addition, our exploration and development plans may be curtailed, delayed or cancelled as a result of lack of adequate capital and other factors, such as weather, compliance with governmental regulations, current and forecasted prices for oil and
changes in the estimates of costs to complete the projects. We will continue to gather information about our exploration projects, and it is possible that additional information may cause our company to alter our schedule or determine that a project
should not be pursued at all. You should understand that our plans regarding our projects are subject to change.
We recognize that if we are unable to generate significant revenues from our activities, we will not be able to earn profits or continue operations. We cannot guarantee that we will be successful in raising capital to fund these operating losses or
generate revenues in the future. We can provide investors with no assurance that we will generate any operating revenues or ever achieve profitable operations. If we are unsuccessful in addressing these risks, our business will most likely fail and
our investors could lose their investment.
The oil and natural gas industry is highly competitive and there is no assurance that we will be successful in acquiring leases.
The oil and natural gas industry is intensely competitive. Although we do not compete with other oil and gas companies for the sale of any oil and gas that we may produce, as there is sufficient demand in the world market for these products, we
compete with numerous individuals and companies, including many major oil and natural gas companies which have substantially greater technical, financial and operational resources and staff. Accordingly, there is a high degree of competition for
desirable oil and natural gas leases, suitable properties for drilling operations and necessary drilling equipment, as well as for access to funds. We cannot predict if the necessary funds can be raised or that any projected work will be completed.
There can be no assurance that we will discover oil or natural gas in any commercial quantity on our properties.
Exploration for economic reserves of oil and natural gas is subject to a number of risks. There is competition for the acquisition of available oil and natural gas properties. Few properties that are explored are ultimately developed into producing
oil and/or natural gas wells. If we cannot discover oil or natural gas in any commercial quantity thereon, our business will fail.
11
Even if we acquire an oil and natural gas exploration property and establish that it contains oil or natural gas in commercially exploitable quantities, the potential profitability of oil and natural gas ventures depends upon factors beyond the
control of our company.
The potential profitability of oil and natural gas properties is dependent upon many factors beyond our control. For instance, world prices and markets for oil and natural gas are unpredictable, highly volatile, potentially subject to governmental
fixing, pegging, controls or any combination of these and other factors, and respond to changes in domestic, international, political, social and economic environments. Additionally, due to worldwide economic uncertainty, the availability and cost
of funds for production and other expenses have become increasingly difficult, if not impossible, to project. In addition, adverse weather conditions can hinder drilling operations. These changes and events may materially affect our future financial
performance. These factors cannot be accurately predicted and the combination of these factors may result in our company not receiving an adequate return on invested capital.
In addition, a productive well may become uneconomic in the event water or other deleterious substances are encountered which impair or prevent the production of oil and/or natural gas from the well. Production from any well may be unmarketable if
it is impregnated with water or other deleterious substances. Also, the marketability of oil and natural gas which may be acquired or discovered will be affected by numerous related factors, including the proximity and capacity of oil and natural
gas pipelines and processing equipment, market fluctuations of prices, taxes, royalties, land tenure, allowable production and environmental protection, all of which could result in greater expenses than revenue generated by the well.
The marketability of natural resources will be affected by numerous factors beyond our control which may result in us not receiving an adequate return on invested capital to be profitable or viable.
The marketability of natural resources which may be acquired or discovered by us will be affected by numerous factors beyond our control. These factors include market fluctuations in oil and natural gas pricing and demand, the proximity and capacity
of natural resource markets and processing equipment, governmental regulations, land tenure, land use, regulation concerning the importing and exporting of oil and natural gas and environmental protection regulations. The exact effect of these
factors cannot be accurately predicted, but the combination of these factors may result in us not receiving an adequate return on invested capital to be profitable or viable.
Oil and natural gas operations are subject to comprehensive regulation which may cause substantial delays or require capital outlays in excess of those anticipated causing an adverse effect on our company.
Oil and natural gas operations are subject to federal, state, and local laws relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into the environment.
Oil and natural gas operations are also subject to federal, state, and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment. Various permits from government
bodies are required for drilling operations to be conducted; no assurance can be given that standards imposed by federal, provincial, or local authorities may be changed and any such changes may have material adverse effects on our activities.
Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus causing an adverse effect on us. Additionally, we may be subject to liability for pollution or other environmental
damages. To date, we have not been required to spend any material amount on compliance with environmental regulations. However, we may be required to do so in the future and this may affect our ability to expand or maintain our operations.
12
Exploration and production activities are subject to certain environmental regulations which may prevent or delay the commencement or continuation of our operations.
In general, our exploration and production activities are subject to certain federal, state and local laws and regulations relating to environmental quality and pollution control. Such laws and regulations increase the costs of these activities and
may prevent or delay the commencement or continuation of a given operation. Specifically, we may be subject to legislation regarding emissions into the environment, water discharges and storage and disposition of hazardous wastes. In addition,
legislation has been enacted which requires well and facility sites to be abandoned and reclaimed to the satisfaction of state authorities. However, such laws and regulations are frequently changed and we are unable to predict the ultimate cost of
compliance. Generally, environmental requirements do not appear to affect us any differently or to any greater or lesser extent than other companies in the industry.
Exploratory drilling involves many risks and we may become liable for pollution or other liabilities which may have an adverse effect on our financial position.
Drilling operations generally involve a high degree of risk. Hazards such as unusual or unexpected geological formations, power outages, labor disruptions, blow-outs, sour natural gas leakage, fire, inability to obtain suitable or adequate
machinery, equipment or labor, and other risks are involved. We may become subject to liability for pollution or hazards against which it cannot adequately insure or which it may elect not to insure. Incurring any such liability may have a material
adverse effect on our financial position and operations.
Any change to government regulation/administrative practices may have a negative impact on our ability to operate and our profitability.
The business of oil and natural gas exploration and development is subject to substantial regulation under various countries laws relating to the exploration for, and the development, upgrading, marketing, pricing, taxation, and transportation of
oil and natural gas and related products and other matters. Amendments to current laws and regulations governing operations and activities of oil and natural gas exploration and development operations could have a material adverse impact on our
business. In addition, there can be no assurance that income tax laws, royalty regulations and government incentive programs related to the properties subject to our farm-out agreements and the oil and natural gas industry generally will not be
changed in a manner which may adversely affect our progress and cause delays, inability to explore and develop or abandonment of these interests.
Permits, leases, licenses, and approvals are required from a variety of regulatory authorities at various stages of exploration and development. There can be no assurance that the various government permits, leases, licenses and approvals sought
will be granted in respect of our activities or, if granted, will not be cancelled or will be renewed upon expiry. There is no assurance that such permits, leases, licenses, and approvals will not contain terms and provisions which may adversely
affect our exploration and development activities.
If we are unable to hire and retain key personnel, we may not be able to implement our business plan.
Our success is largely dependent on our ability to hire highly qualified personnel. This is particularly true in highly technical businesses such as resource exploration. These individuals are in high demand and we may not be able to attract the
personnel we need. In addition, we may not be able to afford the high salaries and fees demanded by qualified personnel, or may lose such employees after they are hired. Failure to hire key personnel when needed, or on acceptable terms, would have a
significant negative effect on our business.
13
We are not the "operator" of any of our oil and gas exploration interests, and so we are exposed to the risks of our third-party operators.
We rely on the expertise of our contracted third-party oil and gas exploration and development operators and third-party consultants for their judgment, experience and advice. We can give no assurance that these third party operators or consultants
will always act in our best interests, and we are exposed as a third party to their operations and actions and advice in those properties and activities in which we are contractually bound.
Our management has limited experience and training in the oil and gas industry and could make uninformed decisions that negatively impact our oil and gas operations.
Because our management has limited experience and training in the oil and gas industry, we may not have sufficient expertise to make informed best practices decisions regarding oil and gas operations. We do not have a petroleum engineer on staff to
provide internal oversight. It is possible that, due to our limited knowledge, we might elect to complete a well and incur financial burdens that a more experienced petroleum team might elect not to complete. Our ability to internally evaluate oil
and gas operations and opportunities could be less thorough than that of a more highly trained management team.
Our independent certified public accounting firm, in the notes to the audited financial statements for the year ended October 31, 2011 states that there is a substantial doubt that we will be able to continue as a going concern.
As at October 31, 2011, we have experienced significant losses since inception. Failure to arrange adequate financing on acceptable terms and to achieve profitability would have an adverse effect on our financial position, results of operations,
cash flows and prospects. Accordingly, there is substantial doubt that we will be able to continue as a going concern.
Risks Associated with Our Common Stock
Trading on the OTCQB may be volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares.
Our common stock is quoted on the OTCQB service of the Financial Industry Regulatory Authority. Trading in stock quoted on the OTCQB is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to
do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTCQB is not a stock exchange, and trading of securities on the OTCQB is
often more sporadic than the trading of securities listed on a quotation system like Nasdaq or a stock exchange like Amex. Accordingly, shareholders may have difficulty reselling any of the shares.
Penny stock rules will limit the ability of our stockholders to sell their stock.
The Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00
per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited
investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000
jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the Securities and
Exchange Commission which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for
the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the
broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition,
the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive
the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
14
The Financial Industry Regulatory Authority, or FINRA, has adopted sales practice requirements which may also limit a shareholders ability to buy and sell our stock.
In addition to the "penny stock" rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that
customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customers financial status, tax status, investment objectives and
other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for
broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for its shares.
We do not intend to pay dividends and there will thus be fewer ways in which you are able to make a gain on your investment.
We have never paid dividends and do not intend to pay any dividends for the foreseeable future. To the extent that we may require additional funding currently not provided for in our financing plan, our funding sources may prohibit the declaration
of dividends. Because we do not intend to pay dividends, any gain on your investment will need to result from an appreciation in the price of our common stock. There will therefore be fewer ways in which you are able to make a gain on your
investment.
Because the SEC imposes additional sales practice requirements on brokers who deal in shares of penny stocks, some brokers may be unwilling to trade our securities. This means that you may have difficulty reselling your shares, which may cause
the value of your investment to decline.
Our shares are classified as penny stocks and are covered by Section 15(g) of the Securities Exchange Act of 1934 (the “Exchange Act”) which imposes additional sales practice requirements on brokers-dealers who sell our securities in
this offering or in the aftermarket. For sales of our securities, broker-dealers must make a special suitability determination and receive a written agreement prior from you to making a sale on your behalf. Because of the imposition of the foregoing
additional sales practices, it is possible that broker-dealers will not want to make a market in our common stock. This could prevent you from reselling your shares and may cause the value of your investment to decline.
Our compliance with the Sarbanes-Oxley Act and SEC rules concerning internal controls will be time-consuming, difficult, and costly.
Under Section 404 of the Sarbanes-Oxley Act and current SEC regulations, we will be required to furnish a report by our management on our internal control over financial reporting beginning with our Annual Report on Form 10-K for our fiscal year
ending October 31, 2011. We will soon begin the process of documenting and testing our internal control procedures in order to satisfy these requirements, which is likely to result in increased general and administrative
expenses and may shift managements time and attention from revenue-generating
activities to compliance activities. While we expect to expend significant
resources to complete this important project, we may not be able to achieve our
objective on a timely basis. It will be time-consuming, difficult and costly for
us to develop and implement the internal controls, processes and reporting
procedures required by the Sarbanes-Oxley Act. We may need to hire additional
personnel to do so, and if we are unable to comply with the requirements of the
legislation we may not be able to assess our internal controls over financial
reporting to be effective in compliance with the Sarbanes-Oxley Act.
15
Other Risks
Because majority of our officers and directors are located
in non-U.S. jurisdictions, you may have no effective recourse against them for
misconduct and you may not be able to enforce judgment and civil liabilities
against our officers, directors, experts and agents.
All of our directors and officers except for one are nationals
and/or residents of countries other than the United States and all or a
substantial portion of their assets are located in the United States. As a
result, it may be difficult for investors to enforce within the United States
any judgments obtained against our officers or directors, including judgments
predicated upon the civil liability provisions of the securities laws of the
United States or any state thereof.
Trends, Risks and Uncertainties
We have sought to identify what we believe to be the most
significant risks to our business, but we cannot predict whether, or to what
extent, any of such risks may be realized nor can we guarantee that we have
identified all possible risks that might arise. Investors should carefully
consider all of such risk factors before making an investment decision with
respect to our common stock.
Use of Proceeds
We will not receive any proceeds from the resale of the
securities offered through this Prospectus by the selling security holders.
The net proceeds to us from the sale of up to 20,000,000 units
offered at a public offering price of $0.25 per unit will vary depending upon
the total number of shares sold. Regardless of the number of units sold, we
expect to incur offering expenses estimated at approximately $150,000, $145,000
for legal and accounting (incurred), $5,000 for other costs in connection with
this offering (estimated transfer agent fees, filing fee, etc.), as well as a
fee of 8% cash on any units sold by Leede, our Canadian agent. The table below
shows the intended net proceeds from this offering we expect to receive for
scenarios where we sell various amounts of units assuming Leede is involved in
all sales of our units. Since we are making this offering without any minimum
requirement, there is no guarantee that we will be successful at selling any of
the securities being offered in this prospectus. Accordingly, the actual amount
of proceeds we will raise in this offering, if any, may differ.
Percent of Net Proceeds Received
|
10%
|
25%
|
50%
|
75%
|
100%
|
Units Sold
|
2,000,000
|
5,000,000
|
10,000,000
|
15,000,000
|
20,000,000
|
Gross Proceeds
|
$500,000
|
$1,250,000
|
$2,500,000
|
$3,750,000
|
$5,000,000
|
Less Offering
Expenses, including
agent fees
|
$190,000
|
$250,000
|
$350,000
|
$450,000
|
$550,000
|
Net Offering
Proceeds
|
$310,000
|
$1,000,000
|
$2,150,000
|
$3,300,000
|
$4,450,000
|
16
The Use of Proceeds set forth below demonstrates how we intend
to use the funds under the various percentages of amounts of the related
offering. All amounts listed below are estimates.
|
10%
|
25%
|
50%
|
75%
|
100%
|
Development:
Belmont Lake Field recomplete wells 12-1 and 12-3 to increase production @ $167,000 per well. Lexaria funds 42%.
|
$140,000
|
$140,000
|
$140,000
|
$140,000
|
$140,000
|
Development:
Belmont Lake Field completion of three new exploration wells (12-6 and 12-8 and 12-9)
|
$0
|
$273,000
|
$546,000
|
$819,000
|
$819,000
|
Well services:
plug and abandonment costs
|
$0
|
$175,000
|
$175,000
|
$175,000
|
$175,000
|
Exploration well
drilling Belmont Lake Field
|
$0
|
$0
|
$650,000
|
$650,000
|
$1,300,000
|
Unallocated
Working Capital
|
$170,000
|
$300,000
|
$450,000
|
1,092,000
|
$1,456,000
|
Re-pay
arms-length existing corporate debt
|
$0
|
$112,000
|
$189,000
|
$424,000
|
$560,000
|
|
|
|
|
|
|
Total
|
$310,000
|
$1,000,000
|
$2,150,000
|
$3,300,000
|
$4,450,000
|
Our offering expenses are comprised of legal and accounting
expenses and transfer agent fees as well as a fee of 8% cash on any units sold
by Leede, our Canadian agent. Our officers and Directors will not receive any
compensation for their efforts in selling our shares.
We intend to use the proceeds of this offering in the manner
and in order of priority set forth above. We do not intend to use the proceeds
to acquire assets or finance the acquisition of other businesses. At present, no
material changes are contemplated. Should there be any material changes in the
projected use of proceeds in connection with this offering, we will issue an
amended prospectus reflecting the new uses.
In all instances, after the effectiveness of this registration
statement, we will need some amount of working capital to maintain our general
existence and comply with our public reporting obligations. In addition to
changing allocations because of the amount of proceeds received, we may change
the use of proceeds because of required changes in our business plan. Investors
should understand that we have wide discretion over the use of proceeds.
Therefore, management decisions may not be in line with the initial objectives
of investors who will have little ability to influence these decisions.
There is no commitment by any person to purchase any or all of
the shares of common stock offered by this prospectus and, therefore, there can
be no assurance that the offering will be totally subscribed for the sale of the
maximum 20,000,000 units of common stock being offered.
Determination of Offering Price
The Selling Shareholders will sell their shares at prevailing
market prices or privately negotiated prices. The number of securities that may
be actually sold by a Selling Shareholder will be determined by each Selling
Shareholder. The Selling Shareholders are under no obligation to sell all or any
portion of the securities offered, nor are the Selling Shareholders obligated to
sell such shares immediately under this Prospectus. A security holder may sell
securities at any price depending on privately negotiated factors such as a shareholders own cash requirements, or objective
criteria of value such as the market value of our assets.
17
The offering price of the units was determined by negotiation
between us and our agent, Leede in the context of market conditions.
Dilution
Dilution represents the difference between the offering price
and the net tangible book value per share immediately after completion of this
offering. Net tangible book value is the amount that results from subtracting
total liabilities and intangible assets from total assets. Dilution of the value
of the shares you purchase is a result of the lower book value of the shares
held by our existing stockholders.
As at October 31, 2011, our last financial statement date, our
total net tangible book value was $2,661,348, or approximately $0.162 per share
based on 16,431,452 shares issued and outstanding as of that date. The proceeds
from the sale of the new units being offered (up to a maximum of 20,000,000)
will vary depending on the total number of shares actually sold in the offering.
If all 20,000,000 units offered hereunder are sold, there would be a total of
36,431,452 common shares issued and outstanding (using the October 31, 2011
figure), assuming none of the warrants were exercised. If all of the warrants
were exercised, we would have 56,431,452 shares issued and outstanding.
The following table sets forth as of October 31, 2011, the
number of shares of common stock purchased from us and the total consideration
paid by our existing stockholders and by new investors in this offering if new
investors purchase 10%, 25%, 50%, 75% or 100% of the offering, before deducting
offering expenses payable by us, assuming that none of the warrants included in
the units are exercised.
Non-Diluted Offering
Percent of Shares Sold
|
10%
|
25%
|
50%
|
75%
|
100%
|
Number of units sold
|
2,000,000
|
5,000,000
|
10,000,000
|
15,000,000
|
20,000,000
|
Anticipated net offering proceeds
|
$310,000
|
$1,000,000
|
$2,150,000
|
$3,300,000
|
$4,450,000
|
Total shares issued and outstanding post
offering
|
18,431,452
|
21,431,452
|
26,431,452
|
31,431,452
|
36,431,452
|
Offering price per unit
|
$0.25
|
$0.25
|
$0.25
|
$0.25
|
$0.25
|
Pre-offering net tangible book value/share
|
$0.162
|
$0.162
|
$0.162
|
$0.162
|
$0.162
|
Post offering net tangible book value
|
$2,971,348
|
$3,661,348
|
$4,811,348
|
$5,961,348
|
$7,111,348
|
Post offering net tangible book value/share
|
$0.161
|
$0.171
|
$0.182
|
$0.190
|
$0.195
|
Increase (Decrease) in net tangible book value per share
after offering
|
($0.001)
|
$0.009
|
$0.020
|
$0.028
|
$0.033
|
Dilution per share to new shareholders
|
$0.089
|
$0.079
|
$0.068
|
$0.060
|
$0.055
|
New shareholders percentage of ownership after offering
|
10.9%
|
23.3%
|
37.8%
|
47.7%
|
54.9%
|
Existing stockholders percentage of
ownership after offering
|
89.1%
|
76.7%
|
62.2%
|
52.3%
|
45.1%
|
The following table sets forth as of October 31, 2011, the
number of shares of common stock purchased from us and the total consideration
paid by our existing stockholders and by new investors in this offering if new
investors purchase 10%, 25%, 50%, 75% or 100% of the offering, before deducting
offering expenses payable by us, assuming that all of the warrants included in
the purchased units are exercised at $0.40 per warrant share.
18
Fully Diluted Offering
Percent of Shares Sold
|
10%
|
25%
|
50%
|
75%
|
100%
|
Number of units sold, including warrants
exercised
|
4,000,000
|
10,000,000
|
20,000,000
|
30,000,000
|
40,000,000
|
Anticipated net offering proceeds from unit sale
|
$310,000
|
$1,000,000
|
$2,150,000
|
$3,300,000
|
$4,450,000
|
Anticipated gross offering proceeds from
warrant exercise
|
$800,000
|
$2,000,000
|
$4,000,000
|
$6,000,000
|
$8,000,000
|
Total shares issued and outstanding post offering
|
20,431,452
|
26,431,452
|
36,431,452
|
46,431,452
|
56,431,452
|
Offering price of $0.425 ($0.25 per unit,
$0.40 per warrant share)
|
$0.325
|
$0.325
|
$0.325
|
$0.325
|
$0.325
|
Pre-offering net tangible book value/share
|
$0.162
|
$0.162
|
$0.162
|
$0.162
|
$0.162
|
Post offering net tangible book value
|
$3,771,348
|
$5,661,348
|
$8,811,348
|
$11,961,348
|
$15,111,348
|
Post offering net tangible book value/share
|
$0.185
|
$0.214
|
$0.242
|
$0.258
|
$0.268
|
Increase (Decrease) in net tangible book value per share after offering
|
$0.023
|
$0 052
|
$0.080
|
$0.096
|
$0.106
|
Dilution per share to new shareholders assuming combined $0.325 cost.
|
$0.140
|
$0.111
|
$0.083
|
$0.067
|
$0.057
|
New shareholders percentage of ownership after offering
|
19.6%
|
37.8%
|
54.9%
|
64.6%
|
70.9%
|
Existing stockholders percentage of
ownership after offering
|
80.4%
|
62.2%
|
45.1%
|
35.4%
|
29.1%
|
Selling Security Holders
The selling security holders may sell securities at prevailing
market prices or privately negotiated prices. This Prospectus includes
registration of the following 994,893 shares:
-
295,000 common shares; and
-
699,893 common shares underlying warrants.
The 4 selling security holders are offering for sale 295,000
shares of our issued and outstanding common stock which they obtained as part of
the following issuances:
-
95,000 shares issued to two selling shareholders through an exercise of a
warrant at $0.20 per share on July 13, 2011; and
-
200,000 shares issued to two selling shareholders as part of a financing
for units of our common stock at $0.35 per share on July 13, 2011. The units
included a share of our common stock and a warrant to acquire an additional
share of our common stock at $0.50 per share for a period of 24 months.
The selling security holders have the option to sell their
shares at prevailing market prices or privately negotiated prices. The following
table provides information as of March 13, 2012 regarding the beneficial
ownership of our common stock by each of the selling security holders,
including:
-
the number of shares owned by each prior to this
offering;
-
the number of shares being offered by each;
-
the number of shares that will be owned by each upon
completion of the offering, assuming that all the shares being offered are
sold;
-
the percentage of shares owned by each; and
-
the identity of the beneficial holder of any entity that owns
the shares being offered.
19
Name of Selling
Security
Holder
|
Shares
Owned Prior
to this
Offering
(1)
|
Percent
%
(2)
|
Maximum
Numbers of
Shares
Being
Offered
|
Beneficial
Ownership
After
Offering
|
Percentage
Owned
upon
Completion
of the
Offering
(2)
|
Starber
Enterprises Inc. (4)
|
75,000
|
(3)
|
75,000
|
0
|
0
|
Susan Herunter
|
40,000
|
(3)
|
20,000
|
0
|
0
|
Matthew Ihrke (5)
|
285,714 (6)
|
1.7
|
142,857
|
0
|
0
|
Brooks Brown
|
114,286 (7)
|
(3)
|
57,143
|
0
|
0
|
|
|
|
|
|
|
Total
|
515,000
|
3.1%
|
295,000
|
0
|
0
|
(1)
|
The number and percentage of shares beneficially owned is
determined to the best of our knowledge in accordance with the Rules of
the SEC and. the information is not necessarily indicative of beneficial
ownership for any other purpose. Under such rules, beneficial ownership
includes any shares as to which the selling security holder has sole or
shared voting or investment power and also any shares which the selling
security holder has the right to acquire within 60 days of the date of
this Prospectus.
|
(2)
|
The percentages are based on 16,431,452 shares of our
common stock issued and outstanding and as at March 13, 2012.
|
(3)
|
Less than 1%.
|
(4)
|
Darren Sontowski has voting and dispositive control over
shares owned by Starber Enterprises Inc.
|
(5)
|
Matthew Ihrke is the brother of Tom Ihrke, our VP of
Business Development.
|
(6)
|
Includes 142,857 shares and warrants to acquire an
additional 142,857 shares at $0.50 per share for a period of 24 months.
The shares underlying the warrants are also being offered in this
Prospectus, but are described below.
|
(7)
|
Includes 57,143 shares and warrants to acquire an
additional 57,143 shares at $0.50 per share for a period of 24 months. The
shares underlying the warrants are also being offered in this Prospectus,
but are described below.
|
Three selling security holders are offering for sale up to
699,893 shares underlying previously issued warrants which they obtained as part
of the following issuances:
-
warrants to acquire a total 200,000 shares issued on July 13, 2011 as part
of a financing for units of our common stock at $0.35 per share to two selling
shareholders. The units included a share of our common stock and a warrant to
acquire an additional share of our common stock at $0.50 per share for a
period of 24 months; and
-
warrants to acquire 499,893 shares of our common stock issued to Enertopia
Corp., a company with common management as part of a unit issuance for debt
settlement. The warrants were initially issued on May 31, 2010 and give
Enertopia the right to acquire 499,893 shares of our common stock at $0.20 per
share for a period of 2 years from issuance.
More information regarding the holders of the 699,893 common
shares underlying warrants is included the following table.
20
Name of Selling
Security Holder
|
Shares Owned
Prior to
this
Offering
(1)
|
Percent
%
(2)
|
Maximum
Numbers
of
Shares
Underlying
Warrants
Being
Offered
|
Beneficial
Ownership
After
Offering
|
Percentage
Owned
upon
Completion
of the
Offering
(2)
|
Matthew Ihrke
(4)
|
285,714
(6)
|
1.7
|
142,857
|
0
|
0
|
Brooks Brown
|
114,286
(7)
|
(3)
|
57,143
|
0
|
0
|
Enertopia Corp.
(5)
|
749,786
(8)
|
4.4
|
499,893
|
0
|
0
|
|
|
|
|
|
|
Total
|
1,149,786
|
6.7
|
699,893
|
0
|
0
|
(1)
|
The number and percentage of shares beneficially owned is
determined to the best of our knowledge in accordance with the Rules of
the SEC and. the information is not necessarily indicative of beneficial
ownership for any other purpose. Under such rules, beneficial ownership
includes any shares as to which the selling security holder has sole or
shared voting or investment power and also any shares which the selling
security holder has the right to acquire within 60 days of the date of
this Prospectus.
|
(2)
|
The percentages are based on 16,431,452 shares of our
common stock issued and outstanding and as at March 13, 2012.
|
(3)
|
Less than 1%.
|
(4)
|
Matthew Ihrke is the brother of Tom Ihrke, our VP of
Business Development.
|
(5)
|
Enertopia Corp., is a publicly held company listed on the
OTCQB market. Christopher Bunka, our CEO and director is also the CEO and
director of Enertopia Corp.
|
(6)
|
Includes 142,857 shares and warrants to acquire an
additional 142,857 shares at $0.50 per share for a period of 24 months.
The shares underlying the warrants are also being offered in this
Prospectus, but are described below.
|
(7)
|
Includes 57,143 shares and warrants to acquire an
additional 57,143 shares at $0.50 per share for a period of 24 months. The
shares underlying the warrants are also being offered in this Prospectus,
but are described below.
|
(8)
|
Includes 249,893 shares and warrants to acquire an
additional 499,893 shares at $0.20 per share until May 31,
2012.
|
Except as otherwise noted in the above lists, the named party
beneficially owns and has sole voting and investment power over all the shares
or rights to the shares. The numbers in these table assume that none of the
selling security holders will sell shares not being offered in this Prospectus
or will purchase additional shares, and assumes that all the shares being
registered will be sold.
Other than as described above, none of the selling security
holders or their beneficial owners has had a material relationship with us other
than as a security holder at any time within the past three years, or has ever
been one of our officers or directors or an officer or director of our
predecessors or affiliates.
All of these shares were issued in reliance upon an exemption
from registration pursuant to Regulation S or Regulation D under the Securities
Act of 1933 (the Securities Act). Our reliance upon Rule 903 of Regulation S
was based on the fact that the sales of the securities were completed in an
"offshore transaction", as defined in Rule 902(h) of Regulation S. We did not
engage in any directed selling efforts, as defined in Regulation S, in the
United States in connection with the sale of the securities. Each investor was
not a U.S. person, as defined in Regulation S, and was not acquiring the
securities for the account or benefit of a U.S. person.
None of the selling security holders are broker-dealers or
affiliates of a broker-dealer.
21
Plan of Distribution
Offering of 20,000,000 units of our Common Stock in the
United States
We are offering to the public 20,000,000 units of common stock
on a $5,000,000 maximum basis at a purchase price of $0.25 per unit. The
public offering price for units offered in the United States is payable in US
dollars and the public offering price for units offered in Canada is payable in
Canadian dollars at an exchange rate of CDN$1 equals US$1.
We are conducting a self-underwritten offering in the United
States. This Prospectus is part of a prospectus that permits Christopher Bunka,
our President and CEO, Bal Bhullar, our CFO, and David DeMartini, our director,
to sell the shares directly to the public in the United States, with no
commission or other remuneration payable to them. There are no definitive plans
or arrangements to enter into any contracts or agreements to sell the shares
with a broker or dealer in the United States. Christopher Bunka, our President
and CEO, Bal Bhullar, our CFO, and David DeMartini, our director, will sell the
shares and intends to offer them to friends, family members, acquaintances, and
business associates. In offering the securities on our behalf, they will rely on
the safe harbor from broker dealer registration set out in Rule 3a4-1 under the
Securities Exchange Act of 1934.
Christopher Bunka, our President and CEO, Bal Bhullar, our CFO,
David DeMartini, our director, will not register as broker-dealers pursuant to
Section 15 of the Securities Exchange Act of 1934, in reliance upon Rule 3a4-1,
which sets forth those conditions under which a person associated with an issuer
may participate in the offering of the issuers securities and not be deemed to
be a broker-dealer.
1.
|
Christopher Bunka, Bal Bhullar, David DeMartini, are not
subject to a statutory disqualification, as that term is defined in
Section 3(a)(39) of the Act, at the time of their participation;
and,
|
|
|
2.
|
Christopher Bunka, Bal Bhullar, David DeMartini, will not
be compensated in connection with their participation by the payment of
commissions or other remuneration based either directly or indirectly on
transactions in securities; and
|
|
|
3.
|
Christopher Bunka, Bal Bhullar, David DeMartini, are not,
nor will they be at the time of participation in the offering, an
associated person of a broker-dealer; and
|
|
|
4.
|
Christopher Bunka, Bal Bhullar, David DeMartini, meet the
conditions of paragraph (a)(4)(ii) of Rule 3a4-1 of the Exchange Act, in
that they (A) primarily perform, or are intended primarily to perform at
the end of the offering, substantial duties for or on behalf of our
company, other than in connection with transactions in securities; and (B)
are not a broker or dealer, or been an associated person of a broker or
dealer, within the preceding twelve months; and (C) have not participated
in selling and offering securities for any issuer more than once every
twelve months other than in reliance on Paragraphs (a)(4)(i) or
(a)(4)(iii).
|
Our officers, directors, control persons and affiliates of same
do not intend to purchase any shares in this offering.
We will not use public solicitation or general advertising in
connection with the offering. We will use our best efforts to find purchasers
for the shares offered by this prospectus within a period of 60 days from the
date of the prospectus, subject to an extension for an additional period not to
exceed 120 days.
Resale of 295,000 previously issued common shares and
699,893 shares of common stock underlying previously issued warrants by Selling
Shareholders
Selling Shareholders are also offering 295,000 previously
issued common shares and 699,893 shares of common stock underlying previously
issued warrants, which may be resold from time to time by the Selling
Shareholders at prevailing market prices or privately negotiated prices. None of
our affiliates are selling their shares as part of this offering. These sales
may be at fixed or negotiated prices.
22
The Selling Shareholders may sell some or all of their
securities in one or more transactions, including block transactions:
|
on such public markets as the securities may be
trading;
|
|
in privately negotiated transactions;
|
|
in any combination of these methods of
distribution.
|
The sales price to the public may be:
|
the market price prevailing at the time of
sale;
|
|
a price related to such prevailing market price;
or
|
|
such other price as the Selling Shareholders
determine.
|
We are bearing all costs relating to the registration of
certain securities. The Selling Shareholders, however, will pay any commissions
or other fees payable to brokers or dealers in connection with any sale of
certain securities.
The Selling Shareholders must comply with the requirements of
the Securities Act and the Exchange Act in the offer and sale of certain
securities. In particular, during such times as the Selling Shareholders may be
deemed to be engaged in a distribution of certain securities, and therefore be
considered to be an underwriter, they must comply with applicable laws and may,
among other things:
|
not engage in any stabilization activities in connection
with our securities;
|
|
furnish each broker or dealer through which common stock
may be offered, such copies of this Prospectus, as amended from time to
time, as may be required by such broker or dealer; and
|
|
not bid for or purchase any of our securities or attempt
to induce any person to purchase any of our securities other than as
permitted under the Exchange Act.
|
Our common stock is quoted on the OTC Markets OTCQB, under the
trading symbol LXRP. The market for our stock is highly volatile. We cannot
assure you that there will be a market in the future for our common stock.
Trading in stocks quoted on the OTCQB is often thin and
characterized by wide fluctuations in trading prices, due to many factors that
may have little to do with a companys operations or business prospects. The
OTCQB should not be confused with the NASDAQ market. OTCQB companies are subject
to far fewer restrictions and regulations than are companies traded on the
NASDAQ market. Moreover, the OTCQB is not a stock exchange, and trading of
securities on the OTCQB is often more sporadic than the trading of securities
listed on the NASDAQ market or other stock exchange. In the absence of an active
trading market: (a) investors may have difficulty buying and selling or
obtaining market quotations; (b) market visibility for our common stock may be
limited; and (c) a lack of visibility for our common stock may have a depressive
effect on the market price for our common stock.
None of the Selling Shareholders will engage in any electronic
offer, sale or distribution of the shares. Further, neither we nor any of the
Selling Shareholders have any arrangements with a third party to host or access
our Prospectus on the Internet.
In the event of the transfer by any selling stockholder of his
or her shares to any pledgee, donee or other transferee, we will amend this
prospectus and the registration statement of which this prospectus forms a part
by the filing of a post-effective amendment in order to have the pledgee, donee
or other transferee in place of the selling stockholder who has transferred his
or her shares.
In effecting sales, brokers and dealers engaged by the Selling
Shareholders may arrange for other brokers or dealers to participate. Brokers or
dealers may receive commissions or discounts from the Selling Shareholders or,
if any of the broker-dealers act as an agent for the purchaser of such shares,
from the purchaser in amounts to be negotiated which are not expected to exceed
those customary in the
types of transactions involved. Broker-dealers may agree with the Selling Shareholders to sell a specified number of the shares of common stock at a stipulated price per share. Such an agreement may also require the broker-dealer to purchase as
principal any unsold shares of common stock at the price required to fulfill the broker-dealer commitment to the Selling Shareholders if such broker-dealer is unable to sell the shares on behalf of the Selling Shareholders. Broker-dealers who
acquire shares of common stock as principal may thereafter resell the shares of common stock from time to time in transactions which may involve block transactions and sales to and through other broker-dealers, including transactions of the nature
described above. Such sales by a broker-dealer could be at prices and on terms then prevailing at the time of sale, at prices related to the then-current market price or in negotiated transactions. In connection with such re-sales, the broker-dealer
may pay to or receive from the purchasers of the shares, commissions as described above.
23
The Selling Shareholders and any broker-dealers or agents that participate with the Selling Shareholders in the sale of the shares of common stock may be deemed to be “underwriters” within the meaning of the Securities Act in connection
with these sales. In that event, any commissions received by the broker-dealers or agents and any profit on the resale of the shares of common stock purchased by them may be deemed to be underwriting commissions or discounts under the Securities
Act.
From time to time, the Selling Shareholders may pledge their shares of common stock pursuant to the margin provisions of their customer agreements with their brokers. Upon a default by a selling stockholder, the broker may offer and sell the pledged
shares of common stock from time to time. Upon a sale of the shares of common stock, the Selling Shareholders intend to comply with the prospectus delivery requirements, under the Securities Act, by delivering a prospectus to each purchaser in the
transaction. We intend to file any amendments or other necessary documents in compliance with the Securities Act which may be required in the event any selling stockholder defaults under any customer agreement with brokers.
To the extent required under the Securities Act, a post effective amendment to this registration statement will be filed, disclosing, the name of any broker-dealers, the number of shares of common stock involved, the price at which the common stock
is to be sold, the commissions paid or discounts or concessions allowed to such broker-dealers, where applicable, that such broker-dealers did not conduct any investigation to verify the information set out or incorporated by reference in this
prospectus and other facts material to the transaction.
We and the Selling Shareholders will be subject to applicable provisions of the Exchange Act and the rules and regulations under it, including, without limitation, Rule 10b-5 and, insofar as the Selling Shareholders are distribution participants and
we, under certain circumstances, may be a distribution participant, under Regulation M. All of the foregoing may affect the marketability of the common stock.
All expenses of the registration statement including, but not limited to, legal, accounting, printing and mailing fees are and will be borne by us. Any commissions, discounts or other fees payable to brokers or dealers in connection with any sale of
the shares of common stock will be borne by the Selling Shareholders, the purchasers participating in such transaction, or both.
Regulation M
During such time as the selling security holders may be engaged in a distribution of any of the securities being registered by this Prospectus, the selling security holders are required to comply with Regulation M under the Exchange Act. In general,
Regulation M precludes any selling security holder, any affiliated purchaser and any broker-dealer or other person who participates in a distribution from bidding for or purchasing, or attempting to induce any person to bid for or purchase, any
security that is the subject of the distribution until the entire distribution is complete.
Regulation M defines a “distribution” as an offering of securities that is distinguished from ordinary trading activities by the magnitude of the offering and the presence of special selling efforts and selling methods.
24
Regulation M also defines a distribution participant as an
underwriter, prospective underwriter, broker, dealer, or other person who has
agreed to participate or who is participating in a distribution.
Regulation M prohibits, with certain exceptions, participants
in a distribution from bidding for or purchasing, for an account in which the
participant has a beneficial interest, any of the securities that are the
subject of the distribution. Regulation M also governs bids and purchases made
in order to stabilize the price of a security in connection with a distribution
of the security. We have informed the selling security holders that the
anti-manipulation provisions of Regulation M may apply to the sales of their
shares offered by this Prospectus, and we have also advised the selling security
holders of the requirements for delivery of this Prospectus in connection with
any sales of the shares offered by this Prospectus.
With regard to short sales, the selling security holders cannot
cover their short sales with securities from this offering. In addition, if a
short sale is deemed to be a stabilizing activity, then the selling security
holders will not be permitted to engage in such an activity. All of these
limitations may affect the marketability of our common stock.
Penny Stock Rules
The SEC has adopted rules that regulate broker-dealer practices
in connection with transactions in penny stocks. Penny stocks are generally
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges, provided that current price
and volume information with respect to transactions in such securities is
provided by the exchange or system).
The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from those rules, to deliver a
standardized risk disclosure document prepared by the SEC which:
-
contains a description of the nature and level of risk in the market for
penny stocks in both public offerings and secondary trading;
-
contains a description of the brokers or dealers duties to the customer
and of the rights and remedies available to the customer with respect to
violations of such duties or other requirements of federal securities laws;
-
contains a brief, clear, narrative description of a dealer market,
including "bid" and "ask" prices for penny stocks and the significance of the
spread between the bid and ask prices;
-
contains the toll-free telephone number for inquiries on disciplinary
actions;
-
defines significant terms in the disclosure document or in the conduct of
trading in penny stocks; and
-
contains such other information, and is in such form (including language,
type size, and format) as the SEC shall require by rule or regulation.
Prior to effecting any transaction in a penny stock, a
broker-dealer must also provide a customer with:
-
the bid and ask prices for the penny stock;
-
the number of shares to which such bid and ask prices apply, or other
comparable information relating to the depth and liquidity of the market for
such stock;
-
the amount and a description of any compensation that the broker-dealer
and its associated salesperson will receive in connection with the
transaction; and
-
a monthly account statement indicating the market value of each penny stock held in the customers account.
25
In addition, the penny stock rules require that prior to effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for
the purchaser and receive (i) the purchasers written acknowledgment of the receipt of a risk disclosure statement, (ii) a written agreement to transactions involving penny stocks, and (iii) a signed and dated copy of a written suitability
statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our securities, and therefore our stockholders may have difficulty selling their shares.
Blue Sky Restrictions on Resale
When a selling security holder wants to sell shares of our common stock under this Prospectus in the United States, the selling security holder will need to comply with state securities laws, also known as “blue sky laws,” with regard to
secondary sales. All states offer a variety of exemptions from registration of secondary sales. Many states, for example, have an exemption for secondary trading of securities registered under section 12(g) of the Exchange Act or for securities of
issuers that publish continuous disclosure of financial and non-financial information in a recognized securities manual, such as Standard & Poor’s. The broker for a selling security holder will be able to advise the stockholder as to which
states have an exemption for secondary sales of our common stock.
Any person who purchases shares of our common stock from a selling security holder pursuant to this Prospectus, and who subsequently wants to resell such shares will also have to comply with blue sky laws regarding secondary sales.
When this Prospectus becomes effective, and a selling security holder indicates in which state(s) he desires to sell his shares, we will be able to identify whether he will need to register or may rely on an exemption from registration.
Agent for Canadian Offering
We intend to enter into an agency agreement with Leede Financial Markets Inc., to act as the lead agent of our offering in Canada. Leede will not offer or sell securities in the United States or to any “U.S. person” within the meaning of
Regulation S (“Regulation S”) under the Securities Act. Leede is a registered and licensed dealer in Canada and is subject to Canadian dealer requirements in connection with the offering. Offers of our units in the United States will be
made only through our management, as described above. This offering is made on a reasonable commercial efforts basis. This means that the agent has not committed to buy any of our units, but shall use its reasonable commercial efforts to sell our
units for us in Canada.
As consideration for its services, Leede will receive: (i) a commission equal to 8% of the gross proceeds of the offering; (ii) compensation options entitling Leede to purchase that number of units equal to 8% of the aggregate number units sold
under the offering, each compensation option exerciseable at a price equal to the offering price per unit, for a period of 12 months from the closing date; and (iii) a corporate finance fee of CDN $38,000, of which CDN $19,000 has been paid
and is non-refundable. Leede will also be reimbursed for its reasonable fees and expenses including the reasonable legal fees and disbursements of legal counsel to the agents.
The closing of the offering shall occur at the offices of Macdonald Tuskey, our Canadian counsel, in Vancouver, British Columbia, Canada as soon as practicable. At the closing, a book-entry only certificate representing the shares of common stock
and the common stock purchase warrants will be issued in registered form to CDS Clearing and Depository Services Inc. or its nominee and will be deposited with CDS Clearing and Depository Services Inc. on Closing. A
purchaser of the units will receive only a customer confirmation from the
registered dealer that is a CDS participant and from or through which the units
are purchased.
26
The obligations of the agent under the agency agreement may be
terminated by the agent in its own discretion on the basis of its assessment of
the state of the financial markets and may also be terminated in certain stated
circumstances and upon the occurrence of certain stated events.
The agent conditionally offers the units, subject to prior
sale, if, as and when issued by us and accepted by the agent in accordance with
the conditions contained in the agency agreement and subject to the approval of
certain legal matters, on behalf of counsel to both us and the agent. While the
agent will solicit expressions of interest and arrange for subscriptions for
units prior to closing, the agent will not advance proceeds to us prior to
closing. Subscriptions for the common stock and warrants constituting the units
will be received subject to rejection or allotment in whole or in part and the
right is reserved to close the subscription books at any time without notice.
We estimate that our total expenses of the offering, including
the reimbursement of all of the agents expenses inclusive all of the fees owed
by them to their legal counsel, excluding commissions, will be approximately
$150,000 and are payable by us. We will pay all these expenses from the proceeds
of the offering.
Description of Securities to be Registered
Our authorized capital stock consists of 200,000,000 shares of
common stock, $0.001 par value, and no authorized shares of preferred stock.
Common Stock
As of March 13, 2012 we had 16,431,452 shares of our common
stock, options to acquire 1,740,000 shares of our common stock and warrants to
acquire 2,471,322 shares of our common issued and outstanding.
Holders of our common stock have no preemptive rights to
purchase additional shares of common stock or other subscription rights. Our
common stock carries no conversion rights and is not subject to redemption or to
any sinking fund provisions. All shares of our common stock are entitled to
share equally in dividends from sources legally available, when, as and if
declared by our Board of Directors, and upon our liquidation or dissolution,
whether voluntary or involuntary, to share equally in our assets available for
distribution to our stockholders.
Our Board of Directors is authorized to issue additional shares
of our common stock not to exceed the amount authorized by our Articles of
Incorporation, on such terms and conditions and for such consideration as our
Board may deem appropriate without further security holder action.
Voting Rights
Each holder of our common stock is entitled to one vote per
share on all matters on which such stockholders are entitled to vote. Since the
shares of our common stock do not have cumulative voting rights, the holders of
more than 50% of the shares voting for the election of directors can elect all
the directors if they choose to do so and, in such event, the holders of the
remaining shares will not be able to elect any person to our Board of
Directors.
27
Dividend Policy
Holders of our common stock are entitled to dividends if
declared by the Board of Directors out of funds legally available for payment of
dividends. From our inception to March 13, 2012, we did not declare any
dividends.
We do not intend to issue any cash dividends in the future. We
intend to retain earnings, if any, to finance the development and expansion of
our business. However, it is possible that our management may decide to declare
a cash or stock dividend in the future. Our future dividend policy will be
subject to the discretion of our Board of Directors and will be contingent upon
future earnings, if any, our financial condition, our capital requirements,
general business conditions and other factors.
Common Stock Purchase Warrants
Each unit of common stock offered hereby consists of one common
share and one warrant to purchase another common share at $0.40 per share for a
period of one year (the Warrants). The Warrants will be created and issued
pursuant to the terms of a warrant indenture (the Warrant Indenture
)
dated the date of the closing of the Offering between us and Olympia Trust
Company (the
Warrant Agent
)
,
as warrant agent
thereunder.
Warrants may be exercised upon surrender of the Warrant
certificate on or before the period of one year passes, at the principal office
of the Warrant Agent, with the notice of exercise found annexed to the Warrant
Indenture completed and executed as indicated, accompanied by payment of the
exercise price for the number of common shares for which the Warrants are being
exercised.
Under the Warrant Indenture, we will be entitled to purchase in
the market, by private contract or otherwise, all or any of the Warrants then
outstanding and any Warrants so purchased will be cancelled. Under the Warrant
Indenture, we will have the ability to issue further common share purchase
warrants, in addition to the Warrants already outstanding and those to be issued
pursuant to this offering, without consent of the holders of the Warrants.
The Warrant Indenture will provide for adjustment in the number
of common shares issuable upon the exercise of the Warrants and/or the exercise
price per common share upon the occurrence of certain events, including:
-
the issuance of common shares or securities exchangeable for or
convertible into common shares to all or substantially all of the holders of
the common shares as a stock dividend or other distribution;
-
the subdivision, redivision or change of the common shares into a greater
number of shares;
-
the reduction, combination or consolidation of the common shares into a
lesser number of shares;
-
the issuance to all or substantially all of the holders of the common
shares of rights, options or warrants under which such holders are entitled,
during a period expiring not more than 45 days after the record date for such
issuance, to subscribe for or purchase common shares, or securities
exchangeable for or convertible into common shares, at a price per share to
the holder (or at an exchange or conversion price per share) of less than 95%
of the "current market price", as defined in the Warrant Indenture, for the
common shares on such record date; and
-
the issuance or distribution to all or substantially all of the holders of
the common shares of shares of any class other than the common shares, rights,
options or warrants to acquire common shares or securities exchangeable or
convertible into common shares, evidences of indebtedness or cash, securities
or any property or other assets.
28
The Warrant Indenture will provide for adjustment in the class
and/or number of securities issuable upon the exercise of the Warrants and/or
exercise price per security in the event of the following additional events: (i)
reclassifications of the common shares; (ii) consolidations, amalgamations,
plans of arrangement or mergers of the Corporation with or into another entity
(other than consolidations, amalgamations, plans of arrangement or mergers that
do not result in any reclassification of the common shares or a change of the
common shares into other shares); or (iii) the transfer (other than to one of
our subsidiaries) of our undertaking or assets as an entirety or substantially
as an entirety to another corporation or other entity. No adjustment in the
exercise price or the number of common shares issuable upon the exercise of a
Warrant will be required to be made unless the cumulative effect of such
adjustment or adjustments would change the exercise price by at least 1% or the
number of common shares issuable upon exercise of a Warrant by at least 0.1 of a
common share.
We will also covenant in the Warrant Indenture that, during the
period in which the Warrants are exercisable, it will give notice to the holders
of Warrants of certain stated events, including events that would result in the
adjustment to the exercise price for the Warrants or the number of common shares
issuable upon exercise of the Warrants, at least 21 days prior to the record
date or effective date, as the case may be, of such event.
No fractional common shares will be issuable to any holder of
Warrants upon the exercise thereof, and no cash or other consideration will be
paid in lieu of fractional shares. Holders of Warrants do not have any voting or
pre-emptive rights or any other rights of a holder of common shares.
From time to time, the Warrant Agent and our company, without
the consent of the holders of Warrants, may amend or supplement the Warrant
Indenture for certain purposes, including curing defects or inconsistencies or
making any change that does not adversely affect the rights of any holder of
Warrants. Any amendment or supplement to the Warrant Indenture that adversely
affects the interest of the holders of the Warrants may only be made by
"extraordinary resolution", which is defined in the Warrant Indenture as a
resolution either: (i) passed at a meeting of the holders of Warrants at which
there are holders of Warrants present in person or represented by proxy
representing at least 25% of the aggregate number of the then outstanding
Warrants and passed by the affirmative vote of holders of Warrants representing
not less than two-thirds of the aggregate number of all the then outstanding
Warrants represented at the meeting and voted on the poll upon such resolution;
or (ii) adopted by an instrument in writing signed by the holders or Warrants
representing not less than two-thirds of the number of all the then outstanding
Warrants.
Legal Matters
Macdonald Tuskey, of 570 Granville Street, 4
th
Floor, Vancouver, British Columbia, V6C 3P1, Canada has provided an
opinion on the validity of the shares of our common stock being offered pursuant
to this prospectus.
Interests of Named Experts and Counsel
No expert or counsel named in this Prospectus as having
prepared or certified any part thereof or having given an opinion upon the
validity of the securities being registered or upon other legal matters in
connection with the registration or offering of our common stock was employed on
a contingency basis or had or is to receive, in connection with the offering, a
substantial interest, directly or indirectly, in us. Additionally, no such
expert or counsel was connected with us as a promoter, managing or principal
underwriter, voting trustee, director, officer or employee.
29
Experts
Our audited financial statements for the years ended October
31, 2011 and October 31, 2010 have been included in this Prospectus in reliance
upon MNP LLP and Chang Lee LLP, respectively, independent registered public
accounting firms, as experts in accounting and auditing.
Description of Business
Forward-Looking Statements
This Prospectus contains forward-looking statements. To the
extent that any statements made in this report contain information that is not
historical, these statements are essentially forward-looking. Forward-looking
statements can be identified by the use of words such as expects, plans,
will, may, anticipates, believes, should, intends, estimates and
other words of similar meaning. These statements are subject to risks and
uncertainties that cannot be predicted or quantified and, consequently, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Such risks and uncertainties include, without
limitation, our ability to raise additional capital to finance our activities;
the effectiveness, profitability and marketability of our products; legal and
regulatory risks associated with the share exchange; the future trading of our
common stock; our ability to operate as a public company; our ability to protect
our intellectual property; general economic and business conditions; the
volatility of our operating results and financial condition; our ability to
attract or retain qualified personnel; and other risks detailed from time to
time in our filings with the SEC, or otherwise.
Information regarding market and industry statistics contained
in this report is included based on information available to us that we believe
is accurate. It is generally based on industry and other publications that are
not produced for the purposes of securities offerings or economic analysis.
Forecasts and other forward-looking information obtained from these sources are
subject to the same qualifications outlined above and the additional
uncertainties accompanying any estimates of future market size, revenue and
market acceptance of products and services. We do not undertake any obligation
to publicly update any forward-looking statements.
Overview
We were incorporated in the State of Nevada on December 9,
2004. We are an exploration and development oil and gas company currently
engaged in the exploration for and development of petroleum and natural gas in
North America. We maintain our registered agents office and our U.S. business
office at Nevada Agency and Transfer Company, 50 West Liberty, Suite 880, Reno,
Nevada 89501. Our telephone number is (755) 322-0626.
The address of our principal executive office is Suite 950,
1130 West Pender Street, Vancouver, British Columbia V6E 4A4. Our telephone
number is (604) 602-1675. We have another office located in Kelowna. Our current
locations provide adequate office space for our purposes at this stage of our
development.
Our common stock is quoted on the OTCQB under the symbol "LXRP"
and on the Canadian National Stock Exchange under the symbol LXX.
We are currently generating revenues from our business
operations in Mississippi. Our business plan is to focus on development of the
Belmont Lake oil field, in which we have working interests, in order to maximize
cash flow and use excess cash flow to pay debt and conduct additional
development well drilling. Eventually, if cash flows are strong enough, we
anticipate that we will once again be able to explore for additional oil and gas
by way of our existing 60% interest option to drill 38 exploratory wells (see
Oil & Gas Properties - Mississippi and Louisiana: Frio-Wilcox Project). To
accomplish this, we intend to focus on development drilling first. Eventually we
plan to seek a balance between exploration, development and exploitation
drilling. To achieve sustainable and profitable growth, we intend to control
the timing and costs of its projects wherever possible. We are
not currently the operator of any of our properties.
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Current Business Operations
We have acquired working interests in various oil and gas
properties in Mississippi USA. All of our current oil and gas assets are located
in Wilkinson and Amite counties, Mississippi, where we have between 32% and 60%
gross working interests in producing oil and/or gas wells and in exploration
wells yet to be drilled. Our Belmont Lake oil field, discovered in December
2006, is located within the Palmetto Point area of Wilkinson County,
Mississippi. We previously had an interest in oil and gas wells located in
Oklahoma but those assets were sold in August 2008. We had a nominal interest in
a non-commercial well located in Strachan Alberta which expired in fiscal year
2010.
Our business plan is to focus on development of the Belmont
Lake oil field, in which we have working interests, in order to maximize cash
flow and use excess cash flow to pay debt and conduct additional development
well drilling.
During the past fiscal year we experienced the following
significant corporate developments:
1.
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On November 16, 2010, we settled the debt incurred as a
result of a consulting agreement, in the amount of $9,376, to Mr. Tom
Ihrke by issuing 40,761 restricted shares of common stock of our company
at a price of $0.23 per share.
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2.
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On November 30, 2010, we closed the first tranche of a
private placement offering of convertible debentures in the aggregate
amount of $450,000. The convertible debentures mature on November 30,
2012, subject to forced conversion as set out in the convertible debenture
certificate. The convertible debentures pay an interest rate of 12% per
annum (on a simple basis) and are convertible at $0.35 per unit. Each unit
is comprised of one share of our common stock and one share purchase
warrant. Each warrant entitles the holder thereof to purchase one share of
common stock at a price of $0.40 per share from the earlier of the
maturity date of the convertible debenture or one year from conversion of
the convertible debenture. We also entered into a general security
agreement with the subscribers, whereby the obligations to repay the
convertible debenture are secured by certain of our assets.
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3.
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On December 16, 2010, we closed the second tranche of a
private placement offering of convertible debentures in the aggregate
amount of $170,000. The convertible debentures mature on November 30,
2012, subject to forced conversion as set out in the convertible debenture
certificate. The convertible debentures pay an interest rate of 12% per
annum (on a simple basis) and are convertible at $0.35 per unit. Each unit
is comprised of one share of our common stock and one share purchase
warrant. Each warrant entitles the holder thereof to purchase one share of
common stock at a price of $0.40 per share from the earlier of the
maturity date of the convertible debenture or one year from conversion of
the convertible debenture. We also entered into a general security
agreement with the subscribers, whereby the obligations to repay the
convertible debenture are secured by certain of our assets.
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4.
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On December 16, 2010, we entered into an assignment
agreement with Emerald Atlantic LLC, a company solely owned by a director
of our company (the Assignee), whereby the Assignee has paid a fee of
$30,076 to earn 18% of a 4.423% share of our companys net revenue
interest after field operating expenses for a well to be drilled in
Wilkinson County.
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5.
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On January 4, 2011, 132,600 warrants were exercised and
we issued 66,300 shares of common stock of our company at an exercise
price of CAD$0.22 per share for total proceeds of CAD$14,586. Of the
132,600 warrants exercised, 100,000 warrants were exercised by a director
of our company.
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6.
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On March 6, 2011, we accepted and received gross proceeds
of $21,250 for the exercise of 106,250 stock options by a director of our
company at an exercise price of $0.20 per stock option into 106,250 shares
of our common stock.
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7.
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On June 8, 2011, 1,500,000 warrants were exercised and we
issued 1,500,000 shares of our common stock at an exercise price of $0.20
per share for total proceeds of $300,000. The warrants were exercised by a
director of our company.
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8.
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On June 28, 2011, 500,000 warrants were exercised and we
issued 500,000 shares of our common stock at an exercise price of $0.20
per share for total proceeds of $100,000. The warrants were exercised by a
director of our company.
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9.
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On October 27, 2008, we made a secured loan agreement in
the amount of CAD$300,000 with CAB Financial. On July 10, 2009, $40,000 of
the debt was converted to equity. On October 21, 2010, we settled a
portion of the debt in the amount of CAD $1,625 with CAB Financial by
converting 65,000 warrants into 32,500 shares of our common stock pursuant
to a Purchase Agreement dated October 27, 2008 at a price of CAD$0.05 per
share. On June 28, 2011, we paid down CAD$100,000 of the debt.
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10.
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On July 11, 2011, we granted 700,000 stock options to
directors and officers of our company at an exercise price of $0.35 per
share, which options vest immediately and expire on July 11,
2016.
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11.
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On July 13, 2011, 173,043 warrants were exercised and we
issued 173,043 shares of our common stock at a price of $0.20 per share
for total proceeds of $34,608.
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12.
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On July 13, 2011, we completed an equity financing and
issued 200,000 units at $0.35 per unit, for gross proceeds of $70,000.
Each unit consists of one share of common stock and one share purchase
warrant which entitles a holder to purchase an additional share of common
stock at an exercise price of $0.50 per share for a period of two years.
All shares and warrants issued were restricted under applicable securities
rules.
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13.
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On July 15, 2011, we accepted and received gross proceeds
of $23,750 for the exercise of 118,750 stock options at an exercise price
of $0.20 per stock option and issued 118,750 shares of common stock of our
company. All of the stock options were exercised by directors and/or
officers of our company.
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14.
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We entered into an Asset Purchase Agreement dated August
12, 2011, with Brinx Resources Ltd. to acquire 100% of its 10% gross
working interest in the oil and gas interests located in Mississippi, USA.
We agreed to pay a total of $400,000 and issue 800,000 shares of our
common stock at a deemed price of at $0.34 per
share.
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We plan to continue our current business of acquiring interests in potentially high-impact oil and gas property interests that offer a high probability of being able to drill without significant time delays.
We do not anticipate that we will hire a large number of employees or that we will require extensive office space. We have to date, and plan to continue, to acquire most of the industry and geological expertise we require through third party
contractual relationships with consulting experts and with operating companies which will act as operators of our various interests. Although this exposes us to certain risks on behalf of those operators, it also allows us to participate in the
often unique experience and knowledge that local persons have related to certain properties. This strategy allows us to participate in a wider variety of oil and gas opportunities than if all of its geological expertise were in-house and confined to
a single geographical area. From a business operations perspective, this strategy also enables us to minimize our ongoing fixed in-house costs for geological or geophysical analytical expenses while still allowing it to contract for that expertise
when and as needed. This business strategy has been successful during a time of declining oil and gas prices, when many companies with high internal overheads and cost structures due to large numbers of highly expensive in-house professionals cannot
be sustained due to declining revenues. We will hire third-party consulting geophysicists and geologists on an as-needed basis to evaluate oil and gas properties that may be of interest, and to reinforce and double-check the technical work and
abilities of its third-party operators. This provides us with the required expertise we need, when it is needed, whilst avoiding high fixed long-term costs.
Competition
The oil and gas industry is highly competitive. We are a new exploration stage company and have a weak competitive position in the industry. We compete with junior and senior oil and gas companies, independent producers and institutional and
individual investors who are actively seeking to acquire oil and gas properties throughout the world together with the equipment, labor and materials required to operate on those properties. Competition for the acquisition of oil and gas interests
is intense with many oil and gas leases or concessions available in a competitive bidding process in which we may lack the technological information or expertise available to other bidders.
Many of the oil and gas companies with which we compete for financing and for the acquisition of oil and gas properties have greater financial and technical resources than those available to us. Accordingly, these competitors may be able to spend
greater amounts on acquiring oil and gas interests of merit or on exploring or developing their oil and gas properties. This advantage could enable our competitors to acquire oil and gas properties of greater quality and interest to prospective
investors who may choose to finance their additional exploration and development. Such competition could adversely impact our ability to attain the financing necessary for us to acquire further oil and gas interests or explore and develop our
current or future oil and gas properties.
We also compete with other junior oil and gas companies for financing from a limited number of investors that are prepared to invest in such companies. The presence of competing junior oil and gas companies may impact our ability to raise additional
capital in order to fund our acquisition or exploration programs if investors perceive that investments in our competitors are more attractive based on the merit of their oil and gas properties or the price of the investment opportunity. In
addition, we compete with both junior and senior oil and gas companies for available resources, including, but not limited to, professional geologists, land specialists, engineers, camp staff, helicopters, float planes, oil and gas exploration
supplies and drill rigs.
General competitive conditions may be substantially affected by various forms of energy legislation and/or regulation introduced from time to time by the governments of the United States and other countries, as well as factors beyond our control,
including international political conditions, overall levels of supply and demand for oil and gas, and the markets for synthetic fuels and alternative energy sources.
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In the face of competition, we may not be successful in
acquiring, exploring or developing profitable oil and gas properties or
interests, and we cannot give any assurance that suitable oil and gas properties
or interests will be available for our acquisition, exploration or development.
Despite this, we hope to compete successfully in the oil and gas industry
by:
-
keeping our costs low;
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relying on the strength of our managements contacts; and
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using our size and experience to our advantage by adapting quickly to
changing market conditions or responding swiftly to potential opportunities.
Compliance with Government Regulation
Our current and future operations and exploration activities
are or will be subject to various laws and regulations in the United. These laws
and regulations govern the protection of the environment, conservation,
prospecting, development, energy production, taxes, labor standards,
occupational health and safety, toxic substances, chemical products and
materials, waste management and other matters relating to the oil and gas
industry. Permits, registrations or other authorizations may also be required to
maintain our operations and to carry out our future oil and gas exploration and
production activities, and these permits, registrations or authorizations will
be subject to revocation, modification and renewal.
Governmental authorities have the power to enforce compliance
with lease conditions, regulatory requirements and the provisions of required
permits, registrations or other authorizations, and violators may be subject to
civil and criminal penalties including fines, injunctions, or both. The failure
to obtain or maintain a required permit may also result in the imposition of
civil and criminal penalties, and third parties may have the right to sue to
enforce compliance.
We expect to be able to comply with all applicable laws and
regulations and do not believe that such compliance will have a material adverse
effect on our competitive position. We have obtained and intend to obtain all
environmental permits, licenses and approvals required by all applicable
regulatory agencies to maintain our current oil and gas operations and to carry
out our future exploration activities. We are not aware of any material
violations of environmental permits, licenses or approvals issued with respect
to our operations, and we believe that the operators of the properties in which
we have an interest comply with all applicable laws and regulations. We intend
to continue complying with all environmental laws and regulations, and at this
time we do not anticipate incurring any material capital expenditures to do
so.
Compliance with environmental requirements, including financial
assurance requirements and the costs associated with the cleanup of any spill,
could have a material adverse effect on our capital expenditures, earnings or
competitive position. Our failure to comply with any laws and regulations may
result in the assessment of administrative, civil and criminal penalties, the
imposition of injunctive relief, or both. Legislation affecting the oil and gas
industry is subject to constant review, and the regulatory burden frequently
increases. Changes in any of the laws and regulations could have a material
adverse effect on our business, and in view of the many uncertainties
surrounding current and future laws and regulations, including their
applicability to our operations, we cannot predict their overall effect on our
business.
U.S. Regulations
Such regulation covers permits required for drilling wells;
bonding requirements for drilling or operating wells; the implementation of
spill prevention plans; submissions and permits relating to the presence, use
and release of certain materials incidental to oil and gas operations; the
location of wells; the method of drilling and casing wells; the use,
transportation, storage and disposal of fluids and materials used in connection
with drilling and production activities; surface usage and the restoration of
properties upon
which wells have been drilled; the plugging and abandoning of wells; and the transportation of oil and gas.
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Our operations are or will also be subject to various conservation matters, including the regulation of the size of drilling and spacing units or proration units, the number of wells which may be drilled in a unit, and the unitization or pooling of
oil and gas properties. In this regard, some states allow forced pooling or the integration of tracts to facilitate exploration while other states rely on the voluntary pooling of lands and leases, which may make it more difficult to develop oil and
gas properties. In addition, state conservation laws establish maximum rates of production from oil and gas wells, generally limit the venting or flaring of gas and impose certain requirements regarding the ratable purchase of produced oil and gas.
The effect of these regulations is to limit the amounts of oil and gas we may be able to produce from our wells and to limit the number of wells or the locations at which we may be able to drill.
Oil and natural gas exploration and production activities on federal lands are subject to the
National Environmental Policy Act
(NEPA). The NEPA requires federal agencies, including the Department of the Interior, to evaluate major agency
actions that have the potential to significantly impact the environment. In the course of such evaluations, an agency will typically prepare an environmental assessment on the potential direct, indirect and cumulative impacts of a proposed project
and, if necessary, will prepare a more detailed environmental impact statement that may be made available for public review and comment. This process has the potential to delay or limit the development of oil and natural gas projects.
The
Resource Conservation and Recovery Act
(RCRA) and comparable state laws regulate the generation, transportation, treatment, storage, disposal and cleanup of “hazardous wastes” as well as the disposal of non-hazardous wastes.
Under the auspices of the U.S. Environmental Protection Agency, or EPA, individual states administer some or all of the provisions of RCRA, sometimes in conjunction with their own, more stringent requirements. While drilling fluids, produced waters,
and many other wastes associated with the exploration, development, and production of crude oil, natural gas, or geothermal energy constitute “solid wastes”, which are regulated under the less stringent non-hazardous waste provisions,
there is no assurance that the EPA or individual states will not in the future adopt more stringent and costly requirements for the handling of non-hazardous wastes or categorize some non-hazardous wastes as hazardous.
The
Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA), also known as “Superfund”, and analogous state laws, impose joint and several liability, without regard to fault or legality of conduct, on persons
who are considered to be responsible for the release of a “hazardous substance” into the environment. These persons include the owner or operator of the site where the release occurred and any company that disposed or arranged for the
disposal of the hazardous substance at the site. Under CERCLA, such persons may be liable for the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources and for the costs of
certain health studies. In addition, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances into the environment.
The
Water Pollution Control Act
, also known as the Clean Water Act, and analogous state laws, impose restrictions and strict controls on the discharge of pollutants, including produced waters and other oil and natural gas wastes, into waters
of the United States. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the EPA or the relevant state. The Clean Water Act also prohibits the discharge of dredge and fill
material into regulated waters, including wetlands, unless authorized by a permit issued by the U.S. Army Corps of Engineers. Federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with
discharge permits or other requirements of the Clean Water Act and analogous state laws and regulations.
The
Clean Air Act
and associated state laws and regulations regulate emissions of various air pollutants through the issuance of permits and the imposition of other requirements. In addition, the EPA has
developed, and continues to develop, stringent regulations governing emissions of toxic air pollutants at specified sources. In order to construct production facilities, we may be required to obtain permits before work can begin. These regulations
may increase the costs of compliance for such facilities, and federal and state regulatory agencies may impose administrative, civil and criminal penalties for non-compliance.
35
We may be subject to the requirements of the
Occupational Safety and Health Act
(OSHA) and comparable state statutes. The OSHA hazard communication standard, the EPA community right-to-know regulations under Title III of CERCLA, and similar
state statutes require that we organize and/or disclose information about hazardous materials used or produced in our operations.
We believe that we are currently in compliance with the statutory and regulatory provisions governing our operations. We hold or will hold all necessary permits and other authorizations to the extent required by our current or future properties or
interest and their associated operations. However, we may do business and own properties in a number of different geographic areas and may therefore be subject to the jurisdiction of a large number of different authorities at different levels of
government. We plan to comply with all statutory and regulatory provisions governing our current and future operations; however, such regulations may significantly increase our costs of compliance, and regulatory authorities may also impose
administrative, civil and criminal penalties for non-compliance. At this time, it is not possible to accurately estimate how laws or regulations may impact our future business. We also cannot give any assurance that we will be able to comply with
future changes in any statutes or regulations.
We own or may own interests in properties that have been used for oil and gas exploration in the past. Although industry-standard operating and waste disposal practices may have been used, hazardous substances, wastes, or petroleum hydrocarbons may
have been released on or under the properties, or on or under other locations, including off-site locations, where such substances have been taken for disposal. In addition, some of these properties may have been or may be operated by third parties
or by previous owners or operators whose treatment and disposal of hazardous substances, wastes, or hydrocarbons was not under our control. These properties and the substances disposed or released thereon may be subject to CERCLA, RCRA and analogous
state laws. Under such laws, we could be required to remove previously disposed substances and wastes, remediate contaminated property or perform remedial plugging or pit closure operations to prevent any future contamination.
Employees
We primarily used the services of sub-contractors and consultants for manual labor exploration work and drilling on our properties. Our Director, Mr. David DeMartini is our technical advisor.
We are party to a consulting agreement with BKB Management Ltd., a corporation organized under the laws of the Province in British Columbia. BKB Management Ltd. is a consulting company controlled by the chief financial officer and director for a
consideration of CAD $5,500 per month plus HST.
We are party to a consulting agreement with CAB Financial Services Ltd., a corporation organized under the laws of the Province of British Columbia. CAB Financial Services is a consulting company controlled by our director and CEO. The consulting
services provided by CAB Financial Services are on a continuing basis for a consideration of $8,000 per month plus HST. CAB Financial Services Ltd. may terminate the agreement at any time by giving 30 days written notice.
On August 6, 2010 we entered into a three month consulting agreement with Tom Ihrke to act as the Company’s Senior Vice President, Business Development for consideration of US$3,125 per month and 150,000 stock options granted at $0.20.
On December 2, 2010, we entered into a month to month management agreement with Tom Ihrke, where by Mr. Ihrke will continue to act as our Senior Vice-President Business Development. We will pay a monthly consulting fee of $3,125.
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We do not expect any material changes in the number of
employees over the next 12 month period. We do and will continue to outsource
contract employment as needed. However, with project advancement and if we are
successful in our initial and any subsequent drilling programs we may retain
additional employees.
Intellectual Property
We have not filed for any protection of our trademark, and
other than copyright in the contents of our website, www.lexariaenergy.com, we
do not own any intellectual property.
Research and Development
We did not incur any research and development expenses over the
last fiscal year.
Reports to Security Holders
We are subject to the reporting and other requirements of the
Exchange Act and we intend to furnish our shareholders annual reports containing
financial statements audited by our independent registered public accounting
firm and to make available quarterly reports containing unaudited financial
statements for each of the first three quarters of each year. We file Quarterly
Reports on Form 10-Q, Annual Reports on Form 10-K and Current Reports on Form
8-K with the Securities and Exchange Commission in order to meet our timely and
continuous disclosure requirements. We may also file additional documents with
the Commission if they become necessary in the course of our companys
operations.
The public may read and copy any materials that we file with
the SEC at the SECs Public Reference Room at 100 F Street, NE, Washington, D.C.
20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC. The address
of that site is www.sec.gov.
Description of Property
Executive Offices
The address of our principal executive office is Suite 950,
1130 West Pender Street, Vancouver, British Columbia, V6E 4A4, for which we
share 250 square feet of office space, which includes one executive office for a
monthly rental of CAD $1,337. Our telephone number is (604) 602-1675. We have an
additional office located in Kelowna, British Columbia, for which we share 1,500
square feet of office space, which includes two executive offices for a monthly
rental of CAD $600. Our current locations provide adequate office space for our
purposes at this stage of our development.
Resource Properties
We currently own a 42% gross working interest in 13 wells, and
with the exception of a 50% working interest in wells PP F-12-4 and PP F-12-5, a
55% gross working interest in 7 wells; and a 60% gross working interest in 43
wells (of which 38 remain to be drilled); all located in Mississippi under
various agreements with Griffin and Griffin Exploration, L.L.C. These properties
are grouped as the Palmetto Point Project and Frio-Wilcox Project.
The most significant of these wells are the producing oil wells
PP F-12-1, PP F-12-3, PP F-12-4, and PP F-12-5 located within the Belmont Lake
oil field which is located in the Palmetto Point region. The Belmont Lake oil
field is onshore, as are all of our wells, but located in a flood plain of the
Mississippi River
which forces seasonal constraints on certain field activities. We have an interest in one producing gas well, the PP F-29, but because the gas from this well is consumed by field operations it is deemed to be of no commercial value. Except for this
and the four oil wells noted immediately above, we have no other producing wells. Additional details of these interests are noted below and not all of these wells were successful.
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A description of our Palmetto Point Project and Frio-Wilcox Project follow.
Palmetto Point Project
On December 21, 2005, we agreed to purchase a 20% gross working and revenue interest in a 10 well drilling program in Palmetto Point, Mississippi owned by Griffin & Griffin Exploration (“Griffin”) for cash payments of $700,000,
comprised of $220,000 paid upon entering into the agreement and the remaining balance of $480,000 paid on January 17, 2006. We applied the full cost method to account for its oil and gas properties and as of July 31, 2009, seven wells were
found to be proved wells, and three wells were found impaired. One of the wells was impaired due to uneconomic life, and the other two wells were abandoned due to no apparent gas or oil shows present. The costs of impaired properties were added to
the capitalized cost in determination of the depletion expense. Palmetto Point is approximately 150 miles southwest of Jackson, Mississippi and approximately 50 miles north/northwest of Baton Rouge, Louisiana. It is 30 miles west of Woodville,
Mississippi off of State Highway 33 and is entirely within Wilkinson County.
There were no further costs to us in earning its interest in the 10 well drilling program, including well development costs or pipeline connections. Griffin has agreed that the leases held by it covering any mineral estate underlying the applicable
well site acreage shall not provide for more than twenty-five (25%) percent royalty and overriding royalty interest. Our net interest in any oil and gas produced is calculated by subtracting the applicable royalties from its 20% gross interest.
Consequently, our original net working interest in the drilling program was a minimum fifteen (15%) percent net working interest. Griffin conducted the drilling program in its capacity as Operator and receives a 15% carried interest.
One of these original 10 wells was the PP F-12-1 well, which was the discovery well of a field now known as the Belmont Lake field. All of these original 10 wells were targeting the Frio geological formation of the Cenozoic era and Oligocene series,
which is characterized in this region as a generally shallow, sandstone-rich layer. In this area of Mississippi, the Frio geologic formation is generally found between 2,000 and 4,500 foot depth from surface.
On September 22, 2006, we elected to participate in an additional two-well program in Palmetto Point, Mississippi owned by Griffin by paying an additional $140,000 (paid). We earned the same 20% gross interest in the two (2) additional wells (12
wells total and all drilled) and subsequently increased its gross interest to 32% in these 12 wells, or a net revenue interest of 20.802815% . As of July 31, 2009, the two wells were found to be proved wells.
On June 23, 2007, we acquired an assignment of a 10% gross working interest in the Palmetto Point wells described above from a third party for $520,000 which was payable by a secured loan. The $520,000 loan was valued at a Net Present Value
of $501,922, which is the capitalized amount. We calculated the net present value of the secured loan payable by applying 8% interest rate, which was based on a T-bill rate of 4.28% plus a risk premium.
On October 4, 2007, we elected to participate in the drilling of the PP F-12-3 well in Palmetto Point, Mississippi which was conducted by Griffin. This well was the second well drilled in the Belmont Lake oil field. We had a 30% gross working
interest and paid $266,348. On July 31, 2008, we accrued and paid an additional cost of $127,707 for the workovers of wells PP F-12 and PP F-12-3. PP F-12 has had intermittent production from October 2007, and PP F-12-3 has had intermittent
production from November 2007.
38
On April 3, 2009, we entered into an Asset Purchase Agreement with Delta Oil & Gas, Inc., and The Stallion Group to acquire additional interests in its existing core producing Mississippi oil and gas properties. We paid $40,073.39 to acquire
an additional two percent (2%) working interest in the proven Belmont Lake oil and gas field and an additional 10% working interest in potential nearby exploration wells.
We had a short-lived opportunity to acquire additional fractional interests in the upcoming Belmont Lake 12-4 well which was expected to be a horizontal well. An unrelated third party did not participate in its right to participate in the 12-4 well,
and therefore a share of its interest (a “non consent” interest) was made available to the other participating parties including Lexaria. On August 28, 2009 and effective on September 1, 2009, we entered into four separate assignment
agreements, three of which were with people or companies with related management. We received from these four parties proceeds of $371,608.57 to fund additional interests in this well. As a result, we have a 25.84% perpetual gross interest in
the well (18.0% net revenue interest); as well as a 5.2% net revenue interest in the non-consent interest. The non-consent interest remains valid until such time as the well produces 500% of all costs and expenses back to the participants in the
form of revenue, at which time the non-consent interest ends. Enertopia Corp., a company with related management, had acquired from Lexaria a 6.16% perpetual gross interest in the 12-4 well; David DeMartini, a director of Lexaria, had acquired from
Lexaria a 5% gross interest in the non-consent interest in the 12-4 well; and 0743608 BC Ltd. a company owned by the President of the Company, had acquired from Lexaria a 11.60% gross interest in the non-consent interest in the 12-4 well.
On May 31, 2010, we signed a Settlement Agreement with Enertopia Corp., whereby we issued 499,893 units at $0.12 per unit and each unit consists of one restricted common share and one share purchase warrant at $0.20 per share for a period of
two years in exchange for the working interest initially assigned on August 28, 2009.
On June 16, 2010, we signed a Settlement Agreement with a third party, who had originally participated in the August 28, 2009, opportunity in the non-consent interest for Belmont Lake 12-4. We returned back $144,063.46 to the third party and
cancelled its participation.
On July 29, 2010, we agreed with our Operators at Belmont Lake not to proceed to drill a horizontal 12-4 well. Rather, two of the three proposed vertical wells 12-2, 12-4, or 12-5 were proposed to be drilled in August 2010. To take best advantage of
this opportunity, we cancelled all previous agreements relating to August 28, 2009 with respect to Belmont Lake horizontal well 12-4 and entered into three separate assignment agreements, of which all three were with people or companies with related
management. We received total proceeds of $324,677.12 to fund additional interests in these wells. As a result, the Company has a 32% perpetual gross interest in the wells (24.0% net revenue interest); as well as a 8% gross interest (6% net
revenue interest) in the non-consent interest. The non-consent interest remains valid until such time as the well produces 500% of all costs and expenses back to the participants in the form of revenue, at which time the non-consent interest ends.
Emerald Atlantic LLC, a company owned by a director of Lexaria, has acquired from Lexaria a 8.74% gross interest in the non-consent interest in two of the three vertical wells; and 0743608 BC Ltd. a company owned by our President, has acquired from
Lexaria a 20.79% gross interest in the non-consent interest in the two of the three vertical wells; one of our advisors acquired from Lexaria 2.46% gross interest in the non-consent interest in two of the three vertical wells.
On September 13, 2010, we entered into three separate assignment agreements with 0743608 BC Limited, solely owned by our Director/Officer, Emerald Atlantic LLC, jointly owned by one of our directors and our Senior VP Business Development. (the
“Assignees”), whereby the Assignees have paid a fee of US$408,116.48 to earn a 24% share of our gross non- perpetual 32% interest in the three oil wells being drilled in Wilkinson County, Mississippi. This agreement replaces the one
signed on August 28, 2009. As a result of the three assignment agreements, Lexaria receives at no cash cost to the company, a carried interest of 8% in these same rights and benefits. We assigned, transferred and set over to the Assignees, all proportionate rights, interest and benefits in the Assigned
Non Perpetual Interest held by or granted to the Assignor in and to the
Participation Agreement between us and Griffin but limited to a gross 500%
revenue payout based on the total amount paid under the Initial Consideration
and the Subsequent Consideration after which all rights, interests and benefits
cease.
39
Total working interest for Belmont Lake as of October 31, 2011
is 42%, with the exception of a 50% interest in wells PP F-12-4 and PP F-12-5;
and total working interest in the exploration wells on approximately 140,000
acres surrounding Belmont Lake in all directions as of October 31, 2011, is 60%.
As of October 31, 2011, there were additional well interest
changes or workovers pending of wells PP F-12, PP F12-3, PP F12-4, PP F12-5 and
PP F-29 in the amount of $340,549.
As of October 31, 2011, the status of the Palmetto Point,
Mississippi wells is as follows:
Well Name
|
Spud/Start
|
Complete
|
Results
|
Depth
|
Status
|
PP F-40
|
May
11/06
|
May
16/06
|
Frio Gas; 12 ft.
|
3850
|
Shut-in
|
PP F-118
|
May
18/06
|
May
22/06
|
Frio Gas; 14 ft.
|
3808
|
Shut-in
|
PP F-121
|
May 24/06
|
May 29/06
|
Dry
|
3850
|
Plug & abandon
|
PP F-7
|
May 31/06
|
June 4/06
|
Dry
|
3800
|
Plug & abandon
|
PP F-39
|
June 10/06
|
June 16/06
|
Frio Gas/Oil; 12 ft.
|
3900
|
Shut-in
|
PP F-42
|
June 18/06
|
June 21/06
|
Frio Gas/Oil; 10 ft.
|
3170
|
Shut-in
|
PP F-36-2
|
June
23/06
|
July
2/06
|
Frio Gas; 8 ft.
|
3450
|
Shut-in
|
PP F-4
|
Oct
31/06
|
Nov.
5/06
|
Frio Gas; 8 ft.
|
4200
|
Shut-in
|
PP F- 29
|
Nov
11/06
|
Nov.
14/06
|
Frio Gas; 37 ft.
|
4100
|
Producing
|
PP F-12-1
|
Dec 18/06
|
Dec. 24/06
|
Frio Gas; 3 ft.
Frio Oil, 26 ft.
|
4016
|
Producing
|
PP F-6B
|
|
July
27/06
|
Frio
Gas
|
|
Shut-in
|
PP F-52A
|
|
July
27/06
|
Frio
Gas
|
|
Shut-in
|
PP F-12-3
|
Oct/07
|
Oct/07
|
Frio
Oil
|
3150
|
Producing
|
PP F-12-4
|
Aug/10
|
Oct/10
|
Frio
Oil
|
3150
|
Producing
|
PP F-12-5
|
Sep
12/10
|
Nov
23/10
|
Frio
Oil
|
3150
|
Producing
|
Mississippi and Louisiana: Frio-Wilcox Project
On August 3, 2006, we entered into a Phase II agreement with
Griffin, to acquire a working interest in multiple zones of potential oil and
gas production in Mississippi and Louisiana. This agreement contemplates a drill
program of up to a 50 wells, which are exclusive to the participants, for Wilcox
and Frio wells, at the Companys option, within the defined area of mutual
interest (AMI). From these 50 prospects, Griffin and the participants will
select all drill locations with the expectation that the wells will be drilled
to depths sufficient to test prospectively for producible hydrocarbons from the
top of the Frio Formation to the bottom of the Wilcox Formation.
These 50 wells are in addition to all wells drilled under the
original 10-well agreement and also in addition to any development wells to be
drilled at the Belmont Lake oil field discovery. The AMI originally included
over 200,000 gross acres located non-contiguously between Southwest Mississippi
and North East Louisiana which include the approximately 32,000 acres of the
Palmetto Point area but also include other areas.
40
We had contracted to assume a 40% gross interest in this AMI, meaning we were obligated to pay 40% of costs related to licensing, permitting, drilling, completion and all other related costs. Upon payment of 40% of the costs, we earned a net 32% of
all production from all producible zones to the base of the Frio formation (Frio Targets); and, 30% of all production to the base of the Wilcox formation (Wilcox Targets). All working interests are to be registered our name. This 50-well AMI was
intended to be drilled in several stages.
Our pro rata share of the first stage had a total cost $1.6 million and we completely funded this initial commitment. During the drill program, an unrelated third party participant elected not to continue their participation in the program, and
we assumed our pro-rata portion of their 10% gross working interest as our own, at no additional cost, bringing our total gross working interest in the seven (7) wells and their leases (Initial AMI Drilling Program), to 45%.
On June 21, 2007, we acquired an additional 10% from a third party for all rights, title and benefits
excluding
the seven wells drilled under the AMI Agreement between August 3, 2006 and June 19, 2007, specifically wells CMR-USA-39-14, Dixon
#1, Faust #1 TEC F-1, CMR/BR F-14, RB F-1 Red Bug #2, BR F-33, and Randall #1 F-4, and any offset wells that could be drilled to any of these specified wells (Subsequent AMI Drilling Program). This brought our interest in the remaining 43 wells to
50% and we drilled 5 wells under this arrangement.
On April 3, 2009, we acquired an additional 10% working interest in the 38 exploration wells remaining to be drilled, bringing its total gross working interest to 60% in the 38 wells that remain to be drilled of this original 50-well option in over
140,000 acres surrounding Belmont Lake in all directions.
On December 16, 2010, we entered into an assignment agreement with Emerald Atlantic LLC, a company solely owned by a director of our company, whereby Emerald Atlantic has paid a fee of $30,076 to earn 18% of a 4.423% share of our company’s
net revenue interest after field operating expenses for a well to be drilled in Wilkinson County.
Initial AMI Drilling Program
WE successfully drilled and completed seven (7) wells under this drilling program. Certain wells were placed into production.
Details of the drill program are outlined below:
In December 2006, the first well CMR-US 39-14 was found to have sufficient hydrocarbons to become economic. USA 1-37 and BR F-33 had started intermittent production from November 2007.
As at January 31, 2007, we abandoned the Dixon #1 due to no economic hydrocarbons being present and $162,420 of drilling costs was added to the capitalized costs. The Dixon #1is the only Wilcox well we have drilled to date. Every other well we
have participated in located in Mississippi and Louisiana is a Frio well. Slightly deeper than the Frio targets, but also of the Cenozoic era, the Wilcox geologic formation is of the Eocene series, generally found at depths of less than 8,000 feet.
On June 2, 2007, we abandoned the Randall #1 and $107,672 drilling costs were added to the capitalized costs in determination of depletion expense.
During August to October 2007, three additional wells, PP F-90, PP F-100, and PP F-111 were drilled in the area. These Frio wells were abandoned due to modest gas shows and a total of $306,562 drilling costs was added to the capitalized costs in
determination of depletion expense.
41
During December 2007, two additional wells, PP F-6A and PP
F-83, were drilled and were plugged and abandoned due to non-economic gas shows.
A total of $247,086 drilling costs were added to the capitalized costs in
determination of depletion expense.
The results of the initial drill program are as follows:
Well Name
|
Spud/Start
|
Complete
|
Results
|
Depth
|
Status
|
CMR-USA-39- 14
RB F-3
|
Sept. 8/06
|
Sept. 12/06
|
Frio Gas 14 ft.
|
3,200
|
Shut-in
|
Dixon #1
|
Jan. 03/07
|
Jan. 20/07
|
Wilcox Target; Dry
|
8,650
|
Plug & abandon
|
Faust #1,
TEC F-1
|
Feb. 05/07
|
Feb. 11/07
|
Frio Gas 9 ft
|
5,350
|
Shut-in
|
CMR/BR F-24
|
Feb. 20/07
|
Feb. 24/07
|
Frio Gas
|
3,250
|
Shut-in
|
RB F-1
Red Bug #2
|
May 08/07
|
May 13/07
|
Frio Gas 10 ft
|
3,180
|
Shut-in
|
BR F-33
|
May 20/07
|
May 24/07
|
Frio Gas
12 ft
|
3,837
|
Shut-in
|
Randall #1
Closure F-4
|
May 27/07
|
June 03/07
|
Frio Target: Dry
|
5,100
|
Plug &
abandon
|
Subsequent AMI Drilling Program
As of April 30, 2008, five additional wells were drilled under
the 50-well AMI. Each of these wells encountered non commercial quantities of
hydrocarbons and were plugged and abandoned.
Production and Prices
The following table sets forth information regarding net
production of oil and natural gas, and certain price and cost information for
fiscal years ended October 31, 2011, 2010 and 2009.
|
For the fiscal year
ended
October 31, 2011
|
For the fiscal year
ended
October 31, 2010
|
For the fiscal year
ended
October 31, 2009
|
Production
Data:
|
|
|
|
Natural gas (Mcf)
|
0
|
360
|
13,138
|
Oil (Bbls)
|
11,506
|
4,641
|
7,461
|
Average Prices:
|
|
|
|
Natural gas (per
Mcf)
|
$4.20
|
$4.50
|
$3.77
|
Oil (per Bbl)
|
$108.74
|
$81.47
|
$50.00
|
Production
Costs:
|
|
|
|
Natural gas (per Mcf)
|
$Nil
|
$15.72
|
$9.43
|
Oil (per Bbl)
|
$17.21
|
$17.43
|
$11.00
|
Productive Wells
The following table summarizes information at October 31, 2011,
relating to the productive wells in which we owned a working interest as of that
date. Productive wells consist of producing wells and wells capable of
production, but specifically exclude wells drilled and cased during the fiscal
year that have yet to be tested for completion (e.g., all of the operated wells
drilled by the Company during this year have been cased in preparation for
completion, but no operations have been initiated that would allow these wells to be productive). Gross wells are the total number of
producing wells in which we have an interest, and net wells are the sum of our
fractional working interests in the gross wells.
42
|
|
|
|
Gross
|
Net
|
Location
|
Oil
|
Gas
|
Total
|
Oil
|
Gas
|
Total
|
Mississippi
|
4
|
5
|
9
|
0.27
|
0.27
|
0.54
|
|
|
|
|
|
|
|
Total
|
4
|
5
|
9
|
0.27
|
0.27
|
0.54
|
Unaudited Oil and Gas Reserve Quantities
The unaudited reserve estimates for Mississippi, as of October
31, 2011, were prepared by Veazey & Associates, an independent petroleum
engineering firm.
The estimated proved reserves prepared by Veazey and Associates
are summarized in the table below, in accordance with definitions and pricing
requirements as prescribed by the Securities and Exchange Commission (the
SEC). Prices paid for oil and natural gas vary widely depending upon the
quality such as the Btu content of the natural gas, gravity of the oil, sulfur
content and location of the production related to the refinery or pipelines.
There are many uncertainties inherent in estimating proved
reserve quantities and in projecting future production rates and the timing of
development expenditures. In addition, reserve estimates of new discoveries that
have little production history are more imprecise than those of properties with
more production history. Accordingly, these estimates are expected to change as
future information becomes available.
Proved oil and gas reserves are the estimated quantities of
crude oil and natural gas which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.
Proved developed oil and gas reserves are those reserves
expected to be recovered through existing wells with existing equipment and
operating methods.
Unaudited net quantities of proved developed and undeveloped
reserves of crude oil and natural gas (all located within United States) are as
follows:
The standardized measure of discounted future net cash flows
relating to proved natural gas and oil reserves is as follows:
|
|
USD$
|
|
Future cash inflows
|
16,940,866
|
|
Future production costs
|
(4,409,690)
|
|
Future development costs
|
(1,070,698)
|
|
Future net cash flows - undiscounted
|
11,460,478
|
|
10% annual discount for estimated timing of
cash flows
|
(3,388,906)
|
|
Standardized measure of discounted future net cash flows
|
8,071,572
|
Year-end price per Mcf of natural gas used in making
standardized measure determinations as of October 31, 2011 was $4.20. Year-end
price per Bbl of oil used in making these same calculations was $108.74.
43
Estimated Net quantities of Natural Gas and Oil
Reserves:
The following table sets forth our proved reserves, including
changes, and proved developed reserves at the end of October 31, 2011.
|
|
|
Natural
|
Crude Oil
|
|
|
Crude Oil
|
Gas
|
Equivalents
|
|
|
(MBbls)
|
(MMcf)
|
(MBbls)
|
|
Proved reserves:
|
|
|
|
|
Beginning of the year reserve
|
125.64
|
-
|
125.64
|
|
Adjustments of reserves in place
|
41.65
|
3.22
|
42.19
|
|
Productions
|
(11.54)
|
(3.22)
|
(12.04)
|
|
End of year reserves
|
155.79
|
-
|
155.79
|
|
|
|
|
|
|
Proved developed reserves:
|
|
|
|
|
Beginning of the year reserve
|
57.33
|
-
|
57.33
|
|
End of year reserves
|
68.07
|
-
|
68.07
|
Oil and Gas Acreage
The following table sets forth the undeveloped and developed
acreage, by area, held by us as of October 31, 2011. Undeveloped acres are acres
on which wells have not been drilled or completed to a point that would permit
the production of commercial quantities of oil and gas, regardless of whether or
not such acreage contains proved reserves. Developed acres are acres, which are
spaced or assignable to productive wells. Gross acres are the total number of
acres in which we have a working interest. Net acreage is obtained by
multiplying gross acreage by our working interest percentage in the properties.
The table does not include acreage in which we have a contractual right to
acquire or to earn through drilling projects, or any other acreage for which we
have not yet received leasehold assignments.
|
Undeveloped Acres
|
Developed Acres
|
|
Gross
|
Net
|
Gross
|
Net
|
|
|
|
|
|
Mississippi
|
220
|
132
|
1,160
|
316.72
|
Total
|
220
|
132
|
1,160
|
316.72
|
Drilling Activity
The following table sets forth our drilling activity during the
years ended October 31, 2011, 2010 and 2009.
|
2011
|
|
2010
|
|
2009
|
|
|
Gross
|
Net
|
Gross
|
Net
|
Gross
|
Net
|
Exploratory wells:
|
|
|
|
|
|
|
Productive
|
|
|
|
|
|
|
Dry
|
1
|
|
|
|
2
|
.72
|
|
|
|
|
|
|
|
Development wells:
|
|
|
|
|
|
|
Productive
|
|
|
2
|
1.28
|
|
|
Dry
|
|
|
1
|
.64
|
|
|
|
|
|
|
|
|
|
Total wells
|
|
|
3
|
1.92
|
2
|
.72
|
44
Legal Proceedings
Other than as set out below, we know of no material, existing
or pending legal proceedings against us, nor are we involved as a plaintiff in
any material proceeding or pending litigation. There are no proceedings in which
any of our directors, officers or affiliates, or any registered or beneficial
shareholder, is an adverse party or has a material interest adverse to our
company.
On October 20, 2011 we were served with an amended complaint
filed on behalf of John M. Deakle in the Circuit Court of Hinds County,
Mississippi. The complaint includes our company as one of the defendants and
alleges breach of contract as well as mismanagement of the drilling activity and
improper billing by Griffin and Griffin, the operator on our companys Belmont
Lake oil and gas properties. Deakle specifically alleges that we pressured
Griffin and Griffin to undertake the drilling of unnecessary wells for their own
benefit. The complaint requests injunctions to enjoin the operator from drilling
additional wells on the Belmont Lake property, declaratory judgments stating,
apart from other things, that Deakles rights under the joint operating
agreement were breached, and punitive damages.
Our company believes that this is a frivolous suit, devoid of
any merit as it relates to our companys activities, and will defend our
position aggressively. Additionally, our company is considering filing a
countersuit against Deakle for damages caused by Deakles refusal to comply with
the terms of the joint operating agreement, the unwarranted interruption of
drilling activity on the property as a result of Deakles action, as well as
costs associated with defending the lawsuit.
A verbal settlement was reached on November 10, 2011 at a court
hearing. An additional court hearing is scheduled for March 12 2012, in order to
enforce the implementation of the settlement terms.
Market for Common Equity and Related Stockholder
Matters
Market Information
Our Common stock is quoted on the OTCQB under the Symbol
"LXRP". Our common shares are also quoted on the Canadian National Stock
Exchange (CNSX) under the symbol LXX. The following quotations, obtained from
Yahoo Finance, reflect the high and low bids for our common shares as quoted on
the OTCQB based on inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
The high and low bid prices of our common stock for the periods
indicated below are as follows:
OTCQB
|
Quarter
Ended
|
High
|
Low
|
January 31, 2012
|
$0.30
|
$0.20
|
October 31, 2011
|
$0.35
|
$0.26
|
April 30, 2011
|
$0.40
|
$0.15
|
January 31, 2011
|
$0.35
|
$0.16
|
October 31, 2010
|
$0.29
|
$0.12
|
July 31, 2010
|
$0.20
|
$0.12
|
April 30, 2010
|
$0.13
|
$0.12
|
January 31, 2010
|
$0.16
|
$0.10
|
October 31, 2009
|
$0.16
|
$0.14
|
July 31, 2009
|
$0.16
|
$0.16
|
April 30, 2009
|
$0.16
|
$0.16
|
January 31, 2009
|
$0.32
|
$0.32
|
October 31, 2008
|
$1.60
|
$0.40
|
July 31, 2008
|
$3.00
|
$0.80
|
April 30, 2008
|
$3.92
|
$1.28
|
January 31, 2008
|
$4.92
|
$2.80
|
45
On March 13, 2012, the last closing price for one share of
our common stock as reported by the OTCQB was $0.23. This closing price reflects
an inter-dealer price, without retail mark-up, mark-down or commission, and may
not represent an actual transaction.
As of March 13, 2012, there were 32 holders of record of our
common stock. As of such date, As of March 13, 2012 we had 16,431,452 shares of
our common stock, options to acquire 1,740,000 shares of our common stock and
warrants to acquire 3,042,751 shares of our common issued and outstanding.
Our common shares are issued in registered form. Olympia Trust
Company of 1003, 750 West Pender Street, Vancouver, BC, V6C 2T8 (Telephone
604.484.2702; Facsimile: 604.484.8638) is our transfer agent for our common
shares.
Sales under Rule 144 by Affiliates
Persons who have beneficially owned restricted shares of our
common stock for at least six months but who are our affiliates at the time of,
or at any time during the three months preceding, a sale, would be subject to
additional restrictions, by which such person would be entitled to sell within
any three-month period only a number of securities that does not exceed the
greater of either of the following:
-
1% of the number of shares of common stock then outstanding; and
-
the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a notice on Form 144 with respect to
the sale.
-
Sales under Rule 144 by our affiliates are also limited by manner of sale
provisions and notice requirements and to the availability of current public
information about us.
Sales Under Rule 144 by Non-Affiliates
Under Rule 144, subject to the special provisions for a shell
company, a person who is not deemed to have been one of our affiliates at the
time of or at any time during the three months preceding a sale, and who has
beneficially owned the restricted ordinary shares proposed to be sold for at
least six (6) months, including the holding period of any prior owner other than
an affiliate, is entitled to sell their shares of common stock without complying
with the manner of sale and volume limitation or notice provisions of Rule 144.
We must be current in our public reporting if the non-affiliate is seeking to
sell under Rule 144 after holding his, her, or its shares of common stock
between 6 months and one year. After one year, non-affiliates do not have to
comply with any other Rule 144 requirements.
Dividends
To date, we have not paid dividends on shares of our common
stock and we do not expect to declare or pay dividends on shares of our common
stock in the foreseeable future. The payment of any dividends will depend upon
our future earnings, if any, our financial condition, and other factors deemed
relevant by our Board of Directors.
46
Equity Compensation Plans
2007 Equity Plan
The 2007 Equity Incentive Stock Option Plan was approved by our
shareholders on April 25, 2007 and filed Form S-8 on May 7, 2009.
Discretionary Options granted to the Key Participants
hereunder, the Board, on the recommendation of the Committee, may at any time
authorize the granting of Options to such Eligible Employees and Eligible
Directors as it may select for the number of Shares that it shall designate,
subject to the provisions of the Plan. When the grant is authorized, the Board,
on the recommendation of the Committee, shall specify the date of grant.
Each Option granted to an Eligible Employee or to an Eligible
Director shall be evidenced by an option agreement with terms and conditions
consistent with the Plan and as approved by the Board on the recommendation of
the Committee, which terms and conditions need not be the same in each case and
may be changed from time to time.
Discretionary Options to be vested immediately pursuant to
grant hereunder, the Option Period for the Options remaining under the Plan
shall be four years from the date of grant thereof or such greater or lesser
duration as the Board, on the recommendation of the Committee, may determine at
the date of grant thereof, and may thereafter be reduced with respect to any
Option as provided in Section 2.8 hereof covering termination of employment or
death of the Optionee.
In addition, unless otherwise determined from time to time by
the Board, on the recommendation of the Committee, the Options remaining under
the Plan may be exercised (in each case to the nearest full Share) during the
Option Period as follows:
(a)
|
at any time during the first year of the Option Period,
the Optionee may purchase up to 25% of the total number of Shares reserved
for issuance pursuant to his or her Option; and
|
|
|
(b)
|
at any time during each additional year of the Option
period the Optionee may purchase an additional 25% of the total number of
Shares reserved for issuance pursuant to his or her Option plus any Shares
not purchased in accordance with the preceding subsection (a) until, in
the fourth year of the Option Period, 100% of the Option will be
exercisable.
|
Except as set forth in Section 2.8 hereof, no Option may be
exercised unless the Optionee is at the time of such exercise:
(a)
|
in the case of an Eligible Employee, in the employ of the
Company or an Affiliate and shall have been continuously so employed since
the grant of his Option, but absence on leave, having the approval of the
Company or such Affiliate, shall not be considered an interruption of
employment for any purpose of the Plan; or
|
|
|
(b)
|
in the case of an Eligible Director, a director of the
Company or an Affiliate and shall have been such a director continuously
since the grant of his Option.
|
Subject to Section 2.6 hereof, the exercise of any Option will
be contingent upon the Optionee having entered into an option agreement with us
on such terms and conditions as have been approved by the Board, on the
recommendation of the Committee, and which incorporates by reference the terms
of the Plan. The exercise of any Option will also be contingent upon receipt by
us of cash payment of the full purchase price of the Shares being purchased. No
Optionee or his legal representatives or legatees will be, or will be deemed to
be, a holder of any Shares subject to an Option, unless and until certificates
for such Shares are issued to him or them under the terms of the Plan.
47
On July 23, 2009 we effected a 1 for 4 share consolidation. The
2,000,000 maximum granting of stock options has now been reduced to 500,000
stock options.
As of October 31, 2011, there are no options outstanding under
the 2007 Plan.
2010 Equity Compensation Plan
On February 26, 2010, our shareholders approved and adopted our
2010 equity incentive plan (the 2010 Plan) and filed form S-8 on July 7, 2011.
The purpose of the 2010 Plan is to enhance the our long-term stockholder value
by offering opportunities to our directors, officers, employees and eligible
consultants (Participants) to acquire and maintain stock ownership in our
company in order to give these persons the opportunity to participate in our
growth and success, and to encourage them to remain in our service.
The 2010 Plan is required to be administered by our Board of
Directors or a committee appointed by, and consisting of two or more members of
our Board of Directors (the Plan Administrator). The Plan Administrator has
the exclusive authority, in its discretion, to determine all matters relating to
any option granted (Awards) under the 2010 Plan including: (i) the selection
of individuals to be granted Awards; (ii) the type of Awards; (iii) the number
of shares of Common Stock subject to an Award; (iv) all terms, conditions,
restrictions and limitations, if any, of an Award; and (v) the terms of any
instrument that evidences the Award.
The Plan Administrator also has exclusive authority to
interpret the 2010 Plan and the terms of any instrument evidencing the Award and
may from time to time adopt and change rules and regulations of general
application for the 2010 Plans administration. The Plan Administrators
interpretation of the 2010 Plan and its rules and regulations is conclusive and
binding on all parties involved or affected.
Options that are eligible for grant under the 2010 Plan to
Participants include: (a) incentive stock options, whereby we will grant options
to purchase shares of our common stock to Participants with the intention that
the options qualify as "incentive stock options" as that term is defined in
Section 422 of the Internal Revenue Code; (b) non-incentive stock options,
whereby we will grant options to purchase shares of our common stock to
Participants that do not qualify as "incentive stock options" under the Internal
Revenue Code; (c) stock appreciation rights; and (d) restricted shares. The 2010
Plan provides that a maximum of Two Million (2,000,000) shares of common stock
are available for granting of awards under the 2010 Plan.
The Plan Administrator has the authority in its sole discretion
to grant Awards to participants as incentive stock options or as non-qualified
stock options, as appropriate. Unless an earlier termination date is set by the
Plan Administrator, Awards under the 2010 Plan will terminate at the earliest of
the following:
(a)
|
Ten (10) years after the Award is granted;
|
|
|
(b)
|
The date the stock option expires in accordance with its
terms;
|
|
|
(c)
|
Ninety (90) days after the Participants employment
terminates (or ceases to provide services to the Company if the grantee is
a non-employee director or a consultant) (the Employment Termination
Date), if the Participants Employment Termination Date occurs by reason
of retirement, resignation or for any other reasons other than for cause,
disability or death;
|
|
|
(d)
|
Twelve (12) months after the Employment Termination Date,
if the termination or cessation of services is a result of death or
disability; and
|
|
|
(e)
|
Five (5) years after the Incentive Stock Option is
granted for holders of 10% or more of the Companys common
stock.
|
48
To the extent that the right to purchase shares under an Award
has vested, in order to exercise the Award the participant must execute and
deliver to the Company a written stock option exercise agreement or notice in a
form and in accordance with procedures established by the Plan Administrator. In
addition, the full exercise price of the Option Award must be delivered to the
Company and must be paid in a form acceptable to the Plan Administrator.
The exact terms of the option granted are contained in an
option agreement between us and the person to whom such option is granted.
Eligible employees are not required to pay anything to receive options. The
exercise price for incentive stock options must be no less than: 100% of the
fair market value of the common stock on the date of grant for Participants that
hold less than 10% of the Companys outstanding common stock; and 110% of the
fair market value of the common stock on the date of grant for Participants that
hold 10% or more of the Companys outstanding common stock. The exercise price
for nonqualified stock options is determined by the Plan Administrator in its
sole and complete discretion. An option holder may exercise options from time to
time, subject to vesting. Options will vest immediately upon death or disability
of a participant and upon certain change of control events.
Options will become exercisable by the participants in such
amounts and at such times as shall be determined by the Plan Administrator in
each individual grant. Options are not transferable except by will or by the
laws of descent and distribution. Options granted under the 2010 Plan will
become exercisable in the manner at the times and in the amounts determined by
the Plan Administrator. Participants may exercise options by delivery to the
Company of a written stock option exercise agreement or notice, in a form and in
accordance with procedures established by the Plan Administrator, setting forth
the number of shares purchased under such exercise agreement, accompanied by
payment in full in the form of a check or bank draft or other method of payment
or some combination thereof as may be acceptable to the Plan Administrator. All
incentive stock options granted under the 2010 Plan must comply with Section 422
of the Code.
As of October 31, 2011, there were 1,700,000 options
outstanding under the 2010 Plan.
Equity Compensation Plan
Information
|
Plan category
|
Number of securities
to be issued upon
exercise of
outstanding
options,
warrants and rights
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
Number of securities
remaining
available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column
(a))
|
Equity compensation
plans approved by
security
holders
|
Nil
|
Nil
|
Nil
|
2007 Equity compensation
plans not approved by
security holders
|
Nil
|
Nil
|
500,000
|
2010 Equity compensation
plans not approved by
security holders
|
1,700,000
|
$0.26
|
300,000
|
Total
|
1,700,000
|
0.26
|
800,000
|
Purchases of Equity Securities by the Issuer and Affiliated
Purchasers
We did not purchase any of our shares of common stock or other
securities during our fiscal year ended October 31, 2011.
49
Financial Statements
Our audited financial statements for the years ended October 31, 2011 and 2010 have been included as follows, commencing on page F-1.
Our unaudited financial statements for the three month period ended January 31,
2012 have been included as follows, commencing on page F-25.
Lexaria Corp.
(A Development Stage Company)
October 31, 2011
Report of Independent Registered Public
Accounting Firm
|
F1
|
Report of Independent Registered Public Accounting Firm
|
F2
|
Balance Sheet
|
F3
|
Statement of Operations and Comprehensive Loss
|
F4
|
Statement of Cash Flows
|
F5
|
Statement of Stockholders Equity
|
F6
|
Notes to the Financial Statements
|
F7
|
Lexaria Corp.
(A Development Stage Company)
January 31, 2012
(unaudited)
Balance Sheet
|
F25
|
Statement of Operations and Comprehensive Loss
|
F26
|
Statement of Cash Flows
|
F27
|
Statement of Stockholders Equity
|
F28
|
Notes to the Financial Statements
|
F29
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
LEXARIA CORP.
We have audited the balance sheet of Lexaria Corp. (the
Company) as at October 31, 2011 and the related statements of stockholders
equity, operations and comprehensive loss and cash flows for the year then
ended. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audit. We did not audit the Companys financial
statements as of and for the year ended October 31, 2010, and the cumulative
data from November 1, 2009 to October 31, 2010 in the statements of
stockholders equity, operations and cash flows, which were audited by other
auditors whose report, dated January 21, 2011 which expressed an unqualified
opinion, has been furnished to us. Our opinion, insofar as it relates to the
amounts included for cumulative data from November 1, 2009 to October 31, 2010,
is based solely on the report of the other auditors.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform an audit to obtain reasonable assurance whether
the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstance, but not for the purpose of expressing an
opinion on the effectiveness of the companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as at October 31, 2011 and the result of its operations and its cash flow for
the year then ended in conformity with accounting principles generally accepted
in the United States of America.
The accompanying financial statements refer to above have been
prepared assuming the Company will continue as a going concern. As discussed in
Note 1 to the financial statements, the Company had recurring losses and
requires additional funds to maintain its planned operations. These factors
raise substantial doubt about its ability to continue as a going concern.
Managements plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Vancouver, Canada
|
|
January 26, 2012
|
|
F-1
Chang Lee LLP
|
Chartered
Accountants
|
606 815 Hornby Street
|
Vancouver, B.C, V6Z 2E6
|
Tel: 604-687-3776
|
Fax: 604-688-3373
|
E-mail: info@changleellp.com
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and Stockholders of
LEXARIA CORP.
We have audited the balance sheets of LEXARIA Corp. (the
Company) as at October 31, 2010 and 2009 and the related statements of
stockholders equity, operations and comprehensive loss and cash flows for the
years then ended. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform an audit to obtain reasonable assurance whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as at October31, 2010 and 2009 and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles in the United States of America.
The accompanying financial statements refer to above have been
prepared assuming that the Company will continue as a going concern. As
discussed in Note 1 to the financial statements, the Company had recurring
losses and requires additional funds to maintain its planned operations. These
factors raise substantial doubt about its ability to continue as a going
concern. Managements plans in regard to these matters are also described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Vancouver, Canada
|
|
January 21, 2011
|
F-2
LEXARIA CORP.
|
BALANCE SHEETS
|
(Expressed in U.S. Dollars)
|
|
|
October 31
|
|
|
October 31
|
|
|
|
2011
|
|
|
2010
|
|
ASSETS
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
31,201
|
|
$
|
62,989
|
|
Accounts
receivable
|
|
230,880
|
|
|
74,879
|
|
Prepaid expenses and deposit
|
|
2,147
|
|
|
2,338
|
|
Total Current Assets
|
|
264,228
|
|
|
140,206
|
|
Capital assets, net
|
|
-
|
|
|
425
|
|
Deferred charges
|
|
33,092
|
|
|
-
|
|
Oil and gas properties (Note 5)
|
|
|
|
|
|
|
Proved property
|
|
3,717,866
|
|
|
3,118,376
|
|
Unproved properties
|
|
19,293
|
|
|
19,293
|
|
Prepayments
for oil and gas explorations
|
|
304,890
|
|
|
-
|
|
|
|
4,042,049
|
|
|
3,137,669
|
|
TOTAL ASSETS
|
$
|
4,339,369
|
|
$
|
3,278,300
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
$
|
322,313
|
|
$
|
137,437
|
|
Loan payable (Note 6a, 7a)
|
|
754,501
|
|
|
910,441
|
|
Due to a
related party
|
|
1,769
|
|
|
1,769
|
|
Total Current Liabilities
|
|
1,078,583
|
|
|
1,049,647
|
|
Loan Payable Long Term (Note 6b)
|
|
599,438
|
|
|
75,000
|
|
TOTAL LIABILITIES
|
|
1,678,021
|
|
|
1,124,647
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Capital (Note 4)
|
|
|
|
|
|
|
Authorized:
|
|
|
|
|
|
|
200,000,000 common voting shares
|
|
|
|
|
|
|
with a par value of
|
|
|
|
|
|
|
$0.001 per share
|
|
|
|
|
|
|
Issued and
outstanding:
|
|
|
|
|
|
|
16,431,452common shares at
|
|
|
|
|
|
|
October31,
|
|
16,431
|
|
|
12,926
|
|
2011 (12,926,348 common shares at
|
|
|
|
|
|
|
October 31, 2010)
|
|
|
|
|
|
|
Additional paid-in capital
|
|
7,107,535
|
|
|
6,065,119
|
|
Deficit
|
|
(4,462,618
|
)
|
|
(3,924,392
|
)
|
Total Stockholders Equity
|
|
2,661,348
|
|
|
2,153,653
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
$
|
4,339,369
|
|
$
|
3,278,300
|
|
The accompanying notes are an integral part of these financial
statements.
F-3
LEXARIA CORP.
|
STATEMENTS OF OPERATIONS
|
(Expressed in U.S. Dollars)
|
|
|
Years Ended
|
|
|
|
October 31
|
|
|
|
2011
|
|
|
2010
|
|
Revenue
|
|
$
|
|
|
$
|
|
Natural gas and oil revenue
|
|
1,133,766
|
|
|
362,471
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
|
Natural gas and oil
operating costs
|
|
297,656
|
|
|
152,479
|
|
Depletion
|
|
370,199
|
|
|
121,136
|
|
|
|
667,855
|
|
|
273,615
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
465,911
|
|
|
88,856
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
Accounting and audit
|
|
32,433
|
|
|
27,547
|
|
Insurance
|
|
8,749
|
|
|
7,014
|
|
Advertising and promotions
|
|
40,920
|
|
|
559
|
|
Bank charges and
exchange loss
|
|
55,052
|
|
|
26,832
|
|
Stock Based Compensation
|
|
179,789
|
|
|
161,366
|
|
Consulting (note 9)
|
|
262,134
|
|
|
168,512
|
|
Depreciation
|
|
425
|
|
|
1,021
|
|
Fees and Dues
|
|
36,454
|
|
|
26,567
|
|
Interest expense from loan payable
(note 6,7)
|
|
223,673
|
|
|
167,322
|
|
Investor relation
|
|
29,153
|
|
|
1,943
|
|
Legal and professional
|
|
58,015
|
|
|
23,015
|
|
Office and
miscellaneous
|
|
5,181
|
|
|
1,213
|
|
Rent
|
|
14,620
|
|
|
15,404
|
|
Telephone
|
|
3,047
|
|
|
2,917
|
|
Taxes
|
|
5,977
|
|
|
5,745
|
|
Training
|
|
268
|
|
|
-
|
|
Travel
|
|
48,247
|
|
|
4,340
|
|
Write down of oil and
gas property
|
|
-
|
|
|
1
|
|
|
|
1,004,137
|
|
|
641,318
|
|
|
|
|
|
|
|
|
Net (loss) for the year
|
|
(538,226
|
)
|
|
(552,462
|
)
|
|
|
|
|
|
|
|
Basic and diluted (loss) per share
|
|
(0.04
|
)
|
|
(0.04
|
)
|
Weighted average number of common shares
outstanding - Basic and diluted
|
|
14,176,503
|
|
|
12,325,675
|
|
The accompanying notes are an integral part of these financial
statements.
F-4
LEXARIA CORP.
|
STATEMENT OF CASH FLOWS
|
(Expressed in U.S. Dollars)
|
|
|
Years Ended
|
|
|
|
October 31
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
Cash flows used in operating
activities
|
|
|
|
|
|
|
Net (loss)
|
$
|
(538,226
|
)
|
$
|
(552,462
|
)
|
Adjustments to reconcile net
loss to net cash used in operating activities:
|
|
|
|
|
|
|
Consulting
-Debt Settlement
|
|
9,376
|
|
|
-
|
|
Consulting - Stock based compensation
|
|
179,789
|
|
|
161,366
|
|
Depreciation
|
|
425
|
|
|
1,021
|
|
Depletion
|
|
370,199
|
|
|
121,136
|
|
Write down
in carrying value of oil and gas properties
|
|
-
|
|
|
1
|
|
Foreign exchange gain / loss
|
|
52,823
|
|
|
23,765
|
|
Accredited
interest on loan payable
|
|
6,334
|
|
|
11,672
|
|
|
|
|
|
|
|
|
Change in operating assets and
liabilities:
|
|
|
|
|
|
|
(Increase) in accounts receivable
|
|
(156,001
|
)
|
|
(32,684
|
)
|
(Increase)in prepaid expenses and deposit
|
|
(304,699
|
)
|
|
(2,338
|
)
|
Increase in accounts payable
|
|
184,877
|
|
|
(61,813
|
)
|
Net cash used in operating activities
|
|
(195,103
|
)
|
|
(330,336
|
)
|
|
|
|
|
|
|
|
Cash flows used in investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas property acquisition and
exploration costs
|
|
(697,690
|
)
|
|
(285,242
|
)
|
Net cash used in investing
activities
|
|
(697,690
|
)
|
|
(285,242
|
)
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from loan
payable
|
|
329,903
|
|
|
165,000
|
|
Proceeds from private placement
|
|
36,908
|
|
|
183,400
|
|
Proceeds from Stock
Options and warrant
|
|
494,194
|
|
|
-
|
|
Net cash from financing Activities
|
|
861,005
|
|
|
348,400
|
|
|
|
|
|
|
|
|
(Decrease) in cash and cash equivalents
|
|
(31,788
|
)
|
|
(267,178
|
)
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning
of period
|
|
62,989
|
|
|
330,167
|
|
Cash and cash equivalents, end of
period
|
$
|
31,201
|
|
$
|
62,989
|
|
The accompanying notes are an integral part of these financial
statements.
F-5
LEXARIA CORP.
|
STATEMENTS OF STOCKHOLDERS EQUITY
|
For Years Ended October 31, 2011 to October 31,
2010
|
(Expressed in U.S. Dollars)
|
|
|
COMMON STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADDITIONAL
|
|
|
|
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
PAID-IN
|
|
|
|
|
|
STOCKHOLDERS
|
|
|
|
SHARES
|
|
|
AMOUNT
|
|
|
CAPITAL
|
|
|
DEFICIT
|
|
|
EQUITY
|
|
Balance, October 31, 2009
|
|
10,732,870
|
|
$
|
10,733
|
|
$
|
5,658,768
|
|
$
|
(3,371,930
|
)
|
$
|
2,297,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options @ $0.20 Jan 10
|
|
|
|
|
|
|
|
139,050
|
|
|
|
|
|
139,050
|
|
Issuance of common stock per Subscription
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agreement at $0.1143 per share
|
|
1,617,752
|
|
|
1,618
|
|
|
181,782
|
|
|
|
|
|
183,400
|
|
Issuance of common stock per Settlement Agreement at $0.12 per share
|
|
499,893
|
|
|
500
|
|
|
59,487
|
|
|
|
|
|
59,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options @ $0.20 Aug. 16
|
|
|
|
|
|
|
|
22,316
|
|
|
|
|
|
22,316
|
|
Warrant conversion @$0.05
|
|
75,833
|
|
|
76
|
|
|
3,716
|
|
|
|
|
|
3,792
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) for the
year
|
|
|
|
|
|
|
|
|
|
|
(552,462
|
)
|
|
(552,462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 31, 2010
|
|
12,926,348
|
|
|
12,926
|
|
|
6,065,118
|
|
|
(3,924,392
|
)
|
|
2,153,653
|
|
Warrant conversion @$0.22
|
|
66,300
|
|
|
66
|
|
|
14,520
|
|
|
|
|
|
14,586
|
|
Issuance of common stock per Settlement
Agreement at $0.23 per share
|
|
40,761
|
|
|
41
|
|
|
9,335
|
|
|
|
|
|
9,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants for Convertible Debt
|
|
|
|
|
|
|
|
20,562
|
|
|
|
|
|
20,562
|
|
Issuance of common stock per stock option exercise @ $0.20
|
|
106,250
|
|
|
106
|
|
|
21,144
|
|
|
|
|
|
21,250
|
|
Issuance of common stock per warrant
exercise @ $0.20
|
|
2,173,043
|
|
|
2,173
|
|
|
432,436
|
|
|
|
|
|
434,609
|
|
Issuance of common stock per stock option exercise @ $0.20
|
|
118,750
|
|
|
119
|
|
|
23,631
|
|
|
|
|
|
23,750
|
|
Issuance of common stock per PP @ $0.35
|
|
200,000
|
|
|
200
|
|
|
69,800
|
|
|
|
|
|
70,000
|
|
Stock Options @$0.35
|
|
|
|
|
|
|
|
179,789
|
|
|
|
|
|
179,789
|
|
Issuance of common stock for acquisition of
oil and gas property
|
|
800,000
|
|
|
800
|
|
|
271,200
|
|
|
|
|
|
272,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) for the year
|
|
|
|
|
|
|
|
|
|
|
(538,226
|
)
|
|
(538,226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 31, 2011
|
|
16,431,452
|
|
$
|
16,431
|
|
$
|
7,107,535
|
|
$
|
(4,462,618
|
)
|
$
|
2,661,348
|
|
The accompanying notes are an integral part of these financial
statements.
F-6
LEXARIA CORP.
|
NOTES TO THE FINANCIAL STATEMENTS
|
October 31, 2011
|
(Expressed in U.S. Dollars)
|
(Unaudited)
|
1.
|
Organization and Business
|
|
|
|
|
|
The Company was formed on December 9, 2004 under the laws
of the State of Nevada and commenced operations on December 9, 2004. The
Company is an independent natural gas and oil company engaged in the
exploration, development and acquisition of oil and gas properties in the
United States and Canada. The Companys entry into the oil and gas
business began on February 3, 2005. The Company has offices in Vancouver
and Kelowna, BC, Canada.
|
|
|
|
|
|
These financial statements have been prepared in
accordance with United States generally accepted accounting principles
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 incurred an operating loss and
required additional funds to maintain its operations. Managements plans
in this regard are to raise equity and/or debt financing as
required.
|
|
|
|
|
|
These conditions raise substantial doubt about the
Companys ability to continue as a going concern. These financial
statements do not include any adjustment that might result from this
uncertainty.
|
|
|
|
|
2.
|
Business Risk and Liquidity
|
|
|
|
|
|
The Company is subject to several categories of risk
associated with its operating activities. Natural gas and oil exploration
and production is a speculative business and involves a high degree of
risk. Among the factors that have a direct bearing on the Companys
financial information are uncertainties inherent in estimating natural gas
and oil reserves, future hydrocarbon production and cash flows,
particularly with respect to wells that have not been fully tested and
with wells having limited production histories; access and cost of
services and equipment; and the presence of competitors with greater
financial resources and capacity.
|
|
|
|
|
3.
|
Significant Accounting Policies
|
|
|
|
|
|
a)
|
Principles of Accounting
|
|
|
|
|
These financial statements are stated in U.S. dollars and
have been prepared in accordance with U.S. generally accepted accounting
principles.
|
|
|
|
|
b)
|
Revenue Recognition
|
|
|
|
|
The Company uses the sales method of accounting for
natural gas and oil revenues. Under this method, revenues are recognized
upon the passage of title, net of royalties. Revenues from natural gas
production are recorded using the sales method. When sales volumes exceed
the Companys entitled share, an overproduced imbalance occurs. To the
extent the overproduced imbalance exceeds the Companys share of the
remaining estimated proved natural gas reserves for a given property, the
Company records a liability. At October 31, 2011 and 2010, the Company had
no overproduced imbalances.
|
|
|
|
|
c)
|
Cash and Cash Equivalents
|
|
|
|
|
Cash equivalents comprise certain highly liquid
instruments with a maturity of three months or less when purchased. As of
October 31, 2011 and 2010, cash and cash equivalents consist of cash
only.
|
F-7
|
d)
|
Oil and Gas Properties
|
|
|
|
|
The Company utilizes the full cost
method to account for its investment in oil and gas properties.
Accordingly, all costs associated with acquisition, exploration and
development of oil and gas reserves, including such costs as leasehold
acquisition costs, capitalized interest costs relating to unproved
properties, geological expenditures, tangible and intangible development
costs including direct internal costs are capitalized to the full cost
pool. When the Company obtains proven oil and gas reserves, capitalized
costs, including estimated future costs to develop the reserves and
estimated abandonment costs, net of salvage, will be depleted on the
units-of-production method using estimates of proved reserves.
|
|
|
|
Investments in unproved properties
are not depleted pending determination of the existence of proved
reserves. Unproved properties are assessed periodically to ascertain
whether impairment has occurred. Unproved properties whose costs are
individually significant are assessed individually by considering the
primary lease terms of the properties, the holding period of the
properties, and geographic and geologic data obtained relating to the
properties. Where it is not practicable to assess individually the amount
of impairment of properties for which costs are not individually
significant, such properties are grouped for purposes of assessing
impairment. The amount of impairment assessed is added to the costs to be
amortized, or is reported as a period expense, as appropriate.
|
|
|
|
Pursuant to full cost accounting
rules, the Company must perform a ceiling test periodically on its proved
oil and gas assets. The ceiling test provides that capitalized costs less
related accumulated depletion and deferred income taxes for each cost
center may not exceed the sum of (1) the present value of future net
revenue from estimated production of proved oil and gas reserves using
current prices, excluding the future cash outflows associated with
settling asset retirement obligations that have been accrued on the
balance sheet, at a discount factor of 10%; plus (2) the cost of
properties not being amortized, if any; plus (3) the lower of cost or
estimated fair value of unproved properties included in the costs being
amortized, if any; less (4) income tax effects related to differences in
the book and tax basis of oil and gas properties. Should the net
capitalized costs for a cost center exceed the sum of the components noted
above, an impairment charge would be recognized to the extent of the
excess capitalized costs.
|
|
|
|
Sales of proved and unproved
properties are accounted for as adjustments of capitalized costs with no
gain or loss recognized, unless such adjustments would significantly alter
the relationship between capitalized costs and proved reserves of oil and
gas, in which case the gain or loss is recognized in the statement of
operations.
|
|
|
|
Exploration activities conducted
jointly with others are reflected at the Companys proportionate interest
in such activities.
|
|
|
|
Cost related to site restoration
programs are accrued over the life of the project.
|
|
|
|
|
e)
|
Stock-Based Compensation
|
|
|
|
|
Accounting Standards
Codification (ASC) 718,
Compensation Stock Compensation
,
accounts for its stock options and similar equity instruments issued.
Accordingly, compensation costs attributable to stock options or similar
equity instruments granted are measured at the fair value at the grant
date, and expensed over the expected vesting period. ASC 718 requires
excess tax benefits be reported as a financing cash inflow rather than as
a reduction of taxes paid.
|
|
|
|
|
f)
|
Accounting Estimates
|
|
|
|
|
The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates and assumptions.
|
F-8
|
g)
|
Capital Assets
|
|
|
|
|
The capital asset represents computer
equipment which is carried at cost and is amortized over its estimated
useful life of 3 years straight-line. Computer equipment is written down
to its net realizable value if it is determined that its carrying value
exceeds estimated future benefits to the Company.
|
|
|
|
|
h)
|
Loss Per Share
|
|
|
|
|
Loss per share is computed using the
weighted average number of shares outstanding during the period. The
Company has adopted ASC 220
Earnings Per Share
. Diluted loss per
share is equivalent to basic loss per share because the potential exercise
of the equity-based financial instruments was anti-dilutive.
|
|
|
|
|
i)
|
Foreign Currency Translations
|
|
|
|
|
The Companys operations are located
in the United States of America and Canada, and it has offices in Canada.
The Company maintains its accounting records in U.S. Dollars, as follows:
|
|
|
|
At the transaction date, each asset,
liability, revenue and expense that was acquired or incurred in a foreign
currency is translated into U.S. dollars by the using of the exchange rate
in effect at that date. At the period end, monetary assets and liabilities
are translated at the exchange rate in effect at that date. The resulting
foreign exchange gains and losses are included in operations.
|
|
|
|
|
j)
|
Financial Instruments
|
|
|
|
|
|
|
|
ASC 820
Fair Value Measurements
and Disclosures
requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair
value. ASC 820 establishes a fair value hierarchy based on the level of
independent, objective evidence surrounding the inputs used to measure
fair value. A financial instruments categorization within the fair value
hierarchy is based upon the lowest level of input that is significant to
the fair value measurement. ASC 820 prioritizes the inputs into three
levels that may be used to measure fair value:
|
|
|
|
Level 1 - Quoted prices in active
markets for identical assets or liabilities;
|
|
|
|
Level 2 - Inputs other than quoted
prices included within Level 1 that are either directly or indirectly
observable; and
|
|
|
|
Level 3 - Unobservable inputs that
are supported by little or no market activity, therefore requiring an
entity to develop its own assumptions about the assumptions that market
participants would use in pricing.
|
|
|
|
The Companys financial instruments
consist primarily of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities, loan payable and due to a
related party. The carrying amounts of cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities, loans payable and
due to a related partyapproximate their fair values due to their short
maturities. The carrying values of the Companys long-term debt
approximate their fair values based upon a comparison of the interest rate
and terms of such debt to the rates and terms of debt currently available
to the Company.
|
|
|
|
The Company is located in Canada,
which results in exposure to market risks from changes in foreign currency
rates. The financial risk is the risk to the Companys operations that
arise from fluctuations in foreign exchange rates and the degree of
volatility of these rates. Currently, the Company does not use derivative
instruments to reduce its exposure to foreign currency risk.
|
|
|
|
|
k)
|
Income Taxes
|
|
|
|
|
The Company has adopted ASC 740,
Income Taxes
, which requires the Company to recognize deferred
tax liabilities and assets for the expected future tax consequences of
events that have been recognized in the Companys financial statements or
tax returns using the liability method. Under this method, deferred tax
liabilities and assets are determined based on the temporary differences
between the financial statement and tax bases of assets and liabilities
using enacted tax rates in effect in the year in which the differences are
expected to reverse.
|
F-9
|
l)
|
Long-Lived Assets Impairment
|
|
|
|
|
Long-term assets of the Company are
reviewed for impairment when circumstances indicate the carrying value may
not be recoverable in accordance with the guidance established in ASC 360,
Property, Plant and
Equipment
. For assets that are to be
held and used, an impairment loss is recognized when the estimated
undiscounted cash flows associated with the asset or group of assets is
less than their carrying value. If impairment exists, an adjustment is
made to write the asset down to its fair value. Fair values are determined
based on discounted cash flows or internal and external appraisals, as
applicable. Assets to be disposed of are carried at the lower of carrying
value or estimated net realizable value.
|
|
|
|
|
m)
|
Asset Retirement Obligations
|
|
|
|
|
The Company accounts for asset
retirement obligations in accordance with the provisions of
ASC 410,
Asset
Retirement and Environmental Obligations
. ASC 410
requires the Company to record the fair value of an asset retirement
obligation as a liability in the period in which it incurs a legal
obligation associated with the retirement of tangible long-lived assets
that result from the acquisition, construction, development and/or normal
use of the assets. The management of the Company had estimated the asset
retirement obligation to be immaterial and therefore was not reflected on
the financial statements as of October 31, 2011 and 2010.
|
|
|
|
|
n)
|
Comprehensive Income
|
|
|
|
|
The Company has adopted ASC 220,
Comprehensive Income
, which establishes standards for reporting
and display of comprehensive income, its components and accumulated
balances. The Company is disclosing this information on its Statement of
Stockholders Equity. Comprehensive income comprises equity changes except
those transactions resulting from investments by owners and distributions
to owners.
|
|
|
|
|
o)
|
Credit risk and receivable Concentration
|
|
|
|
|
The Company places its cash and cash
equivalent with high credit quality financial institution. As of October
31, 2011, the Company had approximately $31,201 in a bank beyond insured
limit (October 31, 2010: $62,989).
|
|
|
|
The revenues were generated from the
Companys sole customer for fiscal year 2011 and 2010; the corresponding
accounts receivable balances were $194,293 and $63,285 at December 31,
2011 and 2010, respectively.
|
|
|
|
|
p)
|
Convertible Debentures
|
|
|
|
|
The Company accounts for its
convertible debt instruments that may be settled in cash upon conversion
according to ASC 470-20-30-22 which requires the proceeds from the
issuance of such convertible debt instruments to be allocated between debt
and equity components so that debt is discounted to reflect the Companys
non-convertible debt borrowing rate.
|
|
|
|
Further, the Company applies ASC
470-20-35-13 which requires the debt discount to be amortized over the
period the convertible debt is expected to be outstanding as additional
non-cash interest expense.
|
|
|
|
|
q)
|
Commitments and Contingencies
|
|
|
|
|
In accordance with ASC 450-20,
Accounting for Contingencies, the Company records accruals for such loss
contingencies when it is probable that a liability has been incurred and
the amount of loss can be reasonably estimated. In the event that
estimates or assumptions prove to differ from actual results, adjustments
are made in subsequent periods to reflect more current information.
Historically, the Company has not experienced any material claims.
|
F-10
|
r)
|
Newly Adopted Accounting Policies
|
|
|
|
|
In February 2010, the FASB issued ASC No. 2010-09,
Amendments to Certain Recognition and Disclosure Requirements, which
eliminates the requirement for SEC filers to disclose the date through
which an entity has evaluated subsequent events. The adoption of ASC No.
2010-09 does not have a material impact on the Companys financial
statements.
|
|
|
|
In April 2010, the FASB issued ASU 2010-13,
CompensationStock Compensation (Topic 718): Effect of Denominating the
Exercise Price of a Share-Based Payment Award in the Currency of the
Market in Which the Underlying Equity Security Trades, or ASU 2010-13.
This ASU provides amendments to Topic 718 to clarify that an employee
share-based payment award with an exercise price denominated in currency
of a market in which a substantial portion of the entitys equity
securities trades should not be considered to contain a condition that is
not a market, performance, or service condition. Therefore, an entity
would not classify such an award as a liability if it otherwise qualifies
as equity. The adoption does not have significant impact on its financial
statements.
|
|
|
|
|
s)
|
New Accounting Pronouncements
|
|
|
|
|
In June 2011, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update (ASU) 2011-05, Comprehensive
Income (Topic 220): Presentation of Comprehensive Income, which is
effective for annual reporting periods beginning after December 15, 2011.
ASU 2011-05 will become effective for the Company on January 1, 2012. This
guidance eliminates the option to present the components of other
comprehensive income as part of the statement of changes in stockholders
equity. In addition, items of other comprehensive income that are
reclassified to profit or loss are required to be presented separately on
the face of the financial statements. This guidance is intended to
increase the prominence of other comprehensive income in financial
statements by requiring that such amounts be presented either in a single
continuous statement of income and comprehensive income or separately in
consecutive statements of income and comprehensive income. The adoption of
ASU 2011-05 is not expected to have a material impact on the Companys
financial position or results of operations.
|
|
|
|
In May 2011, the FASB issued ASU 2011-04, Fair Value
Measurement (Topic 820): Amendments to Achieve Common Fair Value
Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, which is
effective for annual reporting periods beginning after December 15, 2011.
This guidance amends certain accounting and disclosure requirements
related to fair value measurements. Additional disclosure requirements in
the update include: (1) for Level 3 fair value measurements, quantitative
information about unobservable inputs used, a description of the valuation
processes used by the entity, and a qualitative discussion about the
sensitivity of the measurements to changes in the unobservable inputs; (2)
for an entitys use of a nonfinancial asset that is different from the
assets highest and best use, the reason for the difference; (3) for
financial instruments not measured at fair value but for which disclosure
of fair value is required, the fair value hierarchy level in which the
fair value measurements were determined; and (4) the disclosure of all
transfers between Level 1 and Level 2 of the fair value hierarchy. The
Company is currently evaluating the impact of the adoption.
|
|
|
|
Accounting standards that have been issued or proposed by
the FASB or other standards-setting bodies that do not require adoption
until a future date are not expected to have a material impact on the
Companys financial statements upon adoption.
|
|
|
4.
|
Capital Stock Share Issuances
|
|
|
|
On December 24, 2009, the Company completed an equity
financing and issued 1,617,752 units at the price of CAD$0.12 per unit and
each unit consists of one share purchase warrant which two warrants
entitle a holder to purchase one common share at CAD$0.20 per share for a
period of one year, so that effective December 24, 2009, the Company had
12,350,622 shares of common stock issued and outstanding. All shares and
warrants issued were restricted under applicable securities
rules.
|
|
|
|
On March 17, 2010, the Company had increased its
authorized share capital from 18,750,000 common shares to 200,000,000
common shares.
|
F-11
On May 31, 2010, the Company issued
499,893 units at a price of $0.12 per unit for a Settlement Agreement valued at
$59,987. Each unit consists of one common share and one share purchase warrants
at $0.12 per share for a period of two years. All shares and warrants issued
were restricted under applicable securities rules.
On October 21, 2010, the Company
settled a portion of the debt, namely $1,625 with CAB Financial Services by
converting 65,000 warrants into 32,500 common shares of the Company as per
Purchase Agreement dated October 27, 2008 at a price of $0.05 per share.
On October 21, 2010, the Company
settled a portion of the debt, namely $2,167 with Christopher Bunka by
converting 86,667 warrants into 43,333 common shares of the Company as per
Purchase Agreement dated October 27, 2008 at a price of $0.05 per share.
On November 16, 2010, the Company
settled the debt incurred as a result of that consulting agreement, being $9,375
to Mr. Tom Ihrke by issuing 40,761 restricted common shares of the Company at a
price of $0.23 per share.
On January 4, 2011, 132,600 warrants
were exercised for 66,300 common shares of the Company at a price of CAD$0.22
for total proceeds of $14,586. 100,000 warrants of the 132,600 warrants were
exercised by a Director of the Company.
On March 6, 2011, the Company accepted
and received gross proceeds of $21,250 for the exercise of 106,250 stock options
by a Director of the Company at an exercise price of $0.20 per stock option into
106,250 common shares of the Company.
On June 8, 2011, 1,500,000 warrants
were exercised for 1,500,000 common shares of the Company at a price of $0.20
for total proceeds of $300,000. The warrants were exercised by a Director of the
Company.
On June 28, 2011, 500,000 warrants were
exercised for 500,000 common shares of the Company at a price of $0.20 for total
proceeds of $100,000. The warrants were exercised by a Director/Officer of the
Company.
On July 13, 2011, 173,043 warrants were
exercised for 173,043 common shares of the Company at a price of $0.20 for total
proceeds of $34,608.
On July 13, 2011, the Company completed
an equity financing and issued 200,000 units at the price of $0.35 per unit and
each unit consists of one share of common stock and one share purchase warrant
which entitles a holder to purchase one common share at $0.50 per share for a
period of two years. All shares and warrants issued were restricted under
applicable securities rules. The Company accepted and received gross proceeds of
$70,000. $3,500 of finders fee was paid to an officer of the Company.
On July 15, 2011, the Company accepted
and received gross proceeds of $23,750 for the exercise of 118,750 stock options
at an exercise price of $0.20 per ctock option into 118,750 common shares of the
Company. 100,000 stock options were exercised by a Director/Officer of the
Company.
On August 12, 2011, the Company issued
800,000 common shares of the Company at the price of $0.34 for the acquisition
of acquiring an additional 10% working interest in Belmont Lake.
As at October 31, 2011, Lexaria Corp.
has 16,431,452 shares issued and outstanding and 2,471,322 warrants issued and
outstanding.
F-12
The following table summarizes warrant
activity in the fiscal year ended October 31, 2011:
|
|
|
Number of
|
|
|
Weighted-average
|
|
|
|
|
warrants
|
|
|
exercise price
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at October 31,
2010
|
|
5,853,769
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
1,971,429
|
|
|
|
|
|
Exercised
|
|
(2,305,643
|
)
|
|
|
|
|
Expired
|
|
(3,048,233
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Oustanding and exercisable at October 31,
2011
|
|
2,471,322
|
|
$
|
0.37
|
|
A summary of warrants as at October 31,
2011 is as follows:
|
Number
|
Exercise
|
Expiry
|
|
Outstanding
1
|
Price
|
Date
|
|
|
|
|
|
499,893
|
$0.20
|
May 31, 2012
|
|
1,771,429
|
$0.40
|
November 30, 2012
|
|
200,000
|
$0.50
|
July 13, 2013
|
|
|
|
|
|
1. Each warrant entitles a holder
to purchase one common share.
|
5.
|
Oil and Gas Properties
|
|
|
|
|
(a)
|
Proved properties
|
Properties
|
|
October 31,
2010
|
|
|
Addition
|
|
|
Depletion
|
|
|
October 31,
2011
|
|
U.S.A. Proved
property
|
$
|
3,118,376
|
|
$
|
969,689
|
|
$
|
(370,199
|
)
|
$
|
3,717,866
|
|
(1)
Palmetto Point
Project
On December 21, 2005, the Company
agreed to purchase a 20% working and revenue interest in a 10 well drilling
program in Mississippi owned by Griffin & Griffin Exploration for $700,000.
Concurrent with signing the Company paid $220,000 and January 17, 2006 the
Company paid the remaining $480,000. The Company applied the full cost method to
account for its oil and gas properties, seven wells were found to be proved
wells, and three wells were found impaired. One of the wells was impaired due to
uneconomic life, and the other two wells were abandoned due to no apparent gas
or oil shows present. The costs of impaired properties were added to the
capitalized cost in determination of the depletion expense.
On September 22, 2006, the Company
elected to participate in an additional two-well program in Mississippi owned by
Griffin & Griffin Exploration and paid $140,000. The two wells were found to
be proved wells.
On June 23, 2007, the Company acquired
an assignment of 10% gross working interest from a third party for $520,000
secured loan payable. The Company recognized $501,922 in the oil and gas
property.
On October 4, 2007, the Company elected
to participate in the drilling of PP F-12-3 in Mississippi by Griffin &
Griffin Exploration. The Company had 30% gross working interest and paid
$266,348. On July 31, 2008, the Company accrued and paid an additional cost of
$127,707 for the workovers of wells PP F-12 and PP F-12-3. PP F-12 started
production from October 2007, and PP F-12-3 started production from November
2007.
F-13
On April 3, 2009, the Company entered
into an Asset Purchase Agreement to acquire additional interests in its existing
core producing Mississippi oil and gas properties. The Company paid $40,073.39
to acquire additional 2% working interest in the proven Belmont Lake oil and gas
and an additional 10% working interest in potential nearby exploration wells. At
this time the total working interest for Belmont Lake is 32%; and total working
interest in the exploration wells on approximately 140,000 acres surrounding
Belmont Lake in all directions is 60%.
The Company had a short-lived
opportunity to acquire additional fractional interests in the Belmont Lake 12-4
well which was expected to be a horizontal well. An unrelated third party did
not participate in its right to participate in the 12-4 well, and therefore a
share of its interest (a non consent interest) was made available to the other
participating parties including Lexaria. On August 28, 2009 and effective on
September 1, 2009, to take best advantage of this opportunity, the Company
entered into four separate assignment agreements, three of which were with
people or companies with related management. The Company received from these
four parties proceeds of $371,608.57 to fund additional interests in this well.
As a result, the Company has a 25.84% perpetual gross interest in the well
(18.0% net revenue interest); as well as a 5.2% net revenue interest in the
non-consent interest. The non-consent interest remains valid until such time as
the well produces 500% of all costs and expenses back to the participants in the
form of revenue, at which time the non-consent interest ends. Enertopia, a
company with related management, had acquired from Lexaria a 6.16% perpetual
gross interest in the 12-4 well; David DeMartini, a director of Lexaria,
acquired from Lexaria a 5% gross interest in the non-consent interest in the
12-4 well; and 0743608 BC Ltd. a company owned by the President of the Company,
acquired from Lexaria a 11.60% gross interest in the non-consent interest in the
12-4 well.
On May 31, 2010, the Company signed a
Settlement Agreement with Enertopia Corp., whereby the Company issued 499,893
units at $0.12 per unit and each unit consists of one restricted common share
and one share purchase warrant at $0.20 per share for a period of two years in
exchange for the working interest initially assigned on August 28, 2009.
On June 16, 2010, the Company signed a
Settlement Agreement with a third party, who had originally participated in the
August 28, 2009, opportunity in the non-consent interest for Belmont Lake 12-4.
The Company returned back $144,063.46 to the third party and cancelled its
participation.
On July 29, 2010, the Company had
agreed with its Operators at Belmont Lake not to proceed to drill a horizontal
12-4 well. Rather, two of the three proposed vertical wells 12-2, 12-4, or 12-5
were proposed to be drilled. To take best advantage of this opportunity, the
Company cancelled all previous agreements relating to August 28, 2009 with
respect to Belmont Lake horizontal well 12-4 and entered into three separate
assignment agreements, of which all three were with people or companies with
related management. The Company received total proceeds of $324,677.12 to fund
additional interests in these wells. As a result, the Company had a 32%
perpetual gross interest in the wells (24.0% net revenue interest); as well as a
8% gross interest (6% net revenue interest) in the non-consent interest. The
non-consent interest remains valid until such time as the well produces 500% of
all costs and expenses back to the participants in the form of revenue, at which
time the non-consent interest ends. Emerald Atlantic LLC, a company owned by a
director of Lexaria, acquired from Lexaria a 8.74% gross interest in the
non-consent interest in two of the three vertical wells; and 0743608 BC Ltd. a
company owned by the President of the Company, acquired from Lexaria a 20.79%
gross interest in the non-consent interest in the two of the three vertical
wells; an advisor to the Company acquired from Lexaria 2.46% gross interest in
the non-consent interest in two of the three vertical wells.
The July 29, 2010 agreements were
replaced on September 13, 2010, when the Company entered into three separate
assignment agreements with 0743608 BC Ltd, solely owned by Director/Officer of
the Company; Emerald Atlantic LLC, solely owned by a Director of the Company,
and the Senior VP Business Development. (the Assignees), whereby the Assignees
have paid a fee of $408,116 to earn a 24% share of the Companys gross
non-perpetual 32% interest in the three oil wells being drilled in Wilkinson
County, Mississippi. As a result of the three assignment agreements, Lexaria
receives at no cost to the company, a carried interest of 8% in these same
rights and benefits. The Company assigns, transfers and sets over to the
Assignees, all proportionate rights, interest and benefits in the Assigned Non
Perpetual Interest held by or granted to the Assignor in and to the
Participation Agreement between the Company and Griffin but limited to a gross 500%
revenue payout based on the total amount paid under the Initial
Consideration and the Subsequent Consideration after which all rights,
interests and benefits cease.
F-14
|
i.
|
Lexaria entered into an Asset
Purchase Agreement dated August 12, 2011, with Brinx Resources Ltd. to
acquire 100% of its 10% gross working interest in the oil and gas
interests located in Mississippi, USA. By acquiring the additional 10%
working interest in Belmont Lake oil and gas field, Lexaria then had 42%
working interest in Belmont Lake and retains its existing 60% working
interest in the exploration wells on approximately 130,000 acres
surrounding Belmont Lake in all directions.
|
|
|
|
|
ii.
|
Lexaria has agreed to considerations
as follows;
|
|
|
|
|
|
|
1.
|
$200,000 on the August 12, 2011 (the
"Initial Payment") (paid), and
|
|
|
|
|
|
|
2.
|
$200,000 on or before November 12, 2011; or
interim payments, as agreed, in the amount of $10,000 per month for up to
3 months following November 12, 2011 with the remaining balance of
$200,000 then due and payable (the "Final Payment"), and, should Lexaria
not make the final payment on February 12, 2011 a penalty of $500 per day
(the Penalty Payments) beginning one day after February 12, 2011 and
accruing until the balance of the $200,000 Final Payment is made to the
Vendor. Both the Vendor and the Purchaser agree that, should any Penalty
Payments be due, such Penalty Payments are not deductible from the balance
of the $200,000 Final Payment. Subsequent to the year ended October 31,
2011, the Company has paid $30,000, the above mentioned interim payments.
|
|
|
|
|
|
|
3.
|
800,000 shares of restricted common stock
issued from Lexaria treasury were issued on August 12,
|
|
|
|
2011.
|
|
|
|
|
|
|
|
|
|
|
As of October 31, 2011, additional
expenditures of $340,549 were incurred for workovers and there were
additional well interest changes or workovers pending of wells PP F-12, PP
F12-3, and PP F12-29.
|
|
|
|
|
|
As of October 31, 2011, the Companys
working interest and production in PPF-12-4 and PPF-12-5 well located at
Belmont Lake, Mississippi, with carrying values of $1M, are used to secure
for the convertible debentures issued on November 30, 2010, December 16,
2010 and December 1, 2011 (see note 7 (b) and note 12 (a)), with aggregate
amount of $820,000.
|
|
|
|
|
(2) Mississippi and Louisiana, Frio-Wilcox
Project
|
|
|
|
In December 2006, the first well CMR-US 39-14 was
found to have sufficient hydrocarbons to become economic. USA 1-37 and BR
F-33 had started intermittent production from November 2007. The Company
applied the full cost method to account for its oil and gas properties.
|
|
|
|
As at January 31, 2007, the Company abandoned
Dixon #1 due to no economic hydrocarbons being present and $162,420 of
drilling costs was added to the capitalized costs. The Dixon #1 was the
only Wilcox well the Company has drilled to date. Every other well it has
participated in located in Mississippi and Louisiana is a Frio well.
|
|
|
|
On June 2, 2007, the Company abandoned Randall #1
and $107,672 drilling costs was added to the capitalized costs in
determination of depletion expense.
|
|
|
|
During August to October 2007, three additional
wells, PP F-90, PP F-100, and PP F-111 were drilled in the area. These
Frio wells were abandoned due to modest gas shows and a total of $306,562
drilling costs was added to the capitalized costs in determination of
depletion expense.
|
F-15
|
During December 2007, two additional wells, PP F-6A and
PP F-83, were drilled and were plugged and abandoned due to non-economic
gas shows.
|
|
|
|
|
(b)
|
Unproved Properties
|
|
Properties
|
|
October 31,
|
|
|
|
|
2011 and 2010
|
|
|
U.S.A.-Unproved
properties
|
$
|
19,293
|
|
|
|
(1) Mississippi and Louisiana, USA
|
|
|
|
|
|
|
|
The Company entered into an Agreement to acquire a
working interest in multiple zones of potential oil and gas production in
Mississippi and Louisiana. This Agreement contemplates up to a 50 well
drill program for Wilcox and Frio wells, at the Companys option, within
the defined area of mutual interest (AMI). The AMI includes over 200,000
gross acres located non-contiguously between Southwest Mississippi and
North East Louisiana.
|
|
|
|
|
|
The Company originally agreed to pay 40% of all prospect
fees, mineral leases, surface leases, and drilling and completion costs to
earn a net 32% of all production from all producible zones to the base of
the Frio formation (Frio Targets); and, 30% of all production to the base
of the Wilcox formation (Wilcox Targets). All working interests are to be
registered in the name of Lexaria Corp.
|
|
|
|
|
|
The Joint Participation Agreement and Joint Lands
Agreements are between Lexaria Corp. and Griffin & Griffin Exploration
LLC (G&G) of Jackson, Mississippi.
|
|
|
|
|
|
On June 21, 2007, the Company acquired an additional 10%
from a third party for all rights, title and benefits excluding the seven
wells drilled under the AMI Agreement between August 3, 2006 and June 19,
2007, specifically wells CMR-USA-39-14, Dixon #1, Faust #1 TEC F-1, CMR/BR
F-14, RB F-1 Red Bug #2, BR F-33, and Randall #1 F-4, and any offset wells
that could be drilled to any of these specified wells.
|
|
|
|
|
|
On July 26, 2007, the Company acquired 5% from a third
party for all rights, title and benefits in the seven wells drilled under
the AMI Agreement between August 3, 2006 and June 19, 2007, specifically
wells CMR-USA-39-14, Dixon #1, Faust #1 TEC F-1, CMR/BR F-14, RB F-1 Red
Bug #2, BR F-33, and Randall #1 F-4, and any offset wells that could be
drilled to any of these specified wells.
|
|
|
|
|
|
On April 3, 2009, the Company entered into an Asset
Purchase Agreement to acquire additional interests in its existing core
producing Mississippi oil and gas properties. The Company paid $40,073 to
acquire an additional 2% working interest in the proven Belmont Lake oil
and gas field, and an additional 10% working interest in potential nearby
exploration wells. Further, the Company is required to pay $100 per month
for a period of 4 years from the closing. Total working interest for
Belmont Lake as of October 31, 2010 is 32%; and total working interest in
the exploration wells on approximately 140,000 acres surrounding Belmont
Lake in all directions as of October 31, 2010, is 60%.
|
|
|
|
|
|
On December 16, 2010, the Company entered into an
assignment agreement with Emerald Atlantic LLC, solely owned by a Director
of the Company (the Assignee), whereby the Assignee has paid a fee of
$30,076 to earn 18% of a 4.423% share of the Companys net revenue
interest after field operating expenses for a well to be drilled in
Wilkinson County.
|
|
|
|
|
|
6.
|
Loan Payable
|
|
|
|
|
|
|
a)
|
On April 1, 2010, the Company entered into a purchase
agreement with CAB Financial Services Ltd., a company controlled by
Christopher Bunka, our President, Chief Executive Officer and Director,
(Purchaser) for a non-secured promissory note in the amount of $75,000
(the Promissory Note). The Purchaser agreed to purchase a non-secured
18% interest bearing Promissory Note of our company
subjectto and upon the terms and conditions of the Purchase
Agreement. The Promissory Note is due and payable on April 1, 2012. The
Promissory Note may be prepaid in whole or in part at any time prior to
April 1, 2012 by payment of 108% of the outstanding principal amount
including accrued and unpaid interest.
|
|
|
|
|
|
As long as the Promissory Note is outstanding, the
Purchaser may voluntarily convert the Promissory Note including accrued
and unpaid interest to common shares of our company at the conversion
price of $0.30 per common share.
|
|
|
|
|
|
The Company did not incur beneficiary conversion charges
as the conversion price is greater than the fair value of the Companys
equity at the time of issuance.
|
F-16
|
b)
|
On November 30, 2010, we closed the first tranche of a
private placement offering of convertible debentures in the aggregate
amount of $450,000. The convertible debentures mature on November 30,
2012, subject to forced conversion as set out in the convertible debenture
certificate. The convertible debentures pay an interest rate of 12% per
annum (on a simple basis) and are convertible at $0.35 per unit. Each unit
is comprised of one share of our common stock and one share purchase
warrant. Each warrant entitles the holder thereof to purchase one share at
a price of $0.40 per share up to the earlier of the maturity date of the
convertible debenture or one year from conversion of the convertible
debenture. We also entered into a general security agreement with the
subscribers, whereby the obligations to repay the convertible debenture
are secured by the Companys working interest and production in and only
in two oil wells located at Belmont Lake, Mississippi, with carrying value
of $1M as of October 31, 2011. One director of the Company and Emerald
Atlantic LLC, solely owned by the director, subscribed the convertible
debentures with amount of $50,000.
|
|
|
|
|
|
On December 16, 2010, the Company closed the second
tranche of a private placement offering of convertible debentures in the
aggregate amount of $170,000. The convertible debentures mature on
November 30, 2012, subject to forced conversion as set out in the
convertible debenture certificate. The convertible debentures pay an
interest rate of 12% per annum (on a simple basis) and are convertible at
$0.35 per unit. Each unit is comprised of one share of our common stock
and one share purchase warrant. Each warrant entitles the holder thereof
to purchase one share at a price of $0.40 per share up to the earlier of
the maturity date of the convertible debenture or one year from conversion
of the convertible debenture. We also entered into a general security
agreement with the subscribers, whereby the obligations to repay the
convertible debenture are secured by the same assets for the first tranche
of the private placement offering on November 30, 2010. One director of
the Company and Emerald Atlantic LLC, solely owned by the director,
subscribed the convertible debentures with amount of $120,000.
|
|
|
|
|
|
The aggregate principal value of the above convertible
debentures was $620,000 and was allocated to the individual components on
a relative fair value basis. In addition, because the effective conversion
price of the convertible debentures was below the current trading price of
the Companys common shares at the date of issuance, the Company recorded
a beneficial conversion feature of approximately $20,000. The value of the
warrants and beneficial conversion feature has been recorded as additional
paid in capital.
|
|
|
|
7.
|
(a) Secured loan payable
|
|
|
|
|
On October 27, 2008 the Company entered into a Purchase
Agreement in the amount of CAD$900,000 of Notes being purchased by the
President (CAD$400,000), the Presidents wholly-owned company
(CAD$300,000) and a shareholder (CAD$200,000) of the Company
(Purchasers). The Purchasers agreed to purchase an 18% interest bearing
Promissory Note of the Company subject to and upon the terms and
conditions of the Purchase Agreement. The Companys obligations to repay
the Promissory Note will be secured by certain specified assets of the
Company pursuant to a Security Agreement. As long as the Promissory Note
is outstanding, the Purchasers may voluntarily convert the Promissory Note
to Common Shares at the conversion price of $0.45 per share of Common
Stock. The Promissory Note matures on October 27, 2010 or by mutual
agreement by all parties on October 27, 2009.
|
|
|
|
|
In connection with the Purchase Agreement, the Company
issued a total of 390,000 (1,560,000 pre-consolidation) warrants which two
warrants entitle a holder to purchase a common share of the Company of
which 195,000 (780,000 pre-consolidation) warrants are eligible at $0.05
(adjusted price) and 195,000 (780,000 pre-consolidation) warrants are eligible at
$0.05 (adjusted price) per share and expire October 27, 2009 and October
27, 2010, respectively.
|
F-17
|
The Company did not incur beneficiary conversion charges
as the conversion price is greater than the fair value of the Companys
equity.
|
|
|
|
|
As at the date of the issuance of the above noted
Promissory Note, the Company allocated CAD$21,321 and CAD$683,559 to
warrants (additional paid-in capital) and Promissory Note based on their
relative fair value.
|
|
|
|
|
On July 10, 2009 the Purchasers converted $45,000 of the
Promissory Note into equity at $0.05.
|
|
|
|
|
On October 27, 2009, 191,000 warrants were exercised for
95,500 common shares.
|
|
|
|
|
On October 21, 2010, the Company settled a portion of the
debt, namely $1,625 with the Presidents wholly-owned companyby converting
65,000 warrants into 32,500 common shares of the Company as per Purchase
Agreement dated October 27, 2008 at a price of $0.05 per share.
|
|
|
|
|
On October 21, 2010, the Company settled a portion of the
debt, namely $2,166.65 with the President by converting 86,667 warrants
into 43,333 common shares of the Company as per Purchase Agreement dated
October 27, 2008 at a price of $0.05 per share.
|
|
|
|
|
On October 21, 2010, the Company entered into an
amendment with loan holders to extend the loan to be on a month-to-month
basis with the same terms and conditions as pursuant to the
amendment.
|
|
|
|
|
During the year ended October 31, 2011, the Company has
paid down the debt by CAD$185,000 and the carrying amount of the secured
loan is $679,504 as of year end.
|
|
|
|
|
(b)
|
Unsecured Loan Payable
|
|
|
|
|
On September 13, 2010, we entered into a demand loan
agreement and promissory note with CAB Financial Services Ltd. (the
Lender or CAB), a company controlled by the President of our company.
The principal amount of the note is $90,000. The loan agreement and
promissory note provides that the debt be payable on demand. The note has
an interest rate of 12% per annum.
|
|
|
|
On January 31, 2011, the Company had paid back the loan
for the full amount of $90,000 to CAB and accrued interest of
$3,884.
|
|
|
|
On April 1, 2010, the Company entered into a purchase
agreement with a company controlled by the President (the Purchaser),
for a non-secured promissory note in the amount of US$75,000 (the
Promissory Note). The Purchaser agreed to purchase a non-secured 18%
interest bearing Promissory Note of our company subject to and upon the
terms and conditions of the Purchase Agreement. The Promissory Note is due
and payable on April 1, 2012. The Promissory Note may be prepaid in whole
or in part at any time prior to April 1, 2012 by payment of 108% of the
outstanding principal amount including accrued and unpaid
interest.
|
|
|
|
As long as the Promissory Note is outstanding, the
Purchaser may voluntarily convert the Promissory Note including accrued
and unpaid interest to common shares of our company at the conversion
price of $0.30 per common share.
|
|
|
|
The Company did not incur beneficiary conversion charges
as the conversion price is great than the fair value of the Companys
equity. As of October 31, 2011, the carrying amount of the unsecured loan
is $75,000.
|
|
|
|
8.
|
Related Party Transactions
|
|
|
|
|
(a)
|
For the year ended October 31, 2011, the Company paid /
accrued $96,000 to CAB (2010: $97,200), Tom Ihrke, the VP of business
development, $34,375 (2010: $8,557), and BKB Management Ltd. (BKB)
CAD$64,000 (2010: CAD$54,900) for management, consulting and accounting
services. CAB is owned by the president of the Company and BKB is owned by
the CFO of the Company.
|
F-18
|
|
The related party transactions are recorded at the
exchange amount established and agreed to between the related
parties.
|
|
|
|
|
(b)
|
On October 27, 2008 the Company entered a secured loan
agreement in the amount of CAD$300,000 with CAB. (See Note 7a). On July
10, 2009 $40,000 of the debt was converted to equity. On October 21, 2010,
the Company settled a portion of the debt, namely US$1,625 with CAB by
converting 65,000 warrants into 32,500 common shares of the Company as per
Purchase Agreement dated October 27, 2008 at a price of $0.05 per share.
On June 28, 2011, the Company paid down CAD $100,000 of the debt. For the
year ended, October 31, 2011, the Company accrued and paid interest
expenses of CAD $41,509 (2010: CAD$51,025)
|
|
|
|
|
(c)
|
On October 27, 2008 the Company entered a secured loan
agreement in the amount of CAD$400,000 with Christopher Bunka. (See Note
7a). On October 21, 2010, the Company settled a portion of the debt,
namely $2,166.65 with Christopher Bunka by converting 86,667 warrants into
43,333 common shares of the Company as per Purchase Agreement dated
October 27, 2008 at a price of $0.05 per share. For the year ended,
October 31, 2011, the Company accrued and paid interest expenses of CAD
$71,610 (2010: CAD$80,874).
|
|
|
|
|
(d)
|
See Note 4, 5, 6, and 7.
|
|
|
|
|
(e)
|
On April 1, 2010, the Company entered a non-secured loan
agreement in the amount of US$75,000 with CAB (See Note 7). For the year
ended October 31, 2011, the Company accrued and paid interest expenses of
$13,500 (2010: $7,875).
|
|
|
|
|
(f)
|
On September 13, 2010, the Company entered a demand loan
agreement in the amount of US$90,000 with CAB (See Note 8b). The Company
accrued interest of $3,884 and paid interest of $3,150. On January 31,
2011, the Company paid back the loan in full.
|
|
|
|
|
(g)
|
Included in accounts payable, $94,696 (October 31, 2010:
$90,027) was payable to companies controlled by the president, key
management personnel and directors of the Company.
|
|
|
|
|
(h)
|
For the year ended October 31, 2011, the Company has
paid/accrued $153,563 (2010: $Nil) to 0743608 BC Ltd., $64,553 (2010:$Nil)
to Emerald Atlantic LLC, and $18,196 to Tom Ihrke (2010: $Nil) for their
respective Non-consent Interests in Belmont Lake. 0743608 BC Ltd. is owned
by the president of the Company and Emerald Atlantic LLC is owned by a
Director of the Company.
|
|
|
|
9.
|
Stock Options
|
|
|
|
|
On January 20, 2010, the Company approved a new 2010
Equity Compensation plan and granted 975,000 stock options to directors
and consultants of the Company with an exercise prices of $0.20, vested
immediately and expiring on January 20, 2015.
|
|
|
|
|
On August 16, 2010, the Company granted 150,000 stock
options to a consultant of the Company with an exercise price of $0.20,
vested 75,000 immediately and 75,000 on August 16, 2011 and expiring on
August 16, 2015.
|
F-19
On July 11, 2011, the Company granted
700,000 stock options to directors and officers of the Company with an exercise
price of $0.35 per share, vested immediately and expiring on July 11, 2016.
For the year ended October 31, 2011,
the Company recorded a total of $179,789 (2010: $161,366) for stock based
compensation expenses.
The fair value of each option granted
has been estimated as of the date of the grant using the Black-Scholes option
pricing model with the following assumptions:
|
Year
ended October 31, 2011
|
Year
ended October 31, 2010
|
Expected volatility
|
131.14%
|
145.85%
|
Risk-free interest rate
|
2.75%
|
2.46%
|
Expected life
|
5 years
|
5 years
|
Dividend yield
|
0.0%
|
0.00%
|
A summary of weighted average fair
value of stock options granted during the year ended October 31, 2011 is as
follows:
|
Weighted
|
Weighted
|
|
Average
|
Average
|
|
Exercise
|
Fair
|
Period ended
October 31, 2011
|
Price
|
Value
|
Exercise price is
greater than market price at grant date:
|
$
0.35
|
$
0.26
|
|
|
|
|
Weighted
|
Weighted
|
|
Average
|
Average
|
|
Exercise
|
Fair
|
Year ended October
31, 2010
|
Price
|
Value
|
Exercise price is
greater than market price at grant date:
|
$
0.20
|
$
0.14
|
A summary of the stock options for the
year ended October 31, 2011 is presented below:
|
|
Options Outstanding
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Number of Shares
|
|
|
Exercise Price
|
|
Balance, October 31, 2010
|
|
1,525,000
|
|
$
|
0.20
|
|
Granted
|
|
700,000
|
|
|
0.35
|
|
Exercised
|
|
(225,000
|
)
|
|
0.20
|
|
Expired
|
|
(300,000
|
)
|
|
0.20
|
|
A. Balance, October 31, 2011
|
|
1,700,000
|
|
$
|
0.26
|
|
The Company has the following options
outstanding and exercisable:
October 31, 2011
|
|
|
|
|
Options outstanding
|
|
|
Options exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Range of
|
|
Number
|
|
|
remaining
|
|
|
Exercise
|
|
|
Number
|
|
|
Exercise
|
|
Exercise prices
|
|
of
shares
|
|
|
contractual life
|
|
|
Price
|
|
|
of
shares
|
|
|
Price
|
|
$0.20
|
|
150,000
|
|
|
3.80 years
|
|
$
|
0.20
|
|
|
150,000
|
|
$
|
0.20
|
|
$0.20
|
|
850,000
|
|
|
3.23 years
|
|
$
|
0.20
|
|
|
850,000
|
|
$
|
0.20
|
|
$0.25
|
|
700,000
|
|
|
4.70 years
|
|
$
|
0.35
|
|
|
700,000
|
|
$
|
0.35
|
|
Total
|
|
1,700,000
|
|
|
3.87 years
|
|
$
|
0.26
|
|
|
1,700,000
|
|
$
|
0.26
|
|
F-20
October 31, 2010
|
|
|
|
|
Options outstanding
|
|
|
Options exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Range of
|
|
Number
|
|
|
remaining
|
|
|
Exercise
|
|
|
Number
|
|
|
Exercise
|
|
Exercise prices
|
|
of
shares
|
|
|
contractual life
|
|
|
Price
|
|
|
of
shares
|
|
|
Price
|
|
$0.20
|
|
150,000
|
|
|
4.79 years
|
|
$
|
0.20
|
|
|
75,000
|
|
$
|
0.20
|
|
$0.20
|
|
975,000
|
|
|
4.22 years
|
|
$
|
0.20
|
|
|
975,000
|
|
$
|
0.20
|
|
$0.20
|
|
75,000
|
|
|
0.72 years
|
|
$
|
0.20
|
|
|
75,000
|
|
$
|
0.20
|
|
$0.20
|
|
325,000
|
|
|
0.64
years
|
|
$
|
0.20
|
|
|
325,000
|
|
$
|
0.20
|
|
Total
|
|
1,525,000
|
|
|
3.34 years
|
|
$
|
0.20
|
|
|
1,450,000
|
|
$
|
0.20
|
|
10.
|
Commitments, Significant Contracts and
Contingencies
|
|
|
|
On November 27, 2008, the Company entered into a
Consulting Agreement with CAB Financial Services Ltd. for consulting
services of CAB on a continuing basis for a consideration of US$8,000 per
month plus GST.
|
|
|
|
On May 12, 2009 the Company entered into a consulting
agreement with BKB Management Ltd. to act as the Chief Financial Officer
and a Director for an initial period of six months for consideration of
CAD $4,500 per month plus GST. This agreement replaces the September 1,
2008, Controller Agreement with CAB Financial Services Ltd. Subsequent to
October 31, 2010, effective January 1, 2011, the consideration was
increased to CAD$5,500 per month plus GST/HST.
|
|
|
|
On August 5, 2010 we entered into a three-month
Management agreement with Tom Ihrke, whereby Mr. Ihrke will act as the
Senior Vice-President, Business Development for the Company for
consideration of $3,125 per month. On December 2, 2010, the Company
entered into a month to month management agreement with Tom Ihrke, where
by Mr. Ihrke will continue to act as the Senior Vice-President Business
Development for the Company. On October 3, 2011 Mr. Ihrke and the Company
amended the agreement whereby his title changed to Manager, Business
Development. The Company will pay a monthly consulting fee of
$3,125.
|
|
|
|
As of October 31, 2011, there is one pending lawsuit
against the Company. While the ultimate outcome of this matter is not
presently determinable, it is the opinion of our management that the
resolution of this outstanding claim will not have a material adverse
effect on our financial position or results of operations. As of October
31, 2011, the Company has not recorded any loss in terms of this
lawsuit.
|
|
|
|
See also Note 5, 6, and 7.
|
|
|
11.
|
Income Tax
|
|
|
|
The Companys provision for income taxes comprise of the
following:
|
|
|
|
2011
|
|
|
2010
|
|
|
Current Tax Provision
|
$
|
Nil
|
|
$
|
Nil
|
|
|
Deferred Tax Provision
|
$
|
Nil
|
|
$
|
Nil
|
|
|
Tax Expense
|
$
|
Nil
|
|
$
|
Nil
|
|
Rate Reconciliation
Income taxes vary from the amount that
would be computed by applying the statutory federal income tax rate of 35%.
|
|
|
2011
|
|
|
2010
|
|
|
U.S. Federal Statutory Rate
|
$
|
(125,453
|
)
|
$
|
(132,973
|
)
|
|
Tax Benefit Not Recognized
|
$
|
125,453
|
|
$
|
132,973
|
|
|
Tax Expenses
|
$
|
Nil
|
|
$
|
Nil
|
|
F-21
The tax effects of temporary differences that give rise to the
Companys deferred tax asset (liability) are as follows:
|
|
|
2011
|
|
|
2010
|
|
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
Net Operating Loss Carry forward
|
$
|
1,408,175
|
|
$
|
1,191,357
|
|
|
Valuation Allowance
|
$
|
(1,408,175
|
)
|
$
|
(1,191,357
|
)
|
|
Net Deferred Tax Assets
|
$
|
Nil
|
|
$
|
Nil
|
|
Changes in the valuation allowance
relate primarily to net operating losses, resources expenditures and others
which are not currently recognized. The Company has reviewed its net deferred
tax assets and has not recognized potential tax benefits arising there from
because at this time management believes it is more likely than not that the
benefits will not be realized in future year.
For tax purpose, as of October 31,
2011, the Company has operating loss carry forwards of approximately
$4,023,000 which expire in 2025 through 203
1 as follow:
|
Year
|
|
Amount
|
|
|
2025
|
$
|
76,000
|
|
|
2026
|
|
508,000
|
|
|
2027
|
|
1,056,000
|
|
|
2028
|
|
720,000
|
|
|
2029
|
|
753,000
|
|
|
2030
|
|
552,000
|
|
|
2031
|
|
358,000
|
|
|
|
|
|
|
|
Total
|
$
|
4,023,000
|
|
12.
|
Subsequent Events
|
|
|
|
On December 1, 2011 we closed a private placement
offering of convertible debentures in the aggregate amount of $200,000.
The convertible debentures mature on December 1, 2012, subject to forced
conversion as set out in the convertible debenture certificate. The
convertible debentures pay an interest rate of 12% per annum (on a simple
basis) and are convertible at $0.35 per unit. Each unit is comprised of
one share of our common stock and one share purchase warrant. Each warrant
entitles the holder thereof to purchase one share at a price of $0.40 per
share from the earlier of the maturity date of the convertible debenture
or one year from conversion of the convertible debenture. We also entered
into a general security agreement with the subscribers, whereby the
obligations to repay the convertible debenture are secured by oil and gas
properties with carrying value of $1M for the $620,000 private placement
offering on November 30, 2010 and December 16, 2010 (see note 6(b)). The
convertible debenture was entered into by two directors of the
Company.
|
|
|
|
Also see Note 5 (a).
|
|
|
13.
|
Segmented Information
|
|
|
|
The Companys business is considered as operating in one
segment (Oil and gas in the United States) based upon the Companys
organizational structure, the way in which the operation is managed and
evaluated, the availability of separate financial results and materiality
considerations.
|
F-22
14.
|
Supplemental Information On Natural Gas and Oil
Exploration, Development and Production Activities
(Unaudited):
|
Standardized measure of discounted
future net cash flows relating to proved oil and gas reserve quantities:
The following summarizes the policies
we used in the preparation of the accompanying natural gas and oil reserve
disclosures, standardized measures of discounted future net cash flows from
proved natural gas and oil reserves and the reconciliations of standardized
measures from year to year. The information disclosed, as prescribed by the
Statement of Financial Accounting Standards No. 69 (ASC 932), is an attempt to
present the information in a manner comparable with industry peers.
The information is based on estimates
of proved reserves attributable to our interest in natural gas and oil
properties as of October 31, 2011. These estimates were prepared by independent
petroleum consultants. Proved reserves are estimated quantities of natural gas
and crude oil which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under existing
economic and operating conditions.
The standardized measure of discounted
future net cash flows from production of proved reserves was developed as
follows:
|
1.
|
Estimates are made of quantities of proved reserves and
future periods during which they are expected to be produced based on
year-end economic conditions.
|
|
|
|
|
2.
|
The estimated future cash flows are compiled by applying
year-end prices of natural gas and oil relating to our proved reserves to
the year-end quantities of those reserves.
|
|
|
|
|
3.
|
The future cash flows are reduced by estimated production
costs, costs to develop and produce the proved reserves and abandonment
costs, all based on year-end economic conditions.
|
|
|
|
|
4.
|
Future net cash flows are discounted to present value by
applying a discount rate of 10%.
|
The standardized measure of discounted
future net cash flows does not purport, nor should it be interpreted, to present
the fair value of our natural gas and oil reserves. An estimate of fair value
would also take into account, among other things, the recovery of reserves not
presently classified as proved, anticipated future changes in prices and costs,
and a discount factor more representative of the time value of money and the
risks inherent in reserve estimates.
The standardized measure of discounted
future net cash flows relating to proved natural gas and oil reserves is as
follows:
|
|
USD$
|
|
Future cash inflows
|
16,940,866
|
|
Future production costs
|
(4,409,690)
|
|
Future development costs
|
(1,070,698)
|
|
Future net cash flows - undiscounted
|
11,460,478
|
|
10% annual discount for estimated timing of
cash flows
|
(3,388,906)
|
|
Standardized measure of discounted future net cash flows
|
8,071,572
|
Year-end price per Mcf of natural gas
used in making standardized measure determinations as of October 31, 2011 was
$4.20. Year-end price per Bbl of oil used in making these same calculations was
$108.74.
Estimated Net quantities of Natural
Gas and Oil Reserves:
The following table sets forth our
proved reserves, including changes, and proved developed reserves at the end of
October 31, 2011.
F-23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural
|
|
|
Crude Oil
|
|
|
|
Crude Oil
|
|
|
Gas
|
|
|
Equivalents
|
|
|
|
(MBbls)
|
|
|
(MMcf)
|
|
|
(MBbls)
|
|
Proved reserves:
|
|
|
|
|
|
|
|
|
|
Beginning of the year reserve
|
|
125.64
|
|
|
-
|
|
|
125.64
|
|
Adjustments of reserves in place
|
|
41.65
|
|
|
3.22
|
|
|
42.19
|
|
Productions
|
|
(11.54
|
)
|
|
(3.22
|
)
|
|
(12.04
|
)
|
End of year reserves
|
|
155.79
|
|
|
-
|
|
|
155.79
|
|
|
|
|
|
|
|
|
|
|
|
Proved developed reserves:
|
|
|
|
|
|
|
|
|
|
Beginning of the year reserve
|
|
57.33
|
|
|
-
|
|
|
57.33
|
|
End of year reserves
|
|
68.07
|
|
|
-
|
|
|
68.07
|
|
F-24
LEXARIA CORP.
|
BALANCE SHEET
|
(Expressed in U.S. Dollars)
|
(Unaudited)
|
|
|
January 31
|
|
|
October 31
|
|
|
|
2012
|
|
|
2011
|
|
ASSETS
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Cash
and cash equivalents
|
$
|
140,482
|
|
$
|
31,201
|
|
Accounts
receivable
|
|
176,438
|
|
|
230,880
|
|
Prepaid
expenses and deposit
|
|
5,898
|
|
|
2,147
|
|
Total Current Assets
|
|
322,818
|
|
|
264,228
|
|
|
|
|
|
|
|
|
Deferred charges
|
|
48,871
|
|
|
33,092
|
|
Oil and gas properties (Note 6)
|
|
|
|
|
|
|
Proved property
|
|
3,697,497
|
|
|
3,717,866
|
|
Prepayment for oil and gas exploration
|
|
139,891
|
|
|
304,890
|
|
Unproved properties
|
|
19,293
|
|
|
19,293
|
|
|
|
3,856,681
|
|
|
4,042,049
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
$
|
4,228,370
|
|
$
|
4,339,369
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
122,072
|
|
$
|
322,313
|
|
Loan payable (Note 7 and 8)
|
|
1,552,513
|
|
|
754,501
|
|
Due to a related party
|
|
1,769
|
|
|
1,769
|
|
Total Current Liabilities
|
|
1,676,354
|
|
|
1,078,583
|
|
|
|
|
|
|
|
|
Loan Payable (Note 7b)
|
|
-
|
|
|
599,438
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
1,676,354
|
|
|
1,678,021
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Capital
|
|
|
|
|
|
|
Authorized:
|
|
|
|
|
|
|
200,000,000
common voting shares with a par value of $0.001 per share Issued and
outstanding: 16,431,452 common shares at January 31, 2012 (16,431,452
common shares at October 31, 2011)
|
|
16,431
|
|
|
16,431
|
|
Additional paid-in capital
|
|
7,117,124
|
|
|
7,107,535
|
|
Deficit
|
|
(4,581,539
|
)
|
|
(4,462,618
|
)
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
2,552,016
|
|
|
2,661,348
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
$
|
4,228,370
|
|
$
|
4,339,369
|
|
The accompanying notes are an integral part of these financial
statements.
F-25
LEXARIA CORP.
|
STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE
INCOME
|
For Three Months Ended January 31, 2012 to October 31,
2010
|
(Expressed in U.S. Dollars)
|
(Unaudited)
|
|
|
COMMON STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADDITIONAL
|
|
|
|
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
PAID-IN
|
|
|
|
|
|
STOCKHOLDERS
|
|
|
|
SHARES
|
|
|
AMOUNT
|
|
|
CAPITAL
|
|
|
DEFICIT
|
|
|
EQUITY
|
|
Balance, October 31, 2010
|
|
12,926,348
|
|
|
12,926
|
|
|
6,065,118
|
|
|
(3,924,392
|
)
|
|
2,153,653
|
|
Warrant conversion @$0.22
|
|
66,300
|
|
|
66
|
|
|
14,520
|
|
|
-
|
|
|
14,586
|
|
Issuance of common stock per Settlement
Agreement at $0.23 per share
|
|
40,761
|
|
|
41
|
|
|
9,335
|
|
|
-
|
|
|
9,375
|
|
Warrants for Convertible Debt
|
|
-
|
|
|
-
|
|
|
20,562
|
|
|
-
|
|
|
20,562
|
|
Issuance of common stock per stock option
exercise
|
|
106,250
|
|
|
106
|
|
|
21,144
|
|
|
-
|
|
|
21,250
|
|
Issuance of common stock per warrant exercise @ $0.20
|
|
2,173,043
|
|
|
2,173
|
|
|
432,436
|
|
|
-
|
|
|
434,609
|
|
Issuance of common stock per stock option
exercise @ $0.20
|
|
118,750
|
|
|
119
|
|
|
23,631
|
|
|
-
|
|
|
23,750
|
|
Issuance of common stock per PP @ $0.35
|
|
200,000
|
|
|
200
|
|
|
69,800
|
|
|
-
|
|
|
70,000
|
|
Stock Options @$0.35
|
|
-
|
|
|
-
|
|
|
179,789
|
|
|
-
|
|
|
179,789
|
|
Issuance of common stock per Agreement at $0.30 per share
|
|
800,000
|
|
|
800
|
|
|
239,200
|
|
|
-
|
|
|
240,000
|
|
Issuance of common stock for oil & gas
property @ $0.34
|
|
-
|
|
|
-
|
|
|
32,000
|
|
|
-
|
|
|
32,000
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) for the year
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(538,226
|
)
|
|
(538,226
|
)
|
Balance, October 31, 2011
|
|
16,431,452
|
|
|
16,431
|
|
|
7,107,535
|
|
|
(4,462,618
|
)
|
|
2,661,348
|
|
Stock Options @ $0.30
|
|
-
|
|
|
-
|
|
|
9,589
|
|
|
-
|
|
|
9,589
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) for the period
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(118,921
|
)
|
|
(118,921
|
)
|
Balance, January 31, 2012
|
|
16,431,452
|
|
|
16,431
|
|
|
7,117,124
|
|
|
(4,581,539
|
)
|
|
2,552,016
|
|
The accompanying notes are an integral part of these financial
statements.
F-26
LEXARIA CORP.
|
STATEMENTS OF OPERATIONS
|
For three months ended January 31, 2012
|
(Expressed in U.S. Dollars)
|
(Unaudited)
|
|
|
THREE MONTHS ENDED
|
|
|
|
January 31
|
|
|
|
2012
|
|
|
2011
|
|
Revenue
|
|
|
|
|
|
|
Natural gas and oil revenue *
|
$
|
249,383
|
|
$
|
262,042
|
|
Cost of revenue
|
|
|
|
|
|
|
Natural gas and oil operating costs
|
|
79,635
|
|
|
83,790
|
|
Depletion
|
|
65,570
|
|
|
127,219
|
|
|
|
145,205
|
|
|
211,009
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
104,178
|
|
|
51,033
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
Accounting and audit
|
|
-
|
|
|
17,973
|
|
Insurance
|
|
2,147
|
|
|
2,338
|
|
Advertising and
promotions
|
|
1,846
|
|
|
620
|
|
Bank charges and exchange loss
|
|
469
|
|
|
14,066
|
|
Stock Based
Compensation
|
|
9,589
|
|
|
-
|
|
Consulting (note 9)
|
|
75,892
|
|
|
48,115
|
|
Depreciation
|
|
-
|
|
|
255
|
|
Fees and Dues
|
|
10,175
|
|
|
6,488
|
|
Interest expense from
loan payable (note 6,7)
|
|
53,098
|
|
|
56,864
|
|
Investor relation
|
|
17,537
|
|
|
22,153
|
|
Legal and professional
|
|
40,392
|
|
|
4,311
|
|
Office and miscellaneous
|
|
1,127
|
|
|
1,421
|
|
Rent
|
|
3,754
|
|
|
3,427
|
|
Telephone
|
|
650
|
|
|
1,395
|
|
Training
|
|
-
|
|
|
268
|
|
Travel
|
|
6,423
|
|
|
1,516
|
|
|
|
223,099
|
|
|
181,210
|
|
Net (loss) and comprehensive loss for the period
|
$
|
(118,921
|
)
|
$
|
(130,177
|
)
|
Basic and diluted (loss) per share
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
Weighted average number of common shares outstanding
|
|
|
|
|
|
|
- Basic and diluted
|
|
16,431,452
|
|
|
12,979,921
|
|
* 2011 Revenue and cost of revenue for these months ended
January 31, 2011 has been reclassified
The accompanying notes are an integral part of these financial
statements.
F-27
LEXARIA CORP.
|
STATEMENT OF CASH FLOWS
|
For Three Months ended January 31, 2012
|
(Expressed in U.S. Dollars)
|
(Unaudited)
|
|
|
Three Months Ended
|
|
|
|
January 31
|
|
|
|
2012
|
|
|
2011
|
|
Cash flows used in operating
activities
|
|
|
|
|
|
|
Net (loss)
|
$
|
(118,921
|
)
|
$
|
(130,177
|
)
|
|
|
|
|
|
|
|
Adjustments to reconcile net
loss to net cash used in operating activities:
|
|
|
|
|
|
|
Consulting -Debt Settlement
|
|
-
|
|
|
9,375
|
|
Consulting - Stock
based compensation
|
|
9,589
|
|
|
-
|
|
Depreciation
|
|
-
|
|
|
255
|
|
Depletion
|
|
65,570
|
|
|
127,219
|
|
Foreign exchange gain / loss
|
|
(1,426
|
)
|
|
-
|
|
|
|
|
|
|
|
|
Change in operating
assets and liabilities:
|
|
|
|
|
|
|
(Increase)/Decrease in accounts receivable
|
|
54,442
|
|
|
(100,984
|
)
|
(Increase)/ Decrease in prepaid expenses and deposit
|
|
145,469
|
|
|
(6,449
|
)
|
Increase in
accounts payable
|
|
(200,241
|
)
|
|
29,644
|
|
Net cash used in operating
activities
|
|
(45,518
|
)
|
|
(71,117
|
)
|
|
|
|
|
|
|
|
Cash flows used in investing
activities
|
|
|
|
|
|
|
Oil and gas property acquisition and
exploration costs
|
|
(45,201)
|
|
|
(241,876
|
)
|
Net cash from (used in) investing
activities
|
|
(45,201)
|
|
|
(241,876
|
)
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
Payments of loan payable
|
|
-
|
|
|
(104,986
|
)
|
Proceeds from private
placement and convertible debt
|
|
200,000
|
|
|
620,000
|
|
Proceeds from Stock Options and warrant
|
|
-
|
|
|
14,586
|
|
Net cash from financing Activities
|
|
200,000
|
|
|
529,600
|
|
|
|
|
|
|
|
|
Increase in cash and cash
equivalents
|
|
109,281
|
|
|
216,607
|
|
Cash and cash equivalents, beginning of period
|
|
31,201
|
|
|
62,989
|
|
Cash and cash equivalents, end of
period
|
$
|
140,482
|
|
$
|
279,596
|
|
The accompanying notes are an integral part of these financial
statements.
F-28
LEXARIA CORP.
|
NOTES TO THE FINANCIAL STATEMENTS
|
January 31, 2012
|
(Expressed in U.S. Dollars)
|
(Unaudited)
|
1.
|
Basis of Presentation
|
|
|
|
The unaudited interim financial statements for the
quarter ended January 31, 2012 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 have been condensed or omitted pursuant to
such rules and regulations. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. These unaudited interim financial
statements should be read in conjunction with the October 31, 2011 audited
annual financial statements and notes thereto.
|
|
|
2.
|
Organization and Business
|
|
|
|
The Company was formed on December 9, 2004 under the laws
of the State of Nevada and commenced operations on December 9, 2004. The
Company is an independent natural gas and oil company engaged in the
exploration, development and acquisition of oil and gas properties in the
United States and Canada. The Companys entry into the oil and gas
business began on February 3, 2005. The Company has offices in Vancouver
and Kelowna, BC, Canada.
|
|
|
|
These financial statements have been prepared in
accordance with United States generally accepted accounting principles
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 incurred an operating loss and
required additional funds to maintain its operations. Managements plans
in this regard are to raise equity and/or debt financing as
required.
|
|
|
|
These conditions raise substantial doubt about the
Companys ability to continue as a going concern. These financial
statements do not include any adjustment that might result from this
uncertainty.
|
|
|
3.
|
Business Risk and Liquidity
|
|
|
|
The Company is subject to several categories of risk
associated with its operating activities. Natural gas and oil exploration
and production is a speculative business and involves a high degree of
risk. Among the factors that have a direct bearing on the Companys
financial information are uncertainties inherent in estimating natural gas
and oil reserves, future hydrocarbon production and cash flows,
particularly with respect to wells that have not been fully tested and
with wells having limited production histories; access and cost of
services and equipment; and the presence of competitors with greater
financial resources and capacity.
|
|
|
4.
|
Significant Accounting
Policies
|
a)
Principles of
Accounting
These financial statements are stated
in U.S. dollars and have been prepared in accordance with U.S. generally
accepted accounting principles.
b)
Convertible
Debentures
The Company accounts for its
convertible debt instruments that may be settled in cash upon conversion
according to ASC 470-20-30-22 which requires the proceeds from the issuance of
such convertible debt instruments to be allocated between debt and equity
components so that debt is discounted to reflect the Companys non-convertible
debt borrowing rate.
F-29
Further, the Company applies ASC
470-20-35-13 which requires the debt discount to be amortized over the period
the convertible debt is expected to be outstanding as additional non-cash
interest expense.
c) New Accounting Pronouncements
In June 2011, the Financial Accounting
Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-05,
Comprehensive Income (Topic 220): Presentation of Comprehensive Income, which is
effective for annual reporting periods beginning after December 15, 2011. ASU
2011-05 will become effective for the Company on November 1, 2012. This guidance
eliminates the option to present the components of other comprehensive income as
part of the statement of changes in stockholders equity. In addition, items of
other comprehensive income that are reclassified to profit or loss are required
to be presented separately on the face of the financial statements. This
guidance is intended to increase the prominence of other comprehensive income in
financial statements by requiring that such amounts be presented either in a
single continuous statement of income and comprehensive income or separately in
consecutive statements of income and comprehensive income. The adoption of ASU
2011-05 is not expected to have a material impact on the Companys financial
position or results of operations.
In May 2011, the FASB issued ASU
2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair
Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, which is
effective for annual reporting periods beginning after December 15, 2011. This
guidance amends certain accounting and disclosure requirements related to fair
value measurements. Additional disclosure requirements in the update include:
(1) for Level 3 fair value measurements, quantitative information about
unobservable inputs used, a description of the valuation processes used by the
entity, and a qualitative discussion about the sensitivity of the measurements
to changes in the unobservable inputs; (2) for an entitys use of a nonfinancial
asset that is different from the assets highest and best use, the reason for
the difference; (3) for financial instruments not measured at fair value but for
which disclosure of fair value is required, the fair value hierarchy level in
which the fair value measurements were determined; and (4) the disclosure of all
transfers between Level 1 and Level 2 of the fair value hierarchy. The Company
is currently evaluating the impact of the adoption.
Accounting standards that have been
issued or proposed by the FASB or other standards-setting bodies that do not
require adoption until a future date are not expected to have a material impact
on the Companys financial statements upon adoption.
5.
|
Capital Stock
|
|
|
|
Share Issuances
|
|
|
|
On November 16, 2010, the Company settled the debt
incurred as a result of that consulting agreement, being $9,375 to Mr. Tom
Ihrke by issuing 40,761 restricted common shares of the Company at a price
of $0.23 per share.
|
|
|
|
On January 4, 2011, 132,600 warrants were exercised for
66,300 common shares of the Company at a price of CAD$0.22 for total
proceeds of $14,586. 100,000 warrants of the 132,600 warrants were
exercised by a Director of the Company.
|
|
|
|
On March 6, 2011, the Company accepted and received gross
proceeds of $21,250 for the exercise of 106,250 stock options by a
Director of the Company at an exercise price of $0.20 per stock option
into 106,250 common shares of the Company.
|
|
|
|
On June 8, 2011, 1,500,000 warrants were exercised for
1,500,000 common shares of the Company at a price of $0.20 for total
proceeds of $300,000. The warrants were exercised by a Director of the
Company.
|
|
|
|
On June 28, 2011, 500,000 warrants were exercised for
500,000 common shares of the Company at a price of $0.20 for total
proceeds of $100,000. The warrants were exercised by a Director/Officer of
the Company.
|
F-30
On July 13, 2011, 173,043 warrants were
exercised for 173,043 common shares of the Company at a price of $0.20 for total
proceeds of $34,608.
On July 13, 2011, the Company completed
an equity financing and issued 200,000 units at the price of $0.35 per unit and
each unit consists of one share of common stock and one share purchase warrant
which entitles a holder to purchase one common share at $0.50 per share for a
period of two years. All shares and warrants issued were restricted under
applicable securities rules. The Company accepted and received gross proceeds of
$70,000. $3,500 of finders fee was paid to an officer of the Company.
On July 15, 2011, the Company accepted
and received gross proceeds of $23,750 for the exercise of 118,750 stock options
at an exercise price of $0.20 per stock option into 118,750 common shares of the
Company. 100,000 stock options were exercised by a Director/Officer of the
Company.
On August 12, 2011, the Company issued
800,000 common shares of the Company at the price of $0.34 for the acquisition
of acquiring an additional 10% working interest in Belmont Lake.
As at January 31, 2012, Lexaria Corp.
has 16,431,452 shares issued and outstanding and 3,042,751 warrants issued and
outstanding.
A summary of warrants as at January 31,
2012 is as follows:
|
Number
|
Exercise
|
Expiry
|
|
Outstanding
1
|
Price
|
Date
|
|
|
|
|
|
499,893
|
$0.20
|
May 31, 2012
|
|
1,771,429
|
$0.40
|
November 30, 2012
|
|
200,000
|
$0.50
|
July 13, 2013
|
|
571,429
|
$0.40
|
December 1, 2012
|
|
3,042,751
|
$0.37
|
|
1. Each warrant entitles a holder to
purchase one common share.
6.
|
Oil and Gas Properties
|
|
Properties
|
|
October 31,
|
|
|
Addition
|
|
|
Depletion
|
|
|
January 31,
|
|
|
|
|
2011
|
|
|
|
|
|
|
|
|
2012
|
|
|
U.S.A. Proved property
|
$
|
3,717,866
|
|
$
|
45,201
|
|
$
|
(65,570
|
)
|
$
|
3,697,497
|
|
(1) Palmetto Point Project
On December 21, 2005, the Company
agreed to purchase a 20% working and revenue interest in a 10 well drilling
program in Mississippi owned by Griffin & Griffin Exploration for $700,000.
Concurrent with signing the Company paid $220,000 and January 17, 2006 the
Company paid the remaining $480,000. The Company applied the full cost method to
account for its oil and gas properties, seven wells were found to be proved
wells, and three wells were found impaired. One of the wells was impaired due to
uneconomic life, and the other two wells were abandoned due to no apparent gas
or oil shows present. The costs of impaired properties were added to the
capitalized cost in determination of the depletion expense.
On September 22, 2006, the Company
elected to participate in an additional two-well program in Mississippi owned by
Griffin & Griffin Exploration and paid $140,000. The two wells were found to
be proved wells.
F-31
On June 23, 2007, the Company acquired
an assignment of 10% gross working interest from a third party for $520,000
secured loan payable. The Company recognized $501,922 in the oil and gas
property.
On October 4, 2007, the Company
elected to participate in the drilling of PP F-12-3 in Mississippi by Griffin
& Griffin Exploration. The Company had 30% gross working interest and paid
$266,348. On July 31, 2008, the Company accrued and paid an additional cost of
$127,707 for the workovers of wells PP F-12 and PP F-12-3. PP F-12 started
production from October 2007, and PP F-12-3 started production from November
2007.
On April 3, 2009, the Company entered
into an Asset Purchase Agreement to acquire additional interests in its existing
core producing Mississippi oil and gas properties. The Company paid $40,073.39
to acquire additional 2% working interest in the proven Belmont Lake oil and gas
and an additional 10% working interest in potential nearby exploration wells. At
this time the total working interest for Belmont Lake is 32%; and total working
interest in the exploration wells on approximately 140,000 acres surrounding
Belmont Lake in all directions is 60%.
The Company had a short-lived
opportunity to acquire additional fractional interests in the Belmont Lake 12-4
well which was expected to be a horizontal well. An unrelated third party did
not participate in its right to participate in the 12-4 well, and therefore a
share of its interest (a non consent interest) was made available to the other
participating parties including Lexaria. On August 28, 2009 and effective on
September 1, 2009, to take best advantage of this opportunity, the Company
entered into four separate assignment agreements, three of which were with
people or companies with related management. The Company received from these
four parties proceeds of $371,608.57 to fund additional interests in this well.
As a result, the Company has a 25.84% perpetual gross interest in the well
(18.0% net revenue interest); as well as a 5.2% net revenue interest in the
non-consent interest. The non-consent interest remains valid until such time as
the well produces 500% of all costs and expenses back to the participants in the
form of revenue, at which time the non-consent interest ends. Enertopia, a
company with related management, had acquired from Lexaria a 6.16% perpetual
gross interest in the 12-4 well; David DeMartini, a director of Lexaria,
acquired from Lexaria a 5% gross interest in the non-consent interest in the
12-4 well; and 0743608 BC Ltd. a company owned by the President of the Company,
acquired from Lexaria a 11.60% gross interest in the non-consent interest in the
12-4 well.
On May 31, 2010, the Company signed a
Settlement Agreement with Enertopia Corp., whereby the Company issued 499,893
units at $0.12 per unit and each unit consists of one restricted common share
and one share purchase warrant at $0.20 per share for a period of two years in
exchange for the working interest initially assigned on August 28, 2009.
On June 16, 2010, the Company signed a
Settlement Agreement with a third party, who had originally participated in the
August 28, 2009, opportunity in the non-consent interest for Belmont Lake 12-4.
The Company returned back $144,063.46 to the third party and cancelled its
participation.
On July 29, 2010, the Company had
agreed with its Operators at Belmont Lake not to proceed to drill a horizontal
12-4 well. Rather, two of the three proposed vertical wells 12-2, 12-4, or 12-5
were proposed to be drilled. To take best advantage of this opportunity, the
Company cancelled all previous agreements relating to August 28, 2009 with
respect to Belmont Lake horizontal well 12-4 and entered into three separate
assignment agreements, of which all three were with people or companies with
related management. The Company received total proceeds of $324,677.12 to fund
additional interests in these wells. As a result, the Company had a 32%
perpetual gross interest in the wells (24.0% net revenue interest); as well as a
8% gross interest (6% net revenue interest) in the non-consent interest. The
non-consent interest remains valid until such time as the well produces 500% of
all costs and expenses back to the participants in the form of revenue, at which
time the non-consent interest ends. Emerald Atlantic LLC, a company owned by a
director of Lexaria, acquired from Lexaria a 8.74% gross interest in the
non-consent interest in two of the three vertical wells; and 0743608 BC Ltd. a
company owned by the President of the Company, acquired from Lexaria a 20.79%
gross interest in the non-consent interest in the two of the three vertical
wells; an advisor to the Company acquired from
Lexaria 2.46% gross interest in the non-consent interest in two of the three
vertical wells.
F-32
The July 29, 2010 agreements were
replaced on September 13, 2010, when the Company entered into three separate
assignment agreements with 0743608 BC Ltd, solely owned by Director/Officer of
the Company; Emerald Atlantic LLC, solely owned by a Director of the Company,
and the Senior VP Business Development. (the Assignees), whereby the Assignees
have paid a fee of $408,116 to earn a 24% share of the Companys gross
non-perpetual 32% interest in the three oil wells being drilled in Wilkinson
County, Mississippi. As a result of the three assignment agreements, Lexaria
receives at no cost to the company, a carried interest of 8% in these same
rights and benefits. The Company assigns, transfers and sets over to the
Assignees, all proportionate rights, interest and benefits in the Assigned Non
Perpetual Interest held by or granted to the Assignor in and to the
Participation Agreement between the Company and Griffin but limited to a gross
500% revenue payout based on the total amount paid under the Initial
Consideration and the Subsequent Consideration after which all rights, interests
and benefits cease.
Lexaria entered into an Asset Purchase
Agreement dated August 12, 2011, with Brinx Resources Ltd. to acquire 100% of
its 10% gross working interest in the oil and gas interests located in
Mississippi, USA. By acquiring the additional 10% working interest in Belmont
Lake oil and gas field, Lexaria then had 42% working interest in Belmont Lake
and retains its existing 60% working interest in the exploration wells on
approximately 130,000 acres surrounding Belmont Lake in all directions.
Lexaria has agreed to considerations
as follows;
|
1.
|
$200,000 on the August 12, 2011 (the "Initial Payment")
(paid), and
|
|
|
|
|
2.
|
$200,000 on or before November 12, 2011; or interim
payments, as agreed, in the amount of $10,000 per month for up to 3 months
following November 12, 2011 with the remaining balance of $200,000 then
due and payable (the "Final Payment"), and, should Lexaria not make the
final payment on February 12, 2011 a penalty of $500 per day (the Penalty
Payments) beginning one day after February 12, 2011 and accruing until
the balance of the $200,000 Final Payment is made to the Vendor. Both the
Vendor and the Purchaser agreed that, should any Penalty Payments be due,
such Penalty Payments are not deductible from the balance of the $200,000
Final Payment. As at January 31, 2012, the Company has paid $230,000,
including the Final Payment.
|
|
|
|
|
3.
|
800,000 shares of restricted common stock issued from
Lexaria treasury were issued on August 12, 2011.
|
As of January 31, 2012, additional
expenditures of $45,201 were incurred for workovers and there were additional
well interest changes or workovers pending of wells PP F-12, PP F12-3, and PP
F29.
As of January 31, 2012, the Companys
working interest and production in PPF-12-4 and PPF-12-5 well located at Belmont
Lake, Mississippi, with carrying values of $1M, are used as security for the
convertible debentures issued on November 30, 2010, December 16, 2010 and
December 1, 2011 (see note 7 (b) and note 12 (a), with aggregate amount of
$820,000.
(2)
Mississippi and
Louisiana, Frio-Wilcox Project
In December 2006, the first well CMR-US
39-14 was found to have sufficient hydrocarbons to become economic. USA 1-37 and
BR F-33 had started intermittent production from November 2007. The Company
applied the full cost method to account for its oil and gas properties.
As at January 31, 2007, the Company
abandoned Dixon #1 due to no economic hydrocarbons being present and $162,420 of
drilling costs was added to the capitalized costs. The Dixon #1 was the only
Wilcox well the Company has drilled to date. With the exception of a
participation interest in an unsuccessful Tuscaloosa well in 2011,
every other well it has participated in located in Mississippi and Louisiana is
a Frio well.
F-33
On June 2, 2007, the Company abandoned
Randall #1 and $107,672 drilling costs was added to the capitalized costs in
determination of depletion expense.
During August to October 2007, three
additional wells, PP F-90, PP F-100, and PP F-111 were drilled in the area.
These Frio wells were abandoned due to modest gas shows and a total of $306,562
drilling costs was added to the capitalized costs in determination of depletion
expense.
During December 2007, two additional
wells, PP F-6A and PP F-83, were drilled and were plugged and abandoned due to
non-economic gas shows.
(b)
Unproved Properties
|
Properties
|
|
January 31,
|
|
|
October 31,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
U.S.A.-Unproved properties
|
$
|
19,293
|
|
|
19,293
|
|
(1)
Mississippi and
Louisiana, USA
The Company entered into an Agreement
to acquire a working interest in multiple zones of potential oil and gas
production in Mississippi and Louisiana. This Agreement contemplates up to a 50
well drill program for Wilcox and Frio wells, at the Companys option, within
the defined area of mutual interest (AMI). The AMI includes over 200,000 gross
acres located non-contiguously between Southwest Mississippi and North East
Louisiana.
The Company originally agreed to pay
40% of all prospect fees, mineral leases, surface leases, and drilling and
completion costs to earn a net 32% of all production from all producible zones
to the base of the Frio formation (Frio Targets); and, 30% of all production to
the base of the Wilcox formation (Wilcox Targets). All working interests are to
be registered in the name of Lexaria Corp.
The Joint Participation Agreement and
Joint Lands Agreements are between Lexaria Corp. and Griffin & Griffin
Exploration LLC (G&G) of Jackson, Mississippi.
On June 21, 2007, the Company acquired
an additional 10% from a third party for all rights, title and benefits
excluding the seven wells drilled under the AMI Agreement between August 3, 2006
and June 19, 2007, specifically wells CMR-USA-39-14, Dixon #1, Faust #1 TEC F-1,
CMR/BR F-14, RB F-1 Red Bug #2, BR F-33, and Randall #1 F-4, and any offset
wells that could be drilled to any of these specified wells.
On July 26, 2007, the Company acquired
5% from a third party for all rights, title and benefits in the seven wells
drilled under the AMI Agreement between August 3, 2006 and June 19, 2007,
specifically wells CMR-USA-39-14, Dixon #1, Faust #1 TEC F-1, CMR/BR F-14, RB
F-1 Red Bug #2, BR F-33, and Randall #1 F-4, and any offset wells that could be
drilled to any of these specified wells.
On April 3, 2009, the Company entered
into an Asset Purchase Agreement to acquire additional interests in its existing
core producing Mississippi oil and gas properties. The Company paid $40,073 to
acquire an additional 2% working interest in the proven Belmont Lake oil and gas
field, and an additional 10% working interest in potential nearby exploration
wells. Further, the Company is required to pay $100 per month for a period of 4
years from the closing. Total working interest for Belmont Lake as of October
31, 2010 is 32%; and total working interest in the exploration wells on
approximately 140,000 acres surrounding Belmont Lake in all directions as of
October 31, 2010, is 60%.
F-34
On December 16, 2010, the Company
entered into an assignment agreement with Emerald Atlantic LLC, solely owned by
a Director of the Company (the Assignee), whereby the Assignee has paid a fee
of $30,076 to earn 18% of a 4.423% share of the Companys net revenue interest
after field operating expenses for a Tuscaloosa well to be drilled in Wilkinson
County.
|
a)
|
On April 1, 2010, the Company entered into a purchase
agreement with CAB Financial Services Ltd., a company controlled by
Christopher Bunka, our President, Chief Executive Officer and Director,
(Purchaser) for a non-secured promissory note in the amount of $75,000
(the Promissory Note). The Purchaser agreed to purchase a non-secured
18% interest bearing Promissory Note of our company subject to and upon
the terms and conditions of the Purchase Agreement. The Promissory Note is
due and payable on April 1, 2012. The Promissory Note may be prepaid in
whole or in part at any time prior to April 1, 2012 by payment of 108% of
the outstanding principal amount including accrued and unpaid
interest.
|
|
|
|
|
|
As long as the Promissory Note is outstanding, the
Purchaser may voluntarily convert the Promissory Note including accrued
and unpaid interest to common shares of our company at the conversion
price of $0.30 per common share.
|
|
|
|
|
|
The Company did not incur beneficiary conversion charges
as the conversion price is greater than the fair value of the Companys
equity at the time of issuance.
|
|
|
|
|
b)
|
On November 30, 2010, we closed the first tranche of a
private placement offering of convertible debentures in the aggregate
amount of $450,000. The convertible debentures mature on November 30,
2012, subject to forced conversion as set out in the convertible debenture
certificate. The convertible debentures pay an interest rate of 12% per
annum (on a simple basis) and are convertible at $0.35 per unit. Each unit
is comprised of one share of our common stock and one share purchase
warrant. Each warrant entitles the holder thereof to purchase one share at
a price of $0.40 per share up to the earlier of the maturity date of the
convertible debenture or one year from conversion of the convertible
debenture. We also entered into a general security agreement with the
subscribers, whereby the obligations to repay the convertible debenture
are secured by the Companys working interest and production in and only
in two oil wells located at Belmont Lake, Mississippi, with carrying value
of $1M as of January 31, 2012. One director of the Company and Emerald
Atlantic LLC, solely owned by the director, subscribed the convertible
debentures with amount of $50,000.
|
|
|
|
|
|
On December 16, 2010, the Company closed the second
tranche of a private placement offering of convertible debentures in the
aggregate amount of $170,000. The convertible debentures mature on
November 30, 2012, subject to forced conversion as set out in the
convertible debenture certificate. The convertible debentures pay an
interest rate of 12% per annum (on a simple basis) and are convertible at
$0.35 per unit. Each unit is comprised of one share of our common stock
and one share purchase warrant. Each warrant entitles the holder thereof
to purchase one share at a price of $0.40 per share up to the earlier of
the maturity date of the convertible debenture or one year from conversion
of the convertible debenture. We also entered into a general security
agreement with the subscribers, whereby the obligations to repay the
convertible debenture are secured by the same assets for the first tranche
of the private placement offering on November 30, 2010. One director of
the Company and Emerald Atlantic LLC, solely owned by the director,
subscribed the convertible debentures with amount of $120,000.
|
|
|
|
|
|
The aggregate principal value of the above convertible
debentures was $620,000 and was allocated to the individual components on
a relative fair value basis. In addition, because the effective conversion
price of the convertible debentures was below the current trading price of
the Companys common shares at the date of issuance, the Company recorded
a beneficial conversion feature of approximately $20,000. The value of the
warrants and beneficial conversion feature has been recorded as additional
paid in capital.
|
F-35
On December 1, 2011, the Company closed
a private placement offering of convertible debentures in the aggregate amount
of $200,000. The convertible debentures mature on December 1, 2012, subject to
forced conversion as set out in the convertible debenture certificate. The
convertible debentures pay an interest rate of 12% per annum (on a simple basis)
and are convertible at $0.35 per unit. Each unit is comprised of one share of
our common share and one share purchase warrant. Each warrant entitles the
holder thereof to purchase one share at a price of $0.40 per share up to the
earlier of the maturity date of the convertible debenture or one year from
conversion of the convertible debenture. We also entered into a general security
agreement with the subscribers, whereby the obligations to repay the convertible
debenture are secured by the Companys working interest and production in and
only in two oil wells located at Belmont Lake, Mississippi, with carrying value
of $1M as of January 31, 2012. Two directors of the Company, David DeMartini and
CAB Financial Services Ltd, solely owned by the director, subscribed to the
convertible debentures with the amount of $200,000.
The aggregate principal value of the
above convertible debentures was $200,000 and was allocated to the individual
components on a relative fair value basis. Because the effective conversion
price of the convertible debentures was above the current trading price of the
Companys common shares at the date of issuance, beneficial conversion feature
is $Nil, therefore, the amount of $200,000 was recorded under loan payable.
8.
|
Secured loan payable
|
|
|
|
On October 27, 2008 the Company entered into a Purchase
Agreement in the amount of CAD$900,000 of Notes being purchased by the
President (CAD$400,000), the Presidents wholly-owned company
(CAD$300,000) and a shareholder (CAD$200,000) of the Company
(Purchasers). The Purchasers agreed to purchase an 18% interest bearing
Promissory Note of the Company subject to and upon the terms and
conditions of the Purchase Agreement. The Companys obligations to repay
the Promissory Note will be secured by certain specified assets of the
Company pursuant to a Security Agreement. As long as the Promissory Note
is outstanding, the Purchasers may voluntarily convert the Promissory Note
to Common Shares at the conversion price of $0.45 per share of Common
Stock. The Promissory Note matures on October 27, 2010 or by mutual
agreement by all parties on October 27, 2009.
|
|
|
|
In connection with the Purchase Agreement, the Company
issued a total of 390,000 (1,560,000 pre- consolidation) warrants which
two warrants entitle a holder to purchase a common share of the Company of
which 195,000 (780,000 pre-consolidation) warrants are eligible at $0.05
(adjusted price) and 195,000 (780,000 pre-consolidation) warrants are
eligible at $0.05 (adjusted price) per share and expire October 27, 2009
and October 27, 2010, respectively.
|
|
|
|
The Company did not incur beneficiary conversion charges
as the conversion price is greater than the fair value of the Companys
equity.
|
|
|
|
As at the date of the issuance of the above noted
Promissory Note, the Company allocated CAD$21,321 and CAD$683,559 to
warrants (additional paid-in capital) and Promissory Note based on their
relative fair value.
|
|
|
|
On July 10, 2009 the Purchasers converted $45,000 of the
Promissory Note into equity at $0.05.
|
|
|
|
On October 27, 2009, 191,000 warrants were exercised for
95,500 common shares.
|
|
|
|
On October 21, 2010, the Company settled a portion of the
debt, namely $1,625 with the Presidents wholly- owned company by
converting 65,000 warrants into 32,500 common shares of the Company as per
Purchase Agreement dated October 27, 2008 at a price of $0.05 per
share.
|
|
|
|
On October 21, 2010, the Company settled a portion of the
debt, namely $2,166.65 with the President by converting 86,667 warrants
into 43,333 common shares of the Company as per Purchase Agreement dated
October 27, 2008 at a price of $0.05 per share.
|
|
|
|
On October 21, 2010, the Company entered into an
amendment with loan holders to extend the loan to be on a month-to-month
basis with the same terms and conditions as pursuant to the
amendment.
|
F-36
During the year ended October 31, 2011,
the Company has paid down the debt by CAD$185,000 and the carrying amount of the
secured loan is $656,901 as of January 31, 2012.
9.
|
Related Party
Transactions
|
|
(a)
|
For the quarter ended January 31, 2012, the Company paid
/ accrued $26,880 to CAB (2011: $26,880), Tom Ihrke, the VP of business
development, $7,812 (2010: $9,519), and BKB Management Ltd. (BKB)
CAD$18,840 (2011: CAD$16,240) for management, consulting and accounting
services. CAB is owned by the president of the Company and BKB is owned by
the CFO of the Company.
|
|
|
|
|
|
The related party transactions are recorded at the
exchange amount established and agreed to between the related
parties.
|
|
|
|
|
(b)
|
On October 27, 2008 the Company entered a secured loan
agreement in the amount of CAD$300,000 with CAB. (See Note 8a). On July
10, 2009 $40,000 of the debt was converted to equity. On October 21, 2010,
the Company settled a portion of the debt, namely US$1,625 with CAB by
converting 65,000 warrants into 32,500 common shares of the Company as per
Purchase Agreement dated October 27, 2008 at a price of $0.05 per share.
On June 28, 2011, the Company paid down CAD $100,000 of the debt. For the
quarter ended, January 31, 2012, the Company paid interest expenses of CAD
$6,819 (2010: CAD$11,319).
|
|
|
|
|
(c)
|
On October 27, 2008 the Company entered a secured loan
agreement in the amount of CAD$400,000 with Christopher Bunka. (See Note
8a). On October 21, 2010, the Company settled a portion of the debt,
namely $2,166.65 with Christopher Bunka by converting 86,667 warrants into
43,333 common shares of the Company as per Purchase Agreement dated
October 27, 2008 at a price of $0.05 per share. For the quarter ended,
January 31, 2012, the Company paid interest expenses of CAD $17,903 (2011:
CAD$17,901).
|
|
|
|
|
(d)
|
See Note 5, 6, 7 and 8.
|
|
|
|
|
(e)
|
On April 1, 2010, the Company entered a non-secured loan
agreement in the amount of US$75,000 with CAB (See Note 7a). For the
quarter ended January 31, 2012, the Company paid interest expenses of
$3,375 (2011: $5,625).
|
|
|
|
|
(g)
|
Included in accounts payable, $48,204 (January 31, 2011:
$95,201) was payable to companies controlled by the president, key
management personnel and directors of the Company.
|
|
|
|
|
(h)
|
For the quarter ended January 31, 2012, the Company has
paid/accrued $26,115.45 (2010: $44,267) to 0743608 BC Ltd., $10,977
(2010:$18,608) to Emerald Atlantic LLC, and $3,094 to Tom Ihrke (2010:
$5,245) for their respective Non-consent Interests in Belmont Lake.
0743608 BC Ltd. is owned by the president of the Company and Emerald
Atlantic LLC is owned by a Director of the
Company.
|
10.
|
Stock Options
|
|
|
|
On November 15, 2011, the Company granted 40,000 stock
options to consultants of the Company with an exercise price of $0.30 per
share, vested immediately and expiring on November 15, 2016.
|
|
|
|
For the quarter ended January 31, 2012, the Company
recorded a total of $9,589 (2011: $Nil) for stock based compensation
expenses. This is related to a non-exclusive agreement that the Company
entered into with a third party IR services company, Trident Financial
Corp., to assist the Company with the development and implementation of a
public and investor relations and communications program, and provide
ongoing assistance to the Company regarding the development and
enhancement of the Companys public and market image.
|
F-37
The fair value of each option granted
has been estimated as of the date of the grant using the Black-Scholes option
pricing model with the following assumptions:
|
|
Quarter ended January 31, 2012
|
|
Expected volatility
|
129.14%
|
|
Risk-free interest
rate
|
2.75%
|
|
Expected life
|
5 years
|
|
Dividend yield
|
0.0%
|
A summary of weighted average fair
value of stock options granted during the quarter ended January 31, 2012 is as
follows:
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
Exercise
|
|
|
Fair
|
|
|
Period ended
January 31, 2012
|
|
Price
|
|
|
Value
|
|
|
Exercise price is greater than market price at grant date:
|
$
|
0.30
|
|
$
|
0.24
|
|
A summary of the stock options for the
quarter ended January 31, 2012 is presented below:
|
|
|
Options Outstanding
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
Number of Shares
|
|
|
Exercise Price
|
|
|
Balance, October 31, 2011
|
|
1,700,000
|
|
$
|
0.26
|
|
|
Granted
|
|
40,000
|
|
|
0.30
|
|
|
Balance, January 31, 2012
|
|
1,740,000
|
|
$
|
0.26
|
|
The Company has the following options
outstanding and exercisable:
|
January 31, 2012
|
|
Options outstanding
|
Options exercisable
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
Weighted
|
|
Weighted
|
|
|
|
average
|
Average
|
|
Average
|
|
Range of
|
Number
|
remaining
|
Exercise
|
Number
|
Exercise
|
|
Exercise prices
|
of shares
|
contractual life
|
Price
|
of shares
|
Price
|
|
$0.20
|
150,000
|
2.97 years
|
$0.20
|
150,000
|
$0.20
|
|
$0.20
|
850,000
|
3.54years
|
$0.20
|
850,000
|
$0.20
|
|
$0.35
|
700,000
|
4.45 years
|
$0.35
|
700,000
|
$0.35
|
|
$0.30
|
40,000
|
4.79
years
|
$0.30
|
40,000
|
$0.30
|
|
Total
|
1,740,000
|
3.66 years
|
$0.26
|
1,740,000
|
$0.26
|
11.
|
Commitments, Significant Contracts and
Contingencies
|
|
|
|
On November 27, 2008, the Company entered into a
Consulting Agreement with CAB Financial Services Ltd. for consulting
services of CAB on a continuing basis for a consideration of US$8,000 per
month plus GST.
|
|
|
|
On May 12, 2009 the Company entered into a consulting
agreement with BKB Management Ltd. to act as the Chief Financial Officer
and a Director for an initial period of six months for consideration of
CAD $4,500 per month plus GST. This agreement replaces the September 1,
2008, Controller Agreement with CAB Financial Services Ltd. Subsequent to
October 31, 2010, effective January 1, 2011, the consideration was
increased to CAD$5,500 per month plus GST/HST.
|
|
|
|
On August 5, 2010 we entered into a three-month
Management agreement with Tom Ihrke, whereby Mr. Ihrke will act as the
Senior Vice-President, Business Development for the Company for
consideration of $3,125 per month. On December 2, 2010, the Company
entered into a month to month management agreement with Tom Ihrke, where by Mr.
Ihrke will continue to act as the Senior Vice-President Business Development for
the Company. On October 3, 2011 Mr. Ihrke and the Company amended the agreement
whereby his title changed to Manager, Business Development. The Company will pay
a monthly consulting fee of $3,125. Effective January 15, 2012, the consulting
agreement has been decreased to $10 a month.
|
As of October 31, 2011, there is one
pending lawsuit against the Company. While the ultimate outcome of this matter
is not presently determinable, it is the opinion of our management that the
resolution of this outstanding claim will not have a material adverse effect on
our financial position or results of operations. As of January 31, 2012, the
Company has not recorded any loss in terms of this lawsuit.
See also Note 6, 7, and 8.
12.
|
Segmented Information
|
|
|
|
The Companys business is considered as operating in one
segment (Oil and gas in the United States) based upon the Companys
organizational structure, the way in which the operation is managed and
evaluated, the availability of separate financial results and materiality
considerations.
|
F-38
Managements Discussion and Analysis of Financial Position
and Results of Operations
The following discussion should be read in conjunction with our
financial statements, including the notes thereto, appearing elsewhere in this
Prospectus. The discussion of results, causes and trends should not be construed
to imply any conclusion that these results or trends will necessarily continue
into the future.
Forward Looking Statements
This Prospectus contains forward-looking statements as that
term is defined in the Private Securities Litigation Reform Act of 1995. These
statements relate to future events or our future financial performance. In some
cases, you can identify forward-looking statements by terminology such as "may",
"should", "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", that may cause our or our industrys 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. Except as required by applicable law, including the securities
laws of the United States, we do not intend to update any of the forward-looking
statements to conform these statements to actual results.
Our audited annual and unaudited interim financial statements
are stated in United States Dollars (US$) and are prepared in accordance with
United States Generally Accepted Accounting Principles. The following discussion
should be read in conjunction with our financial statements and the related
notes that appear elsewhere in this Prospectus. The following discussion
contains forward-looking statements that reflect our plans, estimates and
beliefs. Our actual results could differ materially from those discussed in the
forward looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below and elsewhere
in this Prospectus, particularly in the section entitled "Risk Factors" of this
Prospectus.
In this Prospectus, unless otherwise specified, all dollar
amounts are expressed in United States dollars. All references to "CDN$" refer
to Canadian dollars and all references to "common shares" refer to the common
shares in our capital stock.
As used in this Prospectus, the terms "we", "us", "our" and
"Company" mean Lexaria Corp., and/or our subsidiaries, unless otherwise
indicated.
Results of Operations Three Months Ended January 31, 2012
and 2011
The following summary of our results of operations should be
read in conjunction with our financial statements for the quarter ended January
31, 2012, which are included herein.
Our operating results for the three months ended January 31,
2012, for the three months ended January 31, 2011 and the changes between those
periods for the respective items are summarized as follows:
|
|
|
|
|
|
|
|
Change Between
|
|
|
|
|
|
|
|
|
|
Three Month Period
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
Ended
|
|
|
|
January 31,
|
|
|
January 31,
|
|
|
January 31, 2012
|
|
|
|
2012
|
|
|
2011
|
|
|
and January 31, 2011
|
|
Revenue
|
$
|
249,383
|
|
$
|
262,042
|
|
$
|
(12,659
|
)
|
General and administrative
|
|
223,099
|
|
|
181,210
|
|
|
41,889
|
|
Interest expense
|
|
53,098
|
|
|
56,864
|
|
|
(3,766
|
)
|
Consulting fees
|
|
75,892
|
|
|
48,115
|
|
|
27,777
|
|
Oil and gas operating expenses
|
|
79,635
|
|
|
83,790
|
|
|
(4,155
|
)
|
Professional Fees (legal and audit fees)
|
|
40,392
|
|
|
22,284
|
|
|
18,108
|
|
Net loss
|
|
(118,921
|
)
|
|
(130,177
|
)
|
|
(11,256
|
)
|
Our accumulated losses increased to $4,581,539 as of January
31, 2012. Our financial statements report a net loss of $118,921 for the three
month period ended January 31, 2012 compared to a net loss of $130,177 for the
three month period ended January 31, 2011. Our revenues have decreased slightly
as a result of a decrease in production and the cost of revenue was $145,205 for
the three month period ended January 31, 2012, compared to $211,009 for the
three month period ended January 31, 2011. As a result our losses have decreased
slightly over the same period last year. The Company had oil and gas operating
expenses of $79,635 in the three months ending January 31, 2012 compared to
$83,790 for the three months ended January 31, 2011. The decrease in costs is
due to the decrease in production of oil.
Our total liabilities as of January 31, 2012 were $1,676,354 as
compared to total liabilities of $1,678,021 as of October 31, 2011.
Liquidity and Financial Condition
Working Capital
|
|
January
|
|
|
October
|
|
|
|
31,
|
|
|
31,
|
|
|
|
2012
|
|
|
2011
|
|
Current assets
|
$
|
322,818
|
|
$
|
264,228
|
|
Current liabilities
|
|
1,676,354
|
|
|
1,078,583
|
|
Working capital (Deficit)
|
$
|
(1,353,536
|
)
|
$
|
(814,355
|
)
|
Cash Flows
|
|
Three Months Ended
|
|
|
|
January
|
|
|
January
|
|
|
|
31, 2012
|
|
|
31, 2011
|
|
Cash flows (used in) operating activities
|
$
|
(45,518
|
)
|
$
|
(71,117
|
)
|
Cash flows (used in) investing activities
|
|
(45,201
|
)
|
|
(241,876
|
)
|
Cash flows provided by (used in) financing
activities
|
|
200,000
|
|
|
529,600
|
|
Increase (decrease) in cash and cash equivalents
|
|
109,281
|
|
|
216,607
|
|
Operating Activities
Net cash used in operating activities was $45,518 for the three
months ended January 31, 2012 compared with net cash used in operating
activities of $71,117 in the same period in 2011.
Investing Activities
Net cash provided in investing activities was $45,201 in the
three months ended January 31, 2012 compared to net cash used in investing
activities was $241,876 in the same period in 2011. The use of cash in investing
activities in 2011 is mainly attributable to the new oil wells at Belmont Lake,
being PPF-12-4 and PPF-12-5.
Financing Activities
Net cash provided in financing activities was $200,000 in the
three months ended January 31, 2012 compared to net cash provided by financing
activities of $529,600 in the same period in 2011. This is attributable to the
convertible debt financing completed on December 16, 2010, proceeds from
exercising of warrants and options, and from a private placement in the
3
rd
quarter.
Oil and gas sales volume comparisons for the three months
ended January 31, 2012 compared to the three months ended January 31, 2011
For the three month period ended January 31, 2012, the Company
had $249,383 in revenues compared to $262,042 in revenues for the same three
month period in the prior year. The slight decrease in revenues is a result from
the decrease in oil production volumes.
Results of Operations for our Years Ended October 31,
2011 and 2010
Our net loss and comprehensive loss for the year ended October
31, 2011, for the year ended October 31, 2010 and the changes between those
periods for the respective items are summarized as follows:
50
|
Year Ended
October
31,
2011
$
|
Year Ended
October
31,
2010
$
|
Change Between
Year Ended
October 31, 2011
and Year Ended
October 31,
2010
$
|
Revenue
|
$ 1,133,766
|
$ 362,471
|
$ 771,295
|
Other (income)expenses
|
Nil
|
Nil
|
Nil
|
General and administrative
|
1,004,137
|
641,318
|
362,819
|
Interest expense
|
223,673
|
167,322
|
56,351
|
Write down in carrying value of oil and gas properties
|
Nil
|
1
|
(1)
|
Consulting fees
|
262,134
|
168,512
|
93,622
|
Oil and gas operating expenses
|
297,656
|
152,479
|
145,177
|
Professional Fees
|
90,448
|
50,562
|
39,886
|
Net Income (loss)
|
(538,226)
|
(552,462)
|
14,236
|
Revenue
Our revenue increased by $771,295 during the year ended October
31, 2011. The increase in our oil and gas revenues for our year ended October
31, 2011 was largely due to increased production volumes for oil wells PP F-12-1
and PP F-12-3 along with the addition of two new wells 12-4 and 12-5. The
revenue for the fiscal year 2011 is net of the revenue interests that were
assigned to the related parties of the Company. The assigned revenue interests,
their related cost of revenue and payout of net revenue were included as a part
of the Companys operations for the Companys financial statements of first
three quarters in fiscal year 2011, which have been reclassified in the year-end
financial statements. As the amount of revenue recorded was not significantly
material and there was no net impact on the net profit of the Companys
operations for the financial statements of its first three quarters of 2011, the
revenue and cost of revenue of the first three quarter financial statements of
fiscal year 2011 have not been reclassified.
General and Administrative
Our general and administrative expenses increased by $362,819
during the year ended October 31, 2011. The increase in our general and
administrative expenses for our year ended October 31, 2011 was due to increased
stock based compensation, consulting, travel, investor relations and
advertising.
Professional Fees
Our professional fees increased by $39,886 during the year
ended October 31, 2011. There was an increase in accounting, audit and legal
fees for our year ended October 31, 2011 in connection with the preparation and
filing of a Form S-8 and Form S-1.
Interest Expense
Interest expense increased by $56,351 during the year ended
October 31, 2011. The increase in interest expense for our year ended October
31, 2011 is due to the convertible debt financing made to the Company.
51
Oil and Gas Operating Expenses
Oil and gas operating expenses increased to $145,177 during the
year ended October 31, 2011. The increase in oil and gas operating expenses for
our year ended October 31, 2011 was due to the increased production volumes for
oil and gas and the addition of two new wells.
Liquidity and Financial Condition
Working Capital
|
|
At
|
|
|
At
|
|
|
|
October 31,
|
|
|
October 31,
|
|
|
|
2011
|
|
|
2010
|
|
Current assets
|
$
|
264,228
|
|
$
|
140,206
|
|
Current liabilities
|
|
1,078,583
|
|
|
1,049,647
|
|
Working capital (deficiency)
|
$
|
(814,355
|
)
|
$
|
(909,441
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows
|
|
Year Ended
|
|
|
|
October 31,
|
|
|
October 31
|
|
|
|
2011
|
|
|
2010
|
|
Cash flows from (used in) operating
activities
|
$
|
(195,103
|
)
|
|
(330,336
|
)
|
Cash flows (used in) investing activities
|
|
(697,690
|
)
|
|
(285,242
|
)
|
Cash flows from (used in) financing
activities
|
|
861,005
|
|
|
348,400
|
|
Net increase (decrease) in cash during year
|
$
|
(31,788
|
)
|
|
(267,178
|
)
|
Operating Activities
Net cash used in operating activities was $195,103 for our year
ended October 31, 2011 compared with cash used in operating activities of
$330,336 in the same period in 2010. This difference was largely due to the
increase in depletion.
Investing Activities
Net cash used in investing activities was $697,690 for our year
ended October 31, 2011 compared to net cash used in investing activities of
$285,242 in the same period in 2010 was mainly attributable to the two new wells
at Belmont Lake.
Financing Activities
Net cash provided in financing activities was $861,005 for our
year ended October 31, 2011 compared to net cash provided of $348,400 in the
same period in 2010. This was largely from the proceeds of a convertible debt
financing and conversion of stock options and warrants in 2011.
Contractual Obligations
As a smaller reporting company, we are not required to
provide tabular disclosure obligations.
Going Concern
The financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
applicable to a going concern, which contemplates the realization of assets and
the satisfaction of liabilities and commitments in the normal course of
business. Our company has a net loss of $538,226 for the year ended October 31,
2011 [2010 net loss of $552,462] and at October 31, 2011 had a deficit
accumulated during the exploration stage of
$4,462,618 [2010 – $3,924,392]. Our company has working capital deficiency of $814,355 as at October 31, 2011 [2010 - $909,441]. Our company requires additional funds to maintain our existing operations and to acquire new
business assets. These conditions raise substantial doubt about our company’s ability to continue as a going concern. 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 we will be available at acceptable terms. The outcome of these matters cannot be predicted at this time.
52
These financial statements do not include any adjustments to reflect the future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
At this time, we cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock or through a loan from our directors to meet our obligations over the next twelve months. We do not have
any arrangements in place for any future debt or equity financing.
Off-Balance Sheet Arrangements
We have no significant 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 Policies
Our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles used in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by managements 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.
Oil and Gas Properties
We utilize the full cost method to account for our investment in oil and gas properties. Accordingly, all costs associated with acquisition, exploration and development of oil and gas reserves, including such costs as leasehold acquisition costs,
capitalized interest costs relating to unproved properties, geological expenditures, and tangible and intangible development costs including direct internal costs are capitalized to the full cost pool. As of October 31, 2011, we have properties with
proven reserves and production and sales from these reserves has commenced. Capitalized costs, including estimated future costs to develop the reserves and estimated abandonment costs, net of salvage, are being depleted on the units-of-production
method using estimates of the proved reserves. Investments in unproved properties and major development projects including capitalized interest, if any, are not depleted until proved reserves associated with the projects can be determined. If the
future exploration of unproved properties are determined uneconomical the amount of such properties are added to the capitalized cost to be depleted. At October 31, 2010, management believes none of our unproved oil and gas properties were
considered impaired other than as previously reported.
The capitalized costs included in the full cost pool are subject to a "ceiling test", which limits such costs to the aggregate of the estimated present value, using a ten percent discount rate, of the future net revenues from proved reserves, based on current economic and
operating conditions plus the lower of cost and estimated net realizable value
of unproven properties.
53
Sales of proved and unproved properties are accounted for as
adjustments of capitalized costs with no gain or loss recognized, unless such
adjustments would significantly alter the relationship between capitalized costs
and proved reserves of oil and gas, in which case the gain or loss is recognized
in the statement of operations.
Loss Per Share
Loss per share is computed using the weighted average number of
shares outstanding during the period. We have adopted ASC 220
Earnings Per
Share
. Diluted loss per share is equivalent to basic loss per share because
the potential exercise of the equity-based financial instruments was
anti-dilutive
Revenue Recognition
Oil and natural gas revenues are recorded using the sales
method whereby our company recognizes oil and natural gas revenue based on the
amount of oil and gas sold to purchasers when title passes, the amount is
determinable and collection is reasonably assured. Actual sales of gas are based
on sales, net of the associated volume charges for processing fees and for costs
associated with delivery, transportation, marketing, and royalties in accordance
with industry standards. Operating costs and taxes are recognized in the same
period of which revenue is earned.
Credit Risk and Receivable Concentration
We place our cash and cash equivalent with a high credit
quality financial institution. As of October 31, 2011, we had approximately
$31,201 in a bank beyond insured limit (October 31, 2010: $62,989).
The revenues were generated from our sole customer for fiscal
year 2011 and 2010; the corresponding accounts receivable balances were $194,293
and $63,285 at October 31, 2011 and 2010, respectively.
Recently Issued Accounting Standards
Accounting standards that have been issued or proposed by the
FASB or other standards-setting bodies that do not require adoption until a
future date are not expected to have a material impact on the Companys
financial statements upon adoption.
Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure
On June 22, 2011, we were advised by Chang Lee LLP, our
independent registered public accounting firm, that it merged with the firm of
MNP LLP. Except as noted in the paragraph immediately below, the reports of
Chang Lee LLP on our financial statements for the year ended October 31, 2010
and for the period December 9, 2004 (date of inception) through October 31, 2010
did not contain an adverse opinion or disclaimer of opinion, and such reports
were not qualified or modified as to uncertainty, audit scope, or accounting
principle.
The reports of the Chang Lee LLP on our financial statements as
of and for the year ended October 31, 2010 and for the period December 9, 2004
(date of inception) through October 31, 2010 contained an explanatory paragraph which noted that there was substantial
doubt as to our ability to continue as a going concern since we have not yet
received revenues from sales of products or services, and have not yet commenced
business operations. These factors created substantial doubt about our ability
to continue as a going concern.
54
During the years ended October 31, 2010 and for the period
December 9, 2004 (date of inception) through October 31, 2010, and through June
22, 2011, we have not had any disagreements with Chang Lee LLP on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreements, if not resolved to Chang Lee LLPs
satisfaction, would have caused it to make reference to the subject matter of
the disagreements in its reports on our consolidated financial statements for
such year or in connection with its reports in any subsequent interim period
through the date of resignation.
During the years ended October 31, 2010 and October 31, 2009,
and through June 22, 2011, there were no reportable events, as defined in Item
304(a)(1)(v) of Regulation S-K.
On June 22, 2011, we delivered a copy of this report to Chang
Lee LLP. Chang Lee LLP issued its response. The response stated that it agreed
with the foregoing disclosure. A copy of Chang Lee LLPs response is attached
hereto as Exhibit 16.1.
New independent registered public accounting
firm
MNP LLP assumed our engagement of Chang Lee LLP. Accordingly
our new independent registered public accounting firm is MNP LLP, 2300 1055
Dunsmuir Street, P. O. Box 49148, Vancouver, British Columbia V7X 1J1 and its
telephone number is 604-687-3783. Our board of directors approved MNP LLP as our
principal independent accountant on June 22, 2011. We have not consulted with
MNP LLP on any accounting issues prior to engaging them as our new auditors.
During the two most recent fiscal years and through the date of
engagement, we have not consulted with MNP LLP regarding either:
1.
|
The application of accounting principles to any specified
transaction, either completed or proposed, or the type of audit opinion
that might be rendered on our financial statements, and neither a written
report was provided to us nor oral advice was provided that MNP LLP
concluded was an important factor considered by us in reaching a decision
as to the accounting, auditing or financial reporting issue; or
|
|
|
2.
|
Any matter that was either subject of disagreement or
event, as defined in Item 304(a)(1)(iv) of Regulation S-K and the related
instruction to Item 304 of Regulation S-K, or a reportable event, as that
term is explained in Item 304(a)(1)(v) of Regulation
S-K.
|
55
Directors and Executive Officers
Directors and Officers
All directors of our Company hold office until the next annual
meeting of the security holders or until their successors have been elected and
qualified. The officers of our Company are appointed by our board of directors
and hold office until their death, resignation or removal from office. Our
directors and executive officers, their ages, positions held, and duration as
such, are as follows:
Name
|
Position Held with our Company
|
Age
|
Date First Elected
Or Appointed
|
Chris Bunka
|
Chairman, Director and Chief Executive
Officer
|
50
|
October 26, 2006
February
14, 2007
|
Bal
Bhullar
|
Chief Financial Officer and Director
|
41
|
May 12, 2009
|
David DeMartini
|
Director
|
68
|
September 8, 2009
|
Tom Ihrke
|
Senior Vice-President, Business
Development
|
44
|
August 5, 2010
|
Dustin Elford
|
Director
|
64
|
July 8, 2011
|
Nicholas Baxter
|
Director
|
57
|
July 8, 2011
|
Business Experience
The following is a brief account of the education and business
experience of each director and executive officer during the past five years,
indicating each persons principal occupation during the period, and the name
and principal business of the organization by which he was employed.
Mr. Christopher Bunka Chairman/CEO
Mr. Bunka has served as our director, chairman, president and
chief executive officer since October 26, 2006. From February 14, 2007 until May
12, 2009 he was the chief financial officer of our company. Since October 26,
2006 Mr. Bunka has successfully completed both equity and debt financings for
the Company, completed the acquisition of additional oil & gas assets,
disposed of other oil & gas assets, and restructured the Company. He has
refocused the Company from one of natural gas exploration to that of development
of existing oil reserves, and has engaged additional geophysical expertise in an
attempt to better understand its exploration and development opportunities. Mr.
Bunka has privately evaluated numerous oil and gas properties and investment
opportunities for his private investments during the past 10 years.
Since 1988, Mr. Bunka has been the CEO of CAB Financial
Services Ltd., a private holding company located in Kelowna, Canada. He is a
venture capitalist and corporate consultant.
From 1999 to 2002, Mr. Bunka was the President and CEO of
Secure Enterprise Solutions (symbol SETP-OTC) (formerly Newsgurus.com, symbol
NGUR-OTC). The Company subsequently changed its name to Edgetech Services and
traded on the OTC with the symbol EDGH. Newsgurus.com was a web-based media
company. Secure Enterprise Solutions moved into Internet-based computer security
products and services and was subsequently purchased by Edgetech Services. Mr
Bunka is also Chairman/CEO of Enertopia Corp, (symbol ENRT-OTC) a clean energy
company. Mr. Bunka is a director of Defiance Capital Corp., (symbol DEF-TSXV) a
Canadian resource company. Mr. Bunka was appointed as one of our directors due
to his experience in the oil and gas industry as well as expertise in operating
a public company.
56
Ms. Bal Bhullar, CFO and Director
Ms. Bhullar brings over 18 years of diversified financial and risk management experience in both private and public companies, in the industries of high-tech, film, mining, marine, oil & gas, energy, transport, and spa industries.
Among some of the areas of experience, Ms. Bhullar brings expertise in financial & strategic planning, operational & risk management, regulatory compliance reporting, business expansion, start-up operations, financial modeling, program
development, corporate financing, and corporate governance/internal controls. Previously, Ms. Bhullar has held various positions as President of the Risk Management Association of BC, and served as Director and CFO of private and public companies.
Currently, Ms. Bhullar serves as a Director and CFO for Bare Elegance Medspa, CFO for public company Enertopia Corp (symbol ENRT-OTC) and former CFO for ISEE3D Inc. (symbol ICT-TSXV).
Ms. Bhullar is a Certified General Accountant and as well holds a CRM designation from Simon Fraser University and a diploma in Financial Management from British Columbia Institute of Technology. Ms. Bhillar was appointed as one of our directors due
to her experience and education in financial matters and corporate governance.
Mr. Tom Ihrke, Senior Vice-President, Business Development
Tom Ihrke recently sold his General Partner interest in Commissum Capital Management, a capital management and advisory firm which he co-founded in 2001. During his tenure at Commissum, Tom served as portfolio manager and trader of the firms
investment fund, while also being retained as a consultant by several companies, including Lexaria, to advise on such matters as capital structure, accessing the capital markets, and mergers and acquisitions. Between 1993 and 2001 Tom worked for
Morgan Keegan and Company as Senior Investment Banker in the firms Financial Institutions Group, and prior to that as Senior Trader and Market Maker, overseeing the firms proprietary trading of financial and energy shares. From 1990 to 1991 Tom
traded commodities for his own account as a floor trader on the Chicago Board of Trade, owning a seat on the Mid-America Commodities Exchange. Tom earned his Bachelor of Science at Texas Christian University in 1989, and received his Masters of
Business Administration at the University of Tennessee in 1993.
Mr. David DeMartini, Director
Dr. DeMartini received a B.S. Physics cum laude at the University of Notre Dame in 1963; and a PhD Physics at Ohio State University in 1969. He is the author of 19 public technical publications and 78 publications that are proprietary to Shell Oil
Company. He has served as a Research Advisor at Shell Development Company at the Bellaire Research Center in Houston; a Senior Staff Supervisor; and a Senior Staff Geophysicist. He has belonged to the Society of Exploration Geophysicists from 1970
to present and was inducted to the Offshore Energy Center Hall of Fame as a Technology Pioneer on September 30, 2006. He has made significant contributions in the fields of rock physics theory and applications; seismic amplitude interpretation,
borehole geophysics, and more. Dr. DeMartini was professionally engaged by the Company in 2007 as a consulting geophysicist to assist in interpretations of seismic data at its Mississippi properties, and has been a director of the Company since
September 9, 2009. Mr. Demartini was appointed as one of our directors due to his experience in the oil and gas industry.
57
Mr. Dustin Elford, Director
Mr. Elford has been in the oil & gas and mineral exploration businesses for 30 years. He has extensive experience in the development and financing of projects in many areas of North America, South America and Africa. Mr. Elford has served as the
Chief Executive Officer of AMI Resources Inc. since June 3, 1993 to the present. Mr. Elford has also been the Chief Executive Officer and President of Midasco Capital Corp., since May 12, 1994. Both companies are listed on the TSX-V exchange in
Canada. Mr. Elford was appointed as one of our directors due to his experience with publicly traded companies.
Mr. Nicholas Baxter, Director
Mr. Baxter has a 24 year career in international resource exploration and development. Originally trained as a geophysicist, Mr. Baxter received a Bachelor of Science (Honors) from the University of Liverpool in 1975. Mr. Baxter has worked on
geophysical survey and exploration projects in the U.K., Europe, Africa and the Middle East. From 1981 to 1985, Mr. Baxter worked for Resource Technology plc, a geophysical equipment sales/services company. Resource Technology plc went public on the
USM in London in 1983 and graduated to the London Stock Exchange in 1984. Mr. Baxter left Resource Technology plc and established his own company in 1985 as a co-founder of Addison & Baxter Limited. Addison & Baxter Limited was a private
geophysical/geological sales and services company which was acquired by A&B Geoscience Corporation in 1992. Mr. Baxter was Chief Operating Officer and a director of A&B Geoscience Corporation from 1992 to 2002. Additionally, A&B
Geoscience Corporation, under Mr. Baxter’s guidance, secured the first onshore production sharing agreement in Azerbaijan in 1998. A&B Geoscience Corporation became controlled by a private Swiss oil trading firm in 2002. Mr. Baxter worked
as an independent upstream oil and gas consultant from 2002 to 2004. In 2005, Mr. Baxter joined Eurasia Energy Limited, a company traded on the OTC Bulletin Board as its CEO, President and director. Mr. Baxter was appointed as one of our directors
due to his experience in oil and gas exploration.
Other Directorships
Other than as disclosed above, none of our directors hold any other directorships in any company with a class of securities registered pursuant to section 12 of the Exchange Act or subject to the requirements of section 15(d) of such Act or any
company registered as an investment company under the Investment Company Act of 1940.
Board of Directors and Director Nominees
Since our Board of Directors does not include a majority of independent directors, the decisions of the Board regarding director nominees are made by persons who have an interest in the outcome of the determination. The Board will consider
candidates for directors proposed by security holders, although no formal procedures for submitting candidates have been adopted. Unless otherwise determined, at any time not less than 90 days prior to the next annual Board meeting at which the
slate of director nominees is adopted, the Board will accept written submissions from proposed nominees that include the name, address and telephone number of the proposed nominee; a brief statement of the nominee’s qualifications to serve as
a director; and a statement as to why the security holder submitting the proposed nominee believes that the nomination would be in the best interests of our security holders. If the proposed nominee is not the same person as the security holder
submitting the name of the nominee, a letter from the nominee agreeing to the submission of his or her name for consideration should be provided at the time of submission. The letter should be accompanied by a résumé supporting the
nominees qualifications to serve on the Board, as well as a list of references.
58
The Board identifies director nominees through a combination of referrals from different people, including management, existing Board members and security holders. Once a candidate has been identified, the Board reviews the individuals experience
and background and may discuss the proposed nominee with the source of the recommendation. If the Board believes it to be appropriate, Board members may meet with the proposed nominee before making a final determination whether to include the
proposed nominee as a member of the slate of director nominees submitted to security holders for election to the Board.
Some of the factors which the Board considers when evaluating proposed nominees include their knowledge of and experience in business matters, finance, capital markets and mergers and acquisitions. The Board may request additional information from
each candidate prior to reaching a determination. The Board is under no obligation to formally respond to all recommendations, although as a matter of practice, it will endeavor to do so.
Conflicts of Interest
Our directors are not obligated to commit their full time and attention to our business and, accordingly, they may encounter a conflict of interest in allocating their time between our operations and those of other businesses. In the course of her
other business activities, they may become aware of investment and business opportunities which may be appropriate for presentation to us as well as other entities to which they owe a fiduciary duty. As a result, they may have conflicts of interest
in determining to which entity a particular business opportunity should be presented. They may also in the future become affiliated with entities, engaged in business activities similar to those we intend to conduct.
In general, officers and directors of a corporation are required to present business opportunities to a corporation if:
-
the corporation could financially undertake the opportunity;
-
the opportunity is within the corporation’s line of business; and
-
it would be unfair to the corporation and its stockholders not to bring the opportunity to the attention of the corporation.
We plan to adopt a code of ethics that obligates our directors, officers and employees to disclose potential conflicts of interest and prohibits those persons from engaging in such transactions without our consent.
Significant Employees
Other than as described above, we do not expect any other individuals to make a significant contribution to our business.
Legal Proceedings
To the best of our knowledge, none of our directors or executive officers has, during the past ten years:
-
been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences);
-
had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or
within two years prior to that time;
59
-
been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting,
his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;
-
been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or
vacated;
-
been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants),
relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction,
order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity;
or
-
been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as
defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
Except as set forth in our discussion below in “Certain Relationships and Related Transactions, and Director Independence – Transactions with Related Persons,” none of our directors, director nominees or executive officers has been
involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors and persons who own more than 10% of our common stock to file with the Securities and Exchange Commission initial statements of beneficial ownership,
reports of changes in ownership and annual reports concerning their ownership of our common stock and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the SEC
regulations to furnish us with copies of all Section 16(a) reports that they file.
Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during fiscal year ended October 31, 2011, all filing requirements applicable to our officers,
directors and greater than 10% percent beneficial owners were complied with.
Code of Ethics
We adopted a Code of Ethics applicable to our senior financial officers and certain other finance executives, which is a "code of ethics" as defined by applicable rules of the SEC. Our Code of Ethics is attached as an exhibit to our Form SB-2 filed
on September 20, 2007. If we make any amendments to our Code of Ethics other than technical, administrative, or other non-substantive amendments, or grant any waivers, including implicit waivers, from a provision of our Code of Ethics to our chief
executive officer, chief financial officer, or certain other finance
executives, we will disclose the nature of the amendment or waiver, its
effective date and to whom it applies in a Current Report on Form 8-K filed with
the SEC.
60
Board and Committee Meetings
Our board of directors held no formal meetings during the year
ended October 31, 2010. All proceedings of the board of directors were conducted
by resolutions consented to in writing by all the directors and filed with the
minutes of the proceedings of the directors. Such resolutions consented to in
writing by the directors entitled to vote on that resolution at a meeting of the
directors are, according to the Nevada General Corporate Law and our Bylaws, as
valid and effective as if they had been passed at a meeting of the directors
duly called and held.
Nomination Process
As of October 31, 2011, we did not effect any material changes
to the procedures by which our shareholders may recommend nominees to our board
of directors. Our board of directors does not have a policy with regards to the
consideration of any director candidates recommended by our shareholders. Our
board of directors has determined that it is in the best position to evaluate
our Companys requirements as well as the qualifications of each candidate when
the board considers a nominee for a position on our board of directors. If
shareholders wish to recommend candidates directly to our board, they may do so
by sending communications to the president of our Company at the address on the
cover of this annual report.
Audit Committee and Audit Committee Financial Expert
Currently our audit committee consists of our entire board of
directors. We currently do not have nominating, compensation committees or
committees performing similar functions. There has not been any defined policy
or procedure requirements for shareholders to submit recommendations or
nomination for directors.
Our board of directors has determined that it does not have a
member of its board of directors (audit committee) that qualifies as an "audit
committee financial expert" as defined in Item 407(d)(5)(ii) of Regulation S-K,
and is "independent" as the term is used in Item 7(d)(3)(iv) of Schedule 14A
under the Securities Exchange Act of 1934, as amended.
We believe that the members of our board of directors are
collectively capable of analyzing and evaluating our financial statements and
understanding internal controls and procedures for financial reporting. We
believe that retaining an independent director who would qualify as an "audit
committee financial expert" would be overly costly and burdensome and is not
warranted in our circumstances given the early stages of our development and the
fact that we have not generated any material revenues to date. In addition, we
currently do not have nominating, compensation or audit committees or committees
performing similar functions nor do we have a written nominating, compensation
or audit committee charter. Our board of directors does not believe that it is
necessary to have such committees because it believes the functions of such
committees can be adequately performed by our board of directors.
Executive Compensation
The particulars of the compensation paid to the following
persons:
61
-
each of our two most highly compensated executive officers who were
serving as executive officers at the end of the years ended October 31, 2011
and 2010; and
-
up to two additional individuals for whom disclosure would have been
provided under (b) but for the fact that the individual was not serving as our
executive officer at the end of the years ended October 31, 2011 and 2010,
who we will collectively refer to as the named executive
officers of our Company, are set out in the following summary compensation
table, except that no disclosure is provided for any named executive officer,
other than our principal executive officers, whose total compensation did not
exceed $100,000 for the respective fiscal year:
SUMMARY COMPENSATION TABLE
|
Name and
Principal
Position
|
Year
|
Salary
($)
|
Bonu
s
($)
|
Stock
Awards
($)
|
Option
Awards
($)
(4)
|
Non-
Equity
Incentive
Plan
Compen
sation
($)
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
All Other
Compensa
tion
($)
|
Total
($)
|
Christopher Bunka
(1)
,
President, Chief Executive Officer, & Former Chief Financial Officer (Principal Executive Officer)
|
2009
2010
2011
|
$117,721
$97,200
$96,000
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
$12,394
$71,308
$51,360
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
$130,115
$168,508
$147,360
|
Bal Bhullar
(2)
Chief Financial Officer
|
2009
2010
2011
|
$26,204
$52,636
$64,890
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
$5,888
$42,785
$25,680
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
$32,092
$95,421
$90,570
|
Tom Ihrke
(3)
Sr. Vice President, Business Dev
e
lopment
|
2010
2011
|
$8,557
$34,375
|
Nil
Nil
|
Nil
Nil
|
$25,881
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
$34,438
$34,375
|
(1)
|
Mr. Bunka was appointed president and chief executive
officer on October 26, 2006, and was chief financial officer of our
company from February 14, 2007 until May 12, 2009.
|
|
|
(2)
|
Ms. Bhullar was appointed Chief Financial Officer on May
12, 2009
|
|
|
(3)
|
Mr. Ihrke was appointed Senior Vice President, Business
Development on August 5, 2010.
|
|
|
(4)
|
The fair value of the option award was estimated using
the Black-Scholes pricing model with the following assumptions: expected
volatility of 145.85%, riskfree interest rate of 2.46%, expected life of
5 years, and dividend yield of 0.0%.
|
We are currently paying our President US$8,000 per month as
consulting fees and our Chief Financial Officer CAD$4,500 per month in
consulting fees. Subsequent to year end, on January 1, 2011, our Chief Financial
Officers compensation increased to CAD$5,500 per month in consulting fees.
62
Employment/Consulting Agreements
We have entered into a consulting agreement and a controller agreement with CAB Financial Services Ltd., a company controlled by our president, chief executive officer, Christopher Bunka on October 26, 2006, wherein he is reimbursed at the rate of
$2,500 per month for the consulting agreement. Effective November 27, 2008 the rate has been changed to $8,000 per month. Under this agreement, Mr. Bunka provides the services of chief executive officer, chairman of the board, and president
to our company, such duties and responsibilities to include the provision of management and consulting services, strategic corporate and financial planning, management of the overall business operations of our company, and the supervision of office
staff and exploration consultants.
On May 12, 2009, we entered into a consulting agreement with BKB Management Ltd, a corporation organized under the laws of the Province of British Columbia. BKB Management controlled by our chief financial officer. A fee of CAD$4,675 including
GST is paid per month. We may terminate this agreement without prior notice based on a number of conditions. BKB Management Ltd. may terminate the agreement at any time by giving 30 days written notice of his intention to do so. Subsequent to year
end, on January 1, 2011, the Chief Financial Officer’s compensation increased to CAD$5,500 per month plus HST/GST in consulting fees.
On August 5, 2010 we entered into a three-month Management agreement with Tom Irkhe, whereby Mr. Irkhe will act as our Senior Vice-President, Business Development for consideration of US$3,125 per month. On December 2, 2010, we entered into a
month to month management agreement with Tom Ihrke, where by Mr. Ihrke will continue to act as the Senior Vice-President Business Development for the Company. The Company will pay a monthly consulting fee of $3,125.
Other than as set out in this Prospectus we have not entered into any employment or consulting agreements with any of our current officers, directors or employees.
Grants of Plan-Based Awards Table
During our fiscal year ended October 31, 2011, we issued options to acquire 200,000 shares of our common stock at $0.35 per share to Christopher Bunka, our President and CEO, options to acquire 100,000 shares of our common stock at $0.35 per
share to Bal Bhullar, our CFO, and options to acquire 100,000 shares of our common stock at $0.35 per share to David DeMartini, our director. All options are exerciseable for a period of 5 years.
Outstanding Equity Awards at Fiscal Year End
The particulars of unexercised options, stock that has not vested and equity incentive plan awards for our named executive officers are set out in the following table:
63
OUTSTANDING EQUITY AWARDS AT FISCAL
YEAR-END
|
|
OPTION AWARDS
|
STOCK AWARDS
|
Name
(a)
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
(b)
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
(c)
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
(d)
|
Option
Exercise
Price
($)
(e)
|
Option
Expiration
Date
(f)
|
Number
of
Shares
or Units
of
Stock
That
Have
Not
Vested
(#)
(g)
|
Market
Value of
Shares
or Units
of Stock
That
Have
Not
Vested
($)
(h)
|
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#)
(i)
|
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units
or
Other Rights
That Have
Not Vested
(#)
(j)
|
Christopher
Bunka
|
500,000
200,000
|
-
-
|
|
$0.20
$0.35
|
2015/01/20
2016/07/11
|
|
|
|
|
Bal Bhullar
|
300,000
100,000
|
-
-
|
|
$0.20
$0.35
|
2015/01/20
2016/07/11
|
|
|
|
|
David
DeMartini
|
100,000
|
-
|
|
$0 35
|
2016/07/11
|
|
|
|
|
Tom Ihrke
|
25,000
150,000
|
-
-
|
|
$0.20
$0.20
|
2015/01/20
2015/08/16
|
|
|
|
|
Option Exercises
During our fiscal year ended October 31, 2011, 225,000 options
were exercised by our named officers.
Compensation of Directors
On July 8, 2011 Mr. Dustin Elford and Mr. Nicholas Baxter, each
received options to acquire 150,000 shares of our common stock at $0.35 per
share. These options were issued on our 2010 Stock Plan, previously registered
on Form S-8, and they will expire on July 8, 2016. Christopher Bunka received
options to acquire 200,000 shares of our common stock and Bal Bhullar as well as
David DeMartini received options to acquire 100,000 shares each under identical
terms.
Pension, Retirement or Similar Benefit Plans
There are no arrangements or plans in which we provide pension,
retirement or similar benefits for directors or executive officers. We have no
material bonus or profit sharing plans pursuant to which cash or non-cash
compensation is or may be paid to our directors or executive officers, except
that stock options may be granted at the discretion of the board of directors or
a committee thereof.
Indebtedness of Directors, Senior Officers, Executive
Officers and Other Management
None of our directors or executive officers or any associate or
affiliate of our Company during the last two fiscal years is or has been
indebted to our Company by way of guarantee, support agreement, letter of credit
or other similar agreement or understanding currently outstanding.
64
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended 2011, we did not have a
compensation committee or another committee of the board of directors performing
equivalent functions. Instead the entire board of directors performed the
function of compensation committee. Our board of directors approved the
executive compensation, however, there were no deliberations relating to
executive officer compensation during 2011.
Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth the ownership, as of March 13,
2012, of our common stock by each of our directors and executive officers, by
all of our executive officers and directors as a group, and by each person known
to us who is the beneficial owner of more than 5% of any class of our
securities. As of March 13, 2012, there were 16,431,452 shares of our common
stock issued and outstanding. All persons named have sole voting and investment
control with respect to the shares, except as otherwise noted. The number of
shares described below includes shares which the beneficial owner described has
the right to acquire within 60 days of the date of this registration
statement.
Name and Address of Beneficial
Owner
|
Amount and Nature of
Beneficial Ownership
|
Percentage
of
Class (6)
|
Christopher Bunka
Kelowna BC Canada
|
5,656,911 (1)
|
27.4%
|
Bal Bhullar
Vancouver, BC, Canada
|
441,250 (2)
|
2.1%
|
David DeMartini,
Texas, Houston, USA
|
4,152,679(3)
|
20.1%
|
Tom Ihrke
Mount Pleasant, South
Carolina,
USA
|
522,178(4)
|
3%
|
Dustin Elford
Vancouver, BC, Canada
|
150,000(5)
|
1%
|
Nicholas Baxter
Aberdeenshire,
Scotland, UK
|
150,000(5)
|
1%
|
Directors and Executive Officers
as a Group
(6 persons)
|
11,073,018
|
54.6%
|
(1) Includes 3,211,836 shares held in the name of C.A.B.
Financial Services and 1,459,361 shares held directly by Chris Bunka. Includes
285,714 convertible debt warrants held in the name of C.A.B. Financial Services.
Includes 700,000 options which are exercisable at $0.20 and $0.35 within 60 days
of March 13, 2012.
(2) Includes 41,250 shares and 400,000 options which are
exercisable at $0.20 and $0.35 within 60 days March 13, 2012.
(3) Includes
3,281,250 shares, 771,429 in convertible debt warrants and 100,000 options which
are exercisable at $0.20 and $0.35 within 60 days of March 13, 2012.
(4)
Includes 347,178 shares and options to purchase another 175,000 shares of our
common stock.
(5) Includes options to acquire 150,000 shares of our common
stock.
(6) Under Rule 13d-3, a beneficial owner of a security includes any
person who, directly or indirectly, through any contract, arrangement,
understanding, relationship, or otherwise has or shares: (i) voting power, which
includes the power to vote, or to direct the voting of shares; and (ii)
investment power, which includes the power to dispose or direct the disposition
of shares. Certain shares may be deemed to be beneficially owned by more than
one person (if, for example, persons share the power to vote or the power to
dispose of the shares). In addition, shares are deemed to be beneficially owned
by a person if the person has the right to acquire the shares (for example, upon
exercise of an option) within 60 days of the date as of which the information is
provided. In computing the percentage ownership of any person, the amount of
shares outstanding is deemed to include the amount of shares beneficially owned
by such person (and only such person) by reason of these acquisition rights. As
a result, the percentage of outstanding shares of any person as shown in this
table does not necessarily reflect the persons actual ownership or voting power
with respect to the number of shares of common stock actually outstanding on
March 13, 2012. As of March 13, 2012, we had 16,431,452 shares of our common stock
issued and outstanding. All figures assume full dilution of convertible
securities held.
65
Changes in Control
As of March 13, 2012 we are unaware of any contract or other
arrangement the operation of which may at a subsequent date result in a change
in control of our Company.
Certain Relationships and Related Transactions
For the year ended October 31, 2011, we paid / accrued $96,000
to CAB Financial Services Ltd., a company controlled by Christopher Bunka, our
President, Chief Executive Officer and Director (CAB) (2010: $97,200), Tom
Ihrke, the VP of business development, $34,375 (2010: $8,557), and BKB
Management Ltd. (BKB) CAD$64,000 (2010: CAD$54,900) for management, consulting
and accounting services. CAB is owned by our president and BKB is owned by our
CFO.
On October 27, 2008 we entered a secured loan agreement in the
amount of CAD$300,000 with CAB. On July 10, 2009 $40,000 of the debt was
converted to equity. On October 21, 2010, we settled a portion of the debt,
namely US$1,625 with CAB by converting 65,000 warrants into 32,500 common shares
as per Purchase Agreement dated October 27, 2008 at a price of $0.05 per share.
On June 28, 2011, we paid down CAD $100,000 of the debt. For the year ended,
October 31, 2011, we accrued and paid interest expenses of CAD $41,509 (2010:
CAD$51,025).
On October 27, 2008 we entered a secured loan agreement in the
amount of CAD$400,000 with Christopher Bunka. On October 21, 2010, we settled a
portion of the debt, namely $2,166.65 with Christopher Bunka by converting
86,667 warrants into 43,333 common shares as per Purchase Agreement dated
October 27, 2008 at a price of $0.05 per share. For the year ended, October 31,
2011, we accrued and paid interest expenses of CAD $71,610 (2010:
CAD$80,874).
On April 1, 2010, we entered a non-secured loan agreement in
the amount of US$75,000 with CAB. For the year ended October 31, 2011, we
accrued and paid interest expenses of $13,500 (2010: $7,875).
On September 13, 2010, we entered a demand loan agreement in
the amount of US$90,000 with CAB. We accrued interest of $3,884 and paid
interest of $3,150. On January 31, 2011, we paid back the loan in full.
Included in accounts payable, $94,696 (October 31, 2010:
$90,027) was payable to companies controlled by our president, key management
personnel and directors.
For the year ended October 31, 2011, we paid/accrued $153,563
(2010: $Nil) to 0743608 BC Ltd., $64,553 (2010:$Nil) to Emerald Atlantic LLC,
and $18,196 to Tom Ihrke (2010: $Nil) for their respective Non-consent Interests
in Belmont Lake. 0743608 BC Ltd. is owned by the president of the Company and
Emerald Atlantic LLC is owned by one of our Directors.
During the year ended October 31, 2011, we paid down
CAD$185,000 of debt owed to Christopher Bunka, our CEO, a company controlled by
Christopher Bunka, and a shareholder. The carrying amount of the secured loan
was $679,504 as of year end.
On December 16, 2010, we entered into an assignment agreement
with Emerald Atlantic LLC, solely owned by one of our Directors, whereby Emerald
paid a fee of $30,076 to earn 18% of a 4.423% share of our net revenue interest
after field operating expenses for a well to be drilled in Wilkinson County.
There have been no other transactions since the beginning of
our last fiscal year or any currently proposed transactions in which we are, or
plan to be, a participant and the amount involved exceeds $120,000 or one percent of the average of our total assets at
year end for the last two completed fiscal years, and in which any related
person had or will have a direct or indirect material interest.
66
Director Independence
We currently act with five directors. We have determined that
Dustin Elford and Nicholas Baxter qualify as independent directors as defined
by Nasdaq Marketplace Rule 4200(a)(15).
We do not have a standing audit, compensation or nominating
committee, but our entire board of directors acts in such capacities. We believe
that our board of directors is capable of analyzing and evaluating our financial
statements and understanding internal controls and procedures for financial
reporting. The board of directors of our company does not believe that it is
necessary to have a standing audit, compensation or nominating committee because
we believe that the functions of such committees can be adequately performed by
the board of directors. Additionally, we believe that retaining an independent
director who would qualify as an audit committee financial expert would be
overly costly and burdensome and is not warranted in our circumstances given the
early stages of our development.
Disclosure of Commission Position on Indemnification of
Securities Act Liabilities
Nevada law provides that we may indemnify our directors and
officers to the fullest extent.
The general effect of the foregoing is to indemnify a control
person, officer or director from liability, thereby making us responsible for
any expenses or damages incurred by such control person, officer or director in
any action brought against them based on their conduct in such capacity,
provided they did not engage in fraud or criminal activity.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers or control persons
pursuant to the foregoing provisions, we have been informed that in the opinion
of the SEC such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
DEALER PROSPECTUS DELIVERY OBLIGATION
Until a date, which is 90 days after the date of this
prospectus, all dealers that effect transactions in these securities whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealer obligation to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or
subscriptions.
67
A copy of this preliminary short form
prospectus has been filed with the securities regulatory authorities in each of
the provinces of British Columbia, Alberta and Ontario but has not yet become
final for the purpose of the sale of securities. Information contained in this
preliminary short form prospectus may not be complete and may have to be
amended. The securities may not be sold until a receipt for the short form
prospectus is obtained from the securities regulatory
authorities.
No securities regulatory authority has expressed an opinion
about these securities and it is an offense to claim otherwise. This short form
prospectus constitutes an offering of these securities only in those
jurisdictions where they may be lawfully offered for sale and therein only by
persons permitted to sell such securities. Lexaria Corp. has filed a
registration statement on Form S-1 with the United States Securities and
Exchange Commission under the United States Securities Act of 1933, as amended
(the
U.S. Securities Act
) with respect to these
securities. See Plan of Distribution.
Information has been incorporated by reference in this
prospectus from documents filed with securities commissions or similar
authorities in Canada.
Copies of the documents incorporated herein by
reference may be obtained on request without charge from Lexaria Corp. at Suite
950, 1130 West Pender Street, Vancouver, B.C., V6E 4A4, telephone 604-602-1675
or by faxing a written request to (604)685-1602, and are also available
electronically at
www.sedar.com
.
PRELIMINARY SHORT FORM PROSPECTUS
LEXARIA CORP.
Minimum: US$500,000
Maximum: US$5,000,000
Up to 20,000,000 Units
This short form prospectus qualifies the distribution of up to
20,000,000 units (the
Units)
of Lexaria Corp. (the
Corporation
or
Lexaria)
at a price of US$0.25 per Unit (the
Offering)
for minimum gross proceeds of US$500,000 (the
Minimum Offering
) and
maximum gross proceeds of US$5,000,000 (the
Maximum Offering
)
.
Each Unit is comprised of one common share of the Corporation (a
Common
Share)
and one common share purchase warrant (a
Warrant).
Each
whole Warrant entitles the holder to purchase one Common Share (a
Warrant
Share)
at an exercise price of US$0.40 for a period of 12 months following
the Closing Date (as defined herein) (the
Warrant Expiry Time
). The
Units will separate into Common Shares and Warrants immediately upon closing of
the Offering. The price for the Units offered under this short form prospectus
was determined by negotiation between the Corporation and Leede Financial
Markets Inc. in the context of market conditions.
The outstanding Common Shares are listed in the United States
on the OTCQB
(OTCQB
) and on the Canadian National Stock Exchange
(CNSX)
under the symbols LXRP and LXX, respectively. On March 15,
2012, the last trading day prior to the date of this short form prospectus, the
closing price of the Common Shares on the CNSX was
$♦
. The Corporation will apply to list the Common Shares (together
with any Warrant Shares which may be issued upon exercise of the Warrants)
offered under this short form prospectus on the TSX Venture Exchange
(TSX-V).
The Corporation is making an application for a listing on the
TSX-V in conjunction with this short form prospectus and listing will be subject
to the Corporation fulfilling all of the requirements of the TSX-V necessary for
a listing on that exchange.
The Warrants will be created and issued pursuant to the terms
of a warrant indenture (the
Warrant Indenture)
dated the date of the
closing of the Offering between the Corporation and Olympia Trust Company (the
Warrant Agent),
as warrant agent thereunder.
[ALTERNATIVE CANADIAN PAGE]
Warrants may be exercised upon surrender of the Warrant
certificate on or before the Warrant Expiry Time at the principal office of the
Warrant Agent, with the notice of exercise found annexed to the Warrant
Indenture completed and executed as indicated, accompanied by payment of the
exercise price for the number of Common Shares for which the Warrants are being
exercised. See Details of the Offering.
The Units are being offered for sale to the public pursuant to
an Agency Agreement dated <>, 2012 (the
Agency Agreement)
between
the Corporation and Leede Financial Markets Inc. (the
Agent).
|
|
Agents
|
Net Proceeds to
|
|
Price to the Public
(1)
|
Commission
(1)(2)
|
the
Corporation
(3)
|
|
|
|
|
Per Unit
|
US$0.25
|
US$0.02
|
US$0.23
|
Total Minimum Offering
|
US$500,000
|
US$40,000
|
US$460,000
|
Total Maximum Offering
|
US$5,000,000
|
US$400,000
|
US$4,600,000
|
Notes:
(1)
|
The Agent will receive a cash fee equal to eight percent
(8%) of the gross proceeds of the Offering (the
Agents Fee),
payable on the Closing Date. The Agent will receive a corporate
finance fee of $38,000 plus HST (the
Corporate Finance Fee
) of
which $19,000 plus HST has been paid and $19,000 plus HST is payable on
the Closing Date. The Corporation will reimburse the Agent for the
reasonable out-of-pocket expenses incurred by the Agent in connection with
the Offering, including fees and disbursements of the Agents legal
counsel. See Plan of Distribution.
|
|
|
(2)
|
The Agent will also be granted compensation options (the
Compensation Options)
to acquire, in the aggregate, up to that
number of Units equal to eight percent (8%) of the total number of Units
issued pursuant to the Offering. The Compensation Options will be
exercisable for up to a 12 month period following the Closing Date (as
defined below) at an exercise price equal to the Offering price per Unit.
This short form prospectus qualifies the distribution of the Compensation
Options. See Plan of Distribution.
|
|
|
(3)
|
After deducting the Agents Fee but before deducting
expenses of the Offering, estimated to be
$150,000.
|
Agents Position
|
Maximum size or number
|
Exercise Period
|
Exercise Price
|
|
of
securities held
|
|
|
Compensation
Options
|
Option to acquire up to an additional
number of Units
equal to 8% of the number
of Units sold pursuant to the Offering
|
12 months following the
Closing Date
|
US$0.25 per additional
Unit
|
Total securities
under option
|
Option to acquire a maximum of 1,600,000
common shares and 1,600,000 warrants
|
|
|
The Agent conditionally offers these Units on a reasonable
commercial efforts basis, subject to prior sale, if, as and when issued by us
and accepted by the Agent in accordance with the conditions contained in the
Agency Agreement referred to under Plan of Distribution subject to approval of
certain legal matters on our behalf by Macdonald Tuskey and on behalf of the
Agent by Salley Bowes Harwardt LC.
Subscriptions for Units will be received subject to rejection
or allotment in whole or in part and the right is reserved to close the
subscription book at any time without notice. All funds received from
subscriptions for Units will be held by the Agent pursuant to the terms of the
Agency Agreement. If the minimum Offering is not raised within 90 days of the
issuance of a receipt for this short form prospectus or such other time as may
be consented to by persons who subscribed within that period, all subscription
monies will be returned to subscribers within three business days without
interest or deduction, unless the subscribers have otherwise instructed the
Agent. See Plan of Distribution. Closing of the Offering is expected to occur
on or about <>, 2012, but in any event no later than <>, 2012 (the
Closing Date).
A book-entry only certificate representing the Unit
Shares and the Warrants will be issued in registered form to CDS Clearing and
Depository Services Inc.
(
CDS)
or its nominee and will be
deposited with CDS on Closing. A purchaser of the Units will receive only a
customer confirmation from the registered dealer that is a CDS participant and
from or through which the Units are purchased. Subject to applicable laws, the
Agent may, in connection with the Offering, effect transactions which stabilize
or maintain the market price for the Common Shares at levels other than those
which otherwise might prevail in the open market. See Plan of Distribution.
- ii -
[ALTERNATIVE CANADIAN PAGE]
An investment in the Units offered hereunder is speculative
and involves a high degree of risk. The risk factors identified under the
headings Risk Factors and Cautionary Statement Regarding Forward Looking
Statements in this short form prospectus and the Corporations 10K should be
carefully reviewed and evaluated by prospective purchasers before purchasing the
Units being offered hereunder.
There is no market through which the Warrants may be sold and
purchasers may not be able to resell the Warrants comprising part of the Units
purchased under this short form prospectus. This may affect the pricing of the
Warrants in the secondary market, the transparency and availability of trading
prices, the liquidity of the Warrants, and the extent of issuer regulation. See
Risk Factors. The Corporation does not intend to apply to list the Warrants
distributed under this short form prospectus on the OTCQB, CNSX, TSX-V or any
other stock exchange.
The Corporation is incorporated under the laws of a foreign
jurisdiction. Although the Corporation has appointed Macdonald Tuskey of Suite
400, 570 Granville Street, Vancouver, B.C., V6C 3P1 as its agent for service of
process in British Columbia, it may not be possible for investors to enforce
judgments obtained in Canada against the Corporation.
Mr. DeMartini, a director of the Corporation, resides outside
of Canada. Although Mr. DeMartini has appointed Macdonald Tuskey of Suite 400,
570 Granville Street, Vancouver, British Columbia, V6C 3P1 as its agent for
service of process in British Columbia, it may not be possible for investors to
enforce judgments obtained in Canada against Mr. DeMartini.
The head office and registered office of the Corporation is
located at Suite 950, 1130 West Pender Street, Vancouver, B.C., V6E 4A4.
- iii -
[ALTERNATIVE CANADIAN PAGE]
TABLE OF CONTENTS
[ALTERNATIVE CANADIAN PAGE]
UNITED STATES PROSPECTUS
Attached following page 28 is the prospectus forming part of
the registration statement on Form S-1 (the U.S. Prospectus) filed with the
United States Securities and Exchange Commission in the United States in
connection with the offering of the Units. The U.S. Prospectus forms an integral
part of this short form prospectus.
- 2-
[ALTERNATIVE CANADIAN PAGE]
ABBREVIATIONS
Crude
Oils and Natural Gas Liquids
|
Natural Gas
|
|
|
|
|
|
Bbl
|
Barrel
|
Bcf
|
billion cubic ft
|
Bbls
|
Barrels
|
MMcf
|
Million cubic ft
|
Bbls/d
|
Barrels per day
|
Mcf/d
|
Thousand cubic ft per day
|
BOPD
|
Barrels of oil per day
|
MMscfd
|
Million standard cubic ft per day
|
Mbbls
|
Thousand barrels
|
McfGE
|
Thousand cubic ft gas
equivalent
|
MMbbls
|
Million barrels
|
Gj
|
Gigajoules
|
BOE
|
Barrels of oil
equivalent
|
|
|
BOE/d
|
Barrels of oil equivalent per day
|
|
|
MBOE
|
Thousand of
barrels of oil equivalent
|
Other
|
|
MMBOE
|
Million of barrels of oil
equivalent
|
M
|
1,000
|
BOE CONVERSION
The calculation of barrels of oil equivalent (BOE) is based on
a conversion ratio of six thousand cubic feet (Mcf) of natural gas for one
barrel (Bbl) of oil based on an energy equivalency conversion method. A barrel
of oil equivalent may be misleading, particularly if used in isolation. A BOE
conversion ratio of 6Mcf:1Bbl is based on an energy equivalency conversion
method primarily applicable at the burner tip and does not represent a value
equivalency at the wellhead.
McfGE CONVERSION
McfGE is derived by converting oil to gas in the ratio of one
barrel of oil to six thousand cubic feet of gas (1Bbl:6Mcf). Mcfes may be
misleading, particularly if used in isolation. An McfGE conversion ratio of
1Bbl:6Mcf is based on an energy equivalency conversion method primarily
applicable at the burner tip and does not represent a value equivalency at the
wellhead.
METRIC CONVERSION TABLE
The following table sets forth certain factors for converting
metric measurements into imperial equivalents.
To convert from
|
To
|
Multiply by
|
|
|
|
BOE
|
Mcf
|
6.00
|
Mcf
|
Cubic metres (m3)
|
28.17
|
Cubic metres
|
Cubic ft
|
35.49
|
Bbls
|
Cubic metres (m3)
|
0.16
|
Cubic metres (m3)
|
Bbls
|
6.29
|
Feet (ft)
|
Metres
|
0.31
|
Metres
|
Feet (ft)
|
3.28
|
Miles
|
Kilometres (Km)
|
1.61
|
Kilometres (Km)
|
Miles
|
0.62
|
Acres
|
Hectares (Ha)
|
0.41
|
- 3 -
[ALTERNATIVE CANADIAN PAGE]
DOCUMENTS INCORPORATED BY REFERENCE
Information has been incorporated by reference in this short
form prospectus from documents filed with securities commissions or similar
authorities in Canada. Copies of the documents incorporated herein by reference
may be obtained on request without charge from the Corporation at its offices
located at Suite 950, 1130 West Pender Street, Vancouver, B.C., V6E 4A4,
telephone: 604-602-1675 or by faxing a written request to 604-685-1602 and are
also available electronically at
www.sedar.com
.
Except to the extent that their contents are modified or
superseded by a statement contained in this short form prospectus or in any
other subsequently filed document that is also incorporated by reference herein,
the following documents of the Corporation, which have been filed with
securities commissions or similar authorities in Canada, are specifically
incorporated by reference into and form an integral part of this short form
prospectus:
|
(a)
|
interim financial statements on Form 10-Q for the quarter
ended January 31, 2012, together with the notes thereto;
|
|
|
|
|
(b)
|
Audited financial statements of the Corporation and the
notes thereto as at and for the years ended October 31, 2011 and 2010,
together with the report of the auditors thereon;
|
|
|
|
|
(c)
|
annual report on Form 10K as at October 31, 2011 and
October 31, 2010, together with the notes thereto and the auditors report
thereon
|
|
|
|
|
(d)
|
Oil and gas annual disclosure form (Form 51-101 F1, F2
and F3) with an effective date of October 31, 2011 and prepared on January
19, 2012;
|
|
|
|
|
(e)
|
Material Change Report dated December 2, 2011;
|
|
|
|
|
(f)
|
Material Change Report dated November 15, 2011;
|
|
|
|
|
(g)
|
Material Change Report dated October 26, 2011;
|
|
|
|
|
(h)
|
Material Change Report dated August 12, 2011;
|
|
|
|
|
(i)
|
Prospectus on Form S-1 filed with the U.S. Securities and
Exchange Commission on July 21, 2011 which went effective on August 4,
2011;
|
|
|
|
|
(j)
|
management information circular on Schedule 14A dated May
13, 2011 in connection with the annual general meeting of shareholders of
the Corporation held on June 17, 2011;
|
|
|
|
|
(k)
|
interim financial statements on Form 10-Q for the quarter
ended July 31, 2011, together with the notes thereto;
|
|
|
|
|
(l)
|
Material Change Report dated July 15, 2011;
|
|
|
|
|
(m)
|
Material Change Report dated July 14, 2011;
|
|
|
|
|
(n)
|
Material Change Report dated July 12, 2011;
|
|
|
|
|
(o)
|
Material Change Report dated June 29, 2011;
|
|
|
|
|
(p)
|
Material Change Report dated June 23, 2011;
|
|
|
|
|
(q)
|
Material Change Report dated June 22, 2011;
|
|
|
|
|
(r)
|
Material Change Report dated June 10, 2011;
|
|
|
|
|
(s)
|
interim financial statements on Form 10-Q for the quarter
ended April 30, 2011, together with the notes thereto;
|
|
|
|
|
(t)
|
Material Change Report dated April 18, 2011;
|
|
|
|
|
(u)
|
Material Change Report dated March 18,
2011;
|
- 4 -
[ALTERNATIVE CANADIAN PAGE]
|
(v)
|
Material Change Report dated February 2, 2011;
|
|
|
|
|
(w)
|
Material Change/A Report dated January 31,
2011;
|
|
|
|
|
(x)
|
interim financial statements on Form 10Q for the quarter
ended January 31, 2011, together with the notes thereto;
|
|
|
|
|
(y)
|
Material Change Report dated January 5, 2011;
|
|
|
|
|
(z)
|
Material Change Report dated December 21, 2010;
|
|
|
|
|
(aa)
|
Material Change Report dated December 20, 2010;
|
|
|
|
|
(bb)
|
Material Change Report dated December 17, 2010
|
|
|
|
|
(cc)
|
Material Change Report dated December 15, 2010;
|
|
|
|
|
(dd)
|
Material Change Report dated December 3, 2010;
|
|
|
|
|
(ee)
|
Material Change Report dated December 1, 2010;
|
|
|
|
|
(ff)
|
Material Change Report dated November 19, 2010;
|
|
|
|
|
(gg)
|
Material Change Report dated November 17, 2010;
|
|
|
|
|
(hh)
|
Material Change Report dated November 8, 2010;
|
|
|
|
|
(ii)
|
Material Change Report dated December 20, 2010 with
respect to the filing of the Corporations 51-101 Report;
|
|
|
|
|
(jj)
|
revised annual report on Form 10K as at October 31, 2010
and October 31, 2009, together with the notes thereto and the auditors
report thereon;
|
|
|
|
|
(kk)
|
amended audited financial statements of the Corporation
and the notes thereto as at and for the years ended October 31, 2010 and
2009, together with the report of the auditors thereon;
|
|
|
|
|
(ll)
|
audited financial statements of the Corporation and the
notes thereto as at and for the years ended October 31, 2010 and 2009,
together with the report of the auditors thereon;
|
|
|
|
|
(mm)
|
annual report on Form 10K as at October 31, 2010 and
October 31, 2009, together with the notes thereto and the auditors report
thereon;
|
|
|
|
|
(nn)
|
revised oil and gas annual disclosure form (Form 51-101
F1, F2 and F3) with an effective date of October 31, 2010 and prepared on
January 28, 2011;
|
|
|
|
|
(oo)
|
Material Change Report dated January 28, 2011 with
respect to the filing of the Corporations revised 51-101 Report;
and
|
|
|
|
|
(pp)
|
oil and gas annual disclosure form (Form 51-101 F1, F2
and F3) with an effective date of October 31, 2010 and prepared on
December 10, 2010.
|
Any documents of the type required by National Instrument
44-101
Short Form Prospectus Distributions
to be incorporated by
reference in a short form prospectus which are filed by the Corporation with the
securities commissions or similar authorities in any of the provinces and
territories of Canada after the date of this short form prospectus and prior to
the termination of this Offering shall be deemed to be incorporated by reference
in this short form prospectus.
Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for the purposes of this short form prospectus to the extent that a
statement contained herein or in any other subsequently filed document which is
also, or is deemed to be, incorporated by reference herein modifies or
supersedes such statement. The modifying or superseding statement need not state
that it has modified or superseded a prior statement or include any other
information set forth in the document that it modifies or supersedes.
- 5 -
[ALTERNATIVE CANADIAN PAGE]
The making of a modifying or superseding statement shall not
be deemed to be an admission for any purposes that the modified or superseded
statement, when made, constituted a misrepresentation, an untrue statement of
material fact or an omission to state a material fact that is required to be
stated or that is necessary to make a statement not misleading in light of the
circumstances in which it was made. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this short form prospectus.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
This short form prospectus contains certain forward-looking
information relating, but not limited, to operational information, future
drilling plans and the timing associated therewith, anticipated capital and
operating budgets and estimated costs, prospective nature of the Corporations
properties, resources estimates and future regulatory approvals. Forward-looking
information typically contains statements with words such as anticipate,
estimate, expect, potential, could, or similar words suggesting future
outcomes. The Corporation cautions readers and prospective investors in the
Corporations securities to not place undue reliance on forward-looking
information as by its nature it is based on current expectations regarding
future events that involve a number of assumptions, inherent risks and
uncertainties, that could cause actual results to differ materially from those
anticipated by the Corporation.
Forward looking information is based on managements current
expectations and assumptions regarding, among other things, plans for and
results of drilling and other exploration activity, future capital and other
expenditures (including the amount, nature and sources of funding thereof),
future economic conditions, future currency and exchange rates and the
Corporations continued ability to obtain qualified staff and equipment in a
timely and cost efficient manner. In addition, budgets are based upon the
Corporations current exploration plans and anticipated costs both of which are
subject to change based on, among other things, the actual results of drilling
and other exploration activity, unexpected delays and changes in market
conditions. Although the Corporation believes the expectations and assumptions
reflected in such forward-looking information are reasonable, they may prove to
be incorrect. Forward-looking information involves significant known and unknown
risks and uncertainties. A number of factors could cause actual results to
differ materially from those anticipated by the Corporation including, but not
limited to, risks associated with the oil and gas industry (e.g. operational
risks in exploration; inherent uncertainties in interpreting geological data;
changes in plans with respect to exploration or capital expenditures; the
uncertainty of estimates and projections in relation to costs and expenses and
health, safety and environmental risks), the risk of commodity price and foreign
exchange rate fluctuations, the uncertainty associated with negotiating with
foreign governments and risks associated with conducting operations in foreign
countries.
In particular, this short form prospectus may contain forward
looking information pertaining to the following:
-
the closing date of the Offering and the use of proceeds;
-
expectations regarding the ability to raise capital and to add to reserves
through acquisitions, exploration and development;
-
the ability of the Corporation to achieve drilling success consistent with
management's expectations; estimates of reserves and resources of the
Corporation;
-
commodity prices for crude oil and natural gas;
-
capital expenditure programs;
-
treatment under governmental regulatory regimes;
-
expectations regarding exploration and development potential;
-
supply and demand of oil and gas;
-
operating and other costs;
-
expectations regarding the negotiation and performance of contractual
rights; and
-
business strategies and plans of management.
- 6 -
[ALTERNATIVE CANADIAN PAGE]
Actual results could differ materially from those anticipated
in forward-looking information if the assumptions underlying them prove
incorrect or if one or more uncertainties or risks described in this short form
prospectus materializes. Accordingly, any such statements are qualified in their
entirety by reference to, and are accompanied by, the risk factors discussed
throughout this short form prospectus. Forward-looking information is not based
on historical facts but rather on the expectation of management of the
Corporation. The nature of the Corporations involvement in the business of,
exploration for, and development and production of, oil and natural gas reserves
involves several risk factors as set forth below and elsewhere in this short
form prospectus that have a direct bearing on the Corporations results of
operations:
-
the overall success of the Corporations 2011 and 2012 capital program
including, without limitation, the number and type of wells to be drilled and
the intended target zones of such wells;
-
future production levels including, without limitation, anticipated
geological and well performance and the ability to add production and reserves
through acquisitions and exploration and development activities consistent
with historical cost structures;
-
economic conditions in the U.S. where the Corporation operates or intends
to operate;
-
risks including changes in law or government policy;
-
geological, technical, drilling and processing problems;
-
availability and access to infrastructure, including pipelines;
-
competition for, among other things, capital, undeveloped lands and
skilled personnel;
-
ability to access the capital markets;
-
changes in scheduled timing of events;
-
fluctuations in foreign exchange or interest rates and stock market
volatility;
-
changes in government regulations;
-
volatility in market prices for oil and natural gas;
-
risks associated with acts of insurgency or terrorism;
-
availability and access to oil and gas markets; and
-
safety and security risks, including war and terrorist activity.
This list of factors is not exhaustive. There is no market
through which the Warrants may be sold and purchasers may not be able to resell
the Warrants comprising part of the Units purchased under this short form
prospectus. This may affect the pricing of the Warrants in the secondary market,
the transparency and availability of trading prices, the liquidity of the
Warrants, and the extent of issuer regulation. See Risk Factors. The
Corporation does not intend to apply to list the Warrants distributed under this
short form prospectus on the OTCQB, CNSX, TSX-V or any other stock exchange.
These and other factors are discussed in this short form prospectus under the
heading Risk Factors.
Forward-looking information is made as of the date of the short
form prospectus, and the Corporation assumes no obligation to update or revise
such information to reflect new events or circumstances, except as required by
law. The forward-looking statements contained in this short form prospectus are
expressly qualified by this advisory.
CURRENCY AND EXCHANGE RATE INFORMATION
All references to $ or dollars in this short form
prospectus refer to Canadian dollars and all references to US$ refer to United
States dollars. The noon rate of exchange on March 13, 2012 as reported by the
Bank of Canada for the conversion of Canadian dollars into United States dollars
was $0.9905 per US$1.00. For purposes of the Offering, Lexaria will adopt a 1:1
exchange rate for the conversion of Canadian dollars into United States
dollars.
TECHNICAL INFORMATION
The technical and scientific information regarding the
Corporations oil and gas properties contained in or incorporated by reference
into this short form prospectus is supported by the Statement of Reserves Data
and
- 7 -
[ALTERNATIVE CANADIAN PAGE]
Other Oil and Gas Information (the 51-101 Report) dated
January 19, 2012 (effective October 31, 2011) titled Statement of Reserves Data
and Other Oil and Gas Information prepared by Veazey & Associates LLC. The
51-101 Report was prepared in compliance with Form 51-101F1
Statements of
Reserve Data and Other Oil and Gas Information
of the Canadian Securities
Administrators and is subject to certain assumptions, qualifications and
procedures described therein. Reference should be made to the full text of the
51-101 Report, which has been filed with Canadian securities regulatory
authorities and is available for review under the Corporations profile on SEDAR
at
www.sedar.com
.
LEXARIA CORP.
In this short form prospectus, unless the context otherwise
requires, Lexaria or the Corporation refers to Lexaria Corp.
The Corporation
Lexaria was incorporated in the State of Nevada on December 9,
2004. Lexaria is an exploration and development oil and gas company engaged in
the exploration for and development of petroleum and natural gas in North
America. Lexaria maintains its registered agent's office at Nevada Agency and
Transfer Company, 50 West Liberty, Suite 880, Reno, Nevada 89501. The telephone
number is (775) 322-0626.
The address of Lexarias principal executive office is Suite
950, 1130 West Pender Street, Vancouver, British Columbia V6E 4A4. Lexarias
telephone number is (604) 602-1675.
The Corporation filed a Registration Statement on Form SB-2
under the United States Securities Act of 1933, as amended, which went effective
with the United States Securities Exchange Commission on July 12, 2006. Since
such time, the Corporation has been a reporting issuer under the Securities
Exchange Act of 1934, as amended. As a result, the Corporation has been subject
to the requirements of Regulation 13A under the Securities Exchange Act of 1934,
as amended, which requires the Corporation to file annual reports on Form 10-K,
quarterly reports on Form 10-Q, and current reports on Form 8-K. Copies of these
documents are available at
www.sec.gov.
Lexaria is a SEC issuer as
defined in Canadian National Instrument 51-102. Lexaria is a reporting issuer in
Ontario and British Columbia.
The Corporations authorized share capital is 200,000,000
common shares with a par value of US$0.001 per share. The Corporation has
16,431,452 common shares issued and outstanding.
Lexarias common stock is quoted on the U.S. OTCQB under the
symbol "LXRP" and on the CNSX under the symbol LXX.
Business of the Corporation
The Corporation is an oil and gas company engaged in the
exploration for oil and natural gas in Canada and the United States. The
Corporation is currently generating revenues from working interests in oil and
gas properties in Mississippi, USA.
Lexaria has acquired working interests in various oil and gas
properties in Mississippi. All of Lexarias oil and gas assets are located in
Wilkinson and Amite counties, Mississippi, where Lexaria has gross working
interests of between 32% and 60% in producing oil and/or gas wells and in
exploration wells yet to be drilled. These interests are in the Belmont Lake oil
field (the Belmont Lake Field) which was discovered in December 2006 and is
located within the Palmetto Point area of Wilkinson County, Mississippi.
Lexaria will focus exclusively on development of its working
interests in the Belmont Lake Field. Cash resources permitting, during its
2012/2013 exploration program Lexaria expects to participate as to its 42%
working interest in three new wells on the Belmont Lake Field. Each well is
expected to cost approximately
- 8 -
[ALTERNATIVE CANADIAN PAGE]
US$650,000 to drill and complete. Lexarias share of these
costs will be approximately US$273,000 per well. In the event Lexaria completes
the Maximum Offering, it will have the flexibility to consider the recompletion
of two existing wells, the possible increase of its working interest in existing
Belmont Lake wells and two exploration wells which Lexaria could fund 100%.
Proceeds from completion of the Maximum Offering would also afford Lexaria the
flexibility to repay existing arms length corporate debt in the amount of
US$560,000.
In the event Lexaria completes the Minimum Offering, it will
have only enough capital to fund its 42% interest in the recompletion of wells
12-1 and 12-3. Recompletion costs for each well are estimated to be US$167,000
per well. In the event that Lexaria completes only the Minimum Offering, it
would also have sufficient cash resources to meet the minimum initial listing
requirements of Tier 2 on the TSX Venture Exchange.
The Corporations business plan does not anticipate that it
will hire a large number of employees or that it will require extensive office
space. The Corporation plans to continue to acquire most of the industry and
geological expertise it requires, through third party contractual relationships
with consulting experts and operating companies. This strategy enables the
Corporation to minimize its ongoing fixed in-house costs for geological or
geophysical analytical expenses allowing it to contract for that expertise when
and as needed.
The following tables detail the aggregate gross and net
reserves of the Corporation, as at October 31, 2010, using forecast prices and
costs as well as the aggregate net present value of future net revenue
attributable to the reserves estimated using forecast prices and costs,
calculated without discount and using discount rates of 5%, 10%, 15% and
20%:
Lexaria Corp.
Summary of Oil & Gas Reserves
As of
10/31/2011
|
|
Medium Oil
|
|
|
Natural Gas
|
|
|
Total BOE
|
|
Category
|
|
Gross Bbls
|
|
|
Net Bbls
|
|
|
Gross Mcf
|
|
|
Net Mcf
|
|
|
Gross BOE
|
|
|
Net BOE
|
|
Proved Developed Reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed Producing
|
|
229,690
|
|
|
69,055
|
|
|
0
|
|
|
0
|
|
|
229,690
|
|
|
69,055
|
|
Proved Undeveloped Reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped
|
|
321,270
|
|
|
87,719
|
|
|
0
|
|
|
0
|
|
|
321,270
|
|
|
87,719
|
|
Total Proved Reserves
|
|
550,960
|
|
|
156,774
|
|
|
0
|
|
|
0
|
|
|
550,960
|
|
|
156,774
|
|
Probable Reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shut-in
|
|
0
|
|
|
0
|
|
|
55,080
|
|
|
15,040
|
|
|
9,180
|
|
|
2,507
|
|
Behind Pipe
|
|
8,730
|
|
|
2,381
|
|
|
0
|
|
|
0
|
|
|
8,730
|
|
|
2,381
|
|
Total Probable Reserves
|
|
8,730
|
|
|
2,381
|
|
|
55,080
|
|
|
15,040
|
|
|
17,910
|
|
|
4,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved + Probable Reserves
|
|
559,690
|
|
|
159,155
|
|
|
55,080
|
|
|
15,040
|
|
|
568,870
|
|
|
161,662
|
|
- 9 -
[ALTERNATIVE CANADIAN PAGE]
Lexaria Corp.
Net Present Values of Future Net
Revenues
As of 10/31/2011
|
|
BEFORE Income Tax
|
|
|
Unit Value
|
|
|
|
Cash Flow,
|
|
|
Cash Flow,
|
|
|
Cash Flow,
|
|
|
Cash Flow,
|
|
|
Cash Flow,
|
|
|
Before
|
|
|
|
Undisc.,
|
|
|
Disc. @ 5%
|
|
|
Disc. @ 10%
|
|
|
Disc. @ 15%
|
|
|
Disc. @ 20%
|
|
|
Income Tax
|
|
|
|
U.S.
|
|
|
U.S.
|
|
|
U.S.
|
|
|
U.S.
|
|
|
U.S.
|
|
|
Disc. @ 10%
|
|
Category
|
|
Dollars
|
|
|
Dollars
|
|
|
Dollars
|
|
|
Dollars
|
|
|
Dollars
|
|
|
$/BOE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved Developed Reserves
|
|
4,305,432
|
|
|
3,614,157
|
|
|
3,087,483
|
|
|
2,678,216
|
|
|
2,354,297
|
|
|
45
|
|
Developed Producing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved Undeveloped Reserves
|
|
5,601,637
|
|
|
4,647,777
|
|
|
3,870,921
|
|
|
3,235,148
|
|
|
2,712,286
|
|
|
44
|
|
Undeveloped
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Proved Reserves
|
|
9,907,069
|
|
|
8,261,934
|
|
|
6,958,405
|
|
|
5,913,364
|
|
|
5,066,584
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Probable Reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shut-in
|
|
36,270
|
|
|
32,281
|
|
|
28,757
|
|
|
25,640
|
|
|
22,881
|
|
|
11
|
|
Behind Pipe
|
|
153,536
|
|
|
122,203
|
|
|
97,291
|
|
|
77,479
|
|
|
61,717
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Probable Reserves
|
|
189,805
|
|
|
154,484
|
|
|
126,048
|
|
|
103,119
|
|
|
84,598
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved + Probable Reserves
|
$
|
10,096,874
|
|
$
|
8,416,418
|
|
$
|
7,084,452
|
|
$
|
6,016,483
|
|
$
|
5,151,182
|
|
|
44
|
|
Note: Income tax rate provided by Lexaria Corp.
CONSOLIDATED CAPITALIZATION
As at October 31, 2011, there were 16,431,452 Common Shares
outstanding and a further 1,700,000 Common Shares reserved for issuance pursuant
to outstanding stock options, 699,893 Common Shares reserved for issuance
pursuant to outstanding share purchase warrants and 1,771,429 Common Shares
reserved for issuance pursuant to outstanding convertible debentures and loan
agreements. Each stock option is exercisable to acquire one Common Shares at
exercise prices ranging from US$0.20 to US$0.35 per Common Share. Each share
purchase warrant is exercisable to acquire one Common Shares at exercise prices
ranging from US$0.20 to US$0.50 per Common Share. The amounts outstanding under
the convertible debentures and loan agreements are convertible into Common
Shares at a conversion price of US$0.40 per Common Share. Since October 31,
2011, the Corporation has granted 40,000 stock options and reserved 571,429
Common Shares for issuance pursuant to outstanding convertible debt and loan
agreements.
As of October 31, 2011, after giving effect to the Maximum
Offering, there would be an aggregate of 36,431,452 Common Shares issued and
outstanding, 1,700,000 stock options outstanding, 20,699,893 share purchase
warrants outstanding (including the Warrants comprised in the Units) and
convertible debentures and loans outstanding convertible into 1,771,429 Common
Shares.
As of October 31, 2011, if only the Minimum Offering is
achieved, there would be an aggregate of 18,431,452 Common Shares issued and
outstanding, 1,700,000 stock options outstanding, 2,699,893 share purchase
warrants outstanding (including the Warrants comprised in the Units) and
convertible debentures and loans outstanding convertible into 1,771,429 Common
Shares.
USE OF PROCEEDS
The estimated net proceeds received by the Corporation, after
deducting the estimated expenses of the Offering of $150,000 (including the
balance of the Agents Corporate Finance Fee) and the Agents commission of
- 10 -
[ALTERNATIVE CANADIAN PAGE]
US$400,000 will be US$4,450,000 in the case of the Maximum
Offering and US$310,000 after deducting the Agents commission of US$40,000 in
the case of the Minimum Offering.
The net proceeds from the Offering are expected to be used by
Lexaria to fund the Corporations 2012/2013 exploration program on the Belmont
Lake Field and for general corporate purposes, including working capital, as set
forth in the following table:
Purpose
|
|
Maximum Offering
|
|
|
Minimum Offering
|
|
|
|
(US$)
|
|
|
(US$)
|
|
Development: Belmont Lake Field
recomplete wells 12-1 and 12-3 to increase production @ $167,000 per well.
Lexaria funds 42%.
|
$
|
140,000
|
|
$
|
140,000
|
|
|
|
|
|
|
|
|
Development: Belmont Lake Field
completion of three new exploration wells (12-6 and 12-8 and 12-9) @
$650,000 per well. Summer 2012. Lexaria funds 42% as dictated by its 42%
working interest.
|
$
|
819,000
|
|
$
|
Nil
|
|
|
|
|
|
|
|
|
Well services: plug and abandonment costs
|
$
|
175,000
|
|
$
|
Nil
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration well drilling Belmont Lake Field: Assumes two
wells @ $650,000 each, funding 100%.
|
$
|
1,300,000
|
|
$
|
Nil
|
|
|
|
|
|
|
|
|
Re-pay arms-length existing corporate debt
|
$
|
560,000
|
|
$
|
Nil
|
|
|
|
|
|
|
|
|
Unallocated
Working Capital
|
$
|
1,456,000
|
|
$
|
170,000
|
|
|
|
|
|
|
|
|
Total
|
$
|
4,450,000
|
|
$
|
310,000
|
|
The Corporation intends to use any additional net proceeds from
an exercise of the Compensation Options, stock options and warrants for general
corporate purposes, including working capital.
The Corporations business objectives will vary according to
the amount of proceeds raised under this Prospectus. In the event the
Corporation completes the Maximum Offering, it will have sufficient cash
resources to recomplete two wells in the Belmont Lake Field and participate in
the drilling of three new exploration wells. The Corporation would also have
sufficient cash resources to purchase additional working interests in existing
Belmont Lake wells, to drill two new exploration wells funded 100% by the
Corporation, to pay for tank and pipeline upgrades contingent upon the drilling
and completion of new exploration wells and to reduce its corporate debt by
US$560,000.
In the event the Corporation completes the Maximum Offering,
the proposed exploration and development program would occur over a two year
period through 2012 and 2013. There are no significant events which would need
to occur for the Corporations business objectives to be accomplished in the
event that it raised the Maximum Offering.
In the event that the Corporation raises less than the Maximum
Offering, its proposed exploration and development program would be scaled back
and dictated by the funds available. The Corporation would prioritize the
recompletion of wells 12-1 and 12-3 on the Belmont Lake Field and thereafter the
completion of up to three new exploration wells on the Belmont Lake Field in
which the Corporation holds a 42% working interest. In the event that the
Corporation raises only the Minimum Offering, it would be restricted to
- 11 -
[ALTERNATIVE CANADIAN PAGE]
recompleting wells 12-1 and 12-3 on the Belmont Lake Field and
to maintaining sufficient unallocated capital and general corporate and working
capital to qualify for a listing on Tier 2 of the TSX Venture Exchange.
The Corporation is actively pursuing future growth
opportunities by acquiring one or more additional assets. The Corporation is
primarily reviewing opportunities in the U.S. Gulf Coast and Midwest regions. It
is expected that the proceeds from the Offering allocated to general corporate
and working capital purposes will afford the Corporation flexibility to consider
and bid on additional exploration properties. The Corporation currently does not
have any binding agreements or commitment to enter into any such transactions
and there is no assurance that any potential transactions will be successfully
completed. In addition, the Corporation may use certain of the proceeds of the
Offering allocated to general corporate and working capital purposes to offset
costs incurred in respect of its ongoing operations, particularly in the event
that one or more additional exploration properties are acquired by the
Corporation.
Pending such uses, the Corporation may invest some of the net
proceeds in short-term investment-grade securities or bank deposits. The
Corporation intends to use the estimated net proceeds as stated in this short
form prospectus; however, there may be circumstances where, for sound business
reasons, a reallocation of proceeds may be deemed prudent or necessary.
PLAN OF DISTRIBUTION
Pursuant to an Agency Agreement dated <>, 2012 between
the Corporation and the Agent, the Corporation has appointed the Agent as its
agent to offer a minimum of 2,000,000 Units and a maximum of 20,000,000 Units
for sale on a reasonable commercial efforts basis, if as and when issued by the
Corporation, at the Offering Price, against delivery of certificates
representing the Common Shares and Warrants, subject to compliance with all
necessary legal requirements and to the conditions contained in the Agency
Agreement. The Common Shares and Warrants comprising the Units will separate
immediately upon the closing of the Offering. While the Agent has agreed to
arrange for the sales of the Units on a reasonable commercial efforts basis,
they are not obligated to purchase any of the Units. The Agent reserves the
right to form a selling group of registered brokers and dealers for the
distribution of the Offering. This section supplements the disclosure contained
under Plan of Distribution in the U.S. Prospectus.
Subscriptions for Units will be received subject to rejection
or allotment in whole or in part and the right is reserved to close the
subscription book at any time without notice. All funds received from
subscriptions for Units will be held by the Agent pursuant to the terms of the
Agency Agreement. If the minimum Offering is not raised within 90 days of the
issuance of a receipt for this short form prospectus or such other time as may
be consented to by persons who subscribed within that period, all subscription
monies will be returned to subscribers within three business days without
interest or deduction, unless the subscribers have otherwise instructed the
Agent.
The obligations of the Agent under the Agency Agreement are
conditional and may be terminated by the Agent at their discretion on the basis
of their due diligence, assessment of the state of the financial markets and
upon the occurrence of certain stated events including any material adverse
change in the business, affairs or financial condition of the Corporation. The
Agency Agreement also provides that the Corporation will indemnify the Agent and
their directors, officers, agents, shareholders and employees against certain
liabilities and expenses or to contribute to payments that the Agent may be
required to make in respect thereof.
The closing of the Offering will take place on such date as may
be agreed upon by the Corporation and the Agent. The Offering Price was
determined by negotiation between the Corporation and the Agent.
Each Unit consists of one Common Share and one Warrant. Each
Warrant will entitle the holder thereof to purchase one Warrant Share at a price
of US$0.40 per share for a period of 12 months from the date of closing of the
Offering. The Units will separate into Common Shares and Warrants immediately
upon issue. The
- 12 -
[ALTERNATIVE CANADIAN PAGE]
Warrants will be created and issued pursuant to the terms of
the Warrant Indenture entered into between the Corporation and the Warrant
Agent. The Warrant Indenture will contain provisions intended to protect the
holders of the Warrants against dilution upon the happening of certain events.
No fractional Warrant Shares will be issued upon the exercise of any Warrants.
See Plan of Distribution Terms of Warrants.
The Corporation has agreed to pay the Agent a cash commission
of eight percent (8%) of the gross proceeds of the Offering and a Corporate
Finance Fee of $38,000 plus HST. The Corporation has also agreed to reimburse
the Agent for certain expenses incurred in connection with the Offering. The
Corporation has agreed to grant to the Agent and selling group members
Compensation Options to purchase that number of Units that is equal to eight
percent (8%) of the Units issued pursuant to the Offering. Each Compensation
Option will entitle the holder to acquire one Unit at a price of US$0.25 until
the date that is 12 months following the Closing Date. The grant of the
Compensation Options is also qualified by this short form prospectus.
Pursuant to rules and policy statements of certain securities
regulators, the Agent may not, at any time during the period of distribution of
the Units, bid for or purchase Common Shares. The foregoing restriction is
subject to certain exceptions, on the condition that the bid or purchase not be
engaged in for the purpose of creating actual or apparent active trading in, or
raising the price of, the Common Shares. Such exceptions include a bid or
purchase permitted under the by-laws and rules of applicable regulatory
authorities and stock exchanges, including the Universal Market Integrity Rules
for Canadian Marketplaces administered by the Investment Industry Regulatory
Organization of Canada, relating to market stabilization and passive market
making activities and a bid or purchase made for and on behalf of a customer
where the order was not solicited during the period of distribution. The Agent
may engage in market stabilization or market balancing activities on the CNSX
where the bid for or purchase of the Common Shares is for the purpose of
maintaining a fair and orderly market in the Common Shares, subject to price
limitations applicable to such bids or purchases. Such transactions, if
commenced, may be interrupted or discontinued at any time.
Under applicable rules and regulations under the United States
Securities Exchange Act of 1934 and subject to certain exemptions, any person
engaged in the distribution of securities offered under this short form
prospectus may not simultaneously engage in market making activities with
respect to these securities for the applicable restricted period, as defined in
Regulation M, prior to the commencement of the distribution of these securities.
Further, any stabilizing or other related activities in relation to the Offering
are prohibited, excepted as specifically allowed under Regulation M for the
purpose of preventing or retarding a decline in the market price of these
securities. During the restricted period, as defined in Regulation M, it is
unlawful for any person to sell short these securities and purchase these
securities from the Agent or any broker or dealer participating in the Offering.
The Corporation has agreed with the Agent not to issue any
Common Shares or securities convertible, exercisable or exchangeable into Common
Shares, or announce any intention to do so, other than pursuant to: (a) the
Offering; (b) the grant of stock options pursuant to the stock option plan of
the Corporation; (c) the exercise of or conversion of outstanding convertible
securities; and (d) arm's length acquisitions or strategic partnering, for a
period of 60 days following the closing of the Offering without the prior
written consent of the Agent, such consent not to be unreasonably withheld or
delayed.
Application has been made to the TSX-V for conditional listing
of the Common Shares comprising the Units distributed under this short form
prospectus and any Common Shares issuable upon the exercise of the Warrants and
Compensation Options and Warrants underlying the Compensation Options. Listing
will be subject to the Corporation fulfilling all of the listing requirements of
the TSX-V.
There is currently no market through which the Warrants may be
sold and none is expected to develop.
Closing of this Offering is anticipated to occur on <>,
2012, or such other date as the Corporation and the Agent may agree, but in any
event no later than <>, 2012. The price of the Units was determined by
negotiation between the Corporation and the Agent.
- 13 -
[ALTERNATIVE CANADIAN PAGE]
The Offering is being made concurrently in the United States
and the provinces of British Columbia, Alberta and Ontario. The Units will be
offered in the provinces of British Columbia, Alberta and Ontario through the
Agent who is registered to offer the Units for sale in such provinces. The Units
will be offered in the United States through the officers and directors of the
Corporation. In addition, certain shareholders of the Corporation are offering
certain Common Shares issued or to be issued for resale. See Plan of
Distribution in the U.S. Prospectus.
Units sold under the U.S. self-underwritten offering will be
included in the Canadian offering for determining whether the minimum or maximum
offering has been raised.
The Corporation has filed a registration statement on Form S-1
with the United States Securities Exchange with the respect to the securities
offered under this short form prospectus.
Terms of Warrants
The Warrants will be created and issued by the Corporation
pursuant to the Warrant Indenture to be entered into between the Corporation and
the Warrant Agent, on the Closing Date. Warrants may be surrendered for exercise
or transfer with the Warrant Agent at its principal offices in Vancouver,
B.C.
The following summarizes certain provisions of the Warrant
Indenture; a copy of the Warrant Indenture will be filed following the Closing
Date and be available on the Corporation's SEDAR profile at
www.sedar.com
.
Each Warrant will entitle the holder thereof to purchase one
Common Share at a price of US$0.40 any time prior to the Warrant Expiry Time,
after which time the Warrants will expire and become null and void. Under the
Warrant Indenture, the Corporation will be entitled to purchase in the market,
by private contract or otherwise, all or any of the Warrants then outstanding
and any Warrants so purchased will be cancelled. Under the Warrant Indenture,
the Corporation will have the ability to issue further common share purchase
warrants, in addition to the Warrants already outstanding and those to be issued
pursuant to the Offering, without consent of the holders of the Warrants.
The Warrant Indenture will provide for adjustment in the number
of Common Shares issuable upon the exercise of the Warrants and/or the exercise
price per Common Share upon the occurrence of certain events, including:
-
the issuance of Common Shares or securities exchangeable for or convertible
into Common Shares to all or substantially all of the holders of the Common
Shares as a stock dividend or other distribution;
-
the subdivision, redivision or change of the Common Shares into a greater
number of shares;
-
the reduction, combination or consolidation of the Common Shares into a
lesser number of shares;
-
the issuance to all or substantially all of the holders of the Common
Shares of rights, options or warrants under which such holders are entitled,
during a period expiring not more than 45 days after the record date for such
issuance, to subscribe for or purchase Common Shares, or securities
exchangeable for or convertible into Common Shares, at a price per share to
the holder (or at an exchange or conversion price per share) of less than 95%
of the "current market price", as defined in the Warrant Indenture, for the
Common Shares on such record date; and
-
the issuance or distribution to all or substantially all of the holders of
the Common Shares of shares of any class other than the Common Shares, rights,
options or warrants to acquire Common Shares or securities exchangeable or
convertible into Common Shares, evidences of indebtedness or cash, securities
or any property or other assets.
The Warrant Indenture will provide for adjustment in the class
and/or number of securities issuable upon the exercise of the Warrants and/or
exercise price per security in the event of the following additional events: (i)
- 14 -
[ALTERNATIVE CANADIAN PAGE]
reclassifications of the Common Shares; (ii) consolidations,
amalgamations, plans of arrangement or mergers of the Corporation with or into
another entity (other than consolidations, amalgamations, plans of arrangement
or mergers that do not result in any reclassification of the Common Shares or a
change of the Common Shares into other shares); or (iii) the transfer (other
than to one of the Corporations subsidiaries) of the Corporations undertaking
or assets as an entirety or substantially as an entirety to another Corporation
or other entity. No adjustment in the exercise price or the number of Common
Shares issuable upon the exercise of a Warrant will be required to be made
unless the cumulative effect of such adjustment or adjustments would change the
exercise price by at least 1% or the number of Common Shares issuable upon
exercise of a Warrant by at least 0.1 of a Common Share.
The Corporation will also covenant in the Warrant Indenture
that, during the period in which the Warrants are exercisable, it will give
notice to the holders of Warrants of certain stated events, including events
that would result in the adjustment to the exercise price for the Warrants or
the number of Common Shares issuable upon exercise of the Warrants, at least 21
days prior to the record date or effective date, as the case may be, of such
event.
No fractional Common Shares will be issuable to any holder of
Warrants upon the exercise thereof, and no cash or other consideration will be
paid in lieu of fractional shares. Holders of Warrants do not have any voting or
pre-emptive rights or any other rights of a holder of Common Shares.
From time to time, the Warrant Agent and the Corporation,
without the consent of the holders of Warrants, may amend or supplement the
Warrant Indenture for certain purposes, including curing defects or
inconsistencies or making any change that does not adversely affect the rights
of any holder of Warrants. Any amendment or supplement to the Warrant Indenture
that adversely affects the interest of the holders of the Warrants may only be
made by "extraordinary resolution", which is defined in the Warrant Indenture as
a resolution either: (i) passed at a meeting of the holders of Warrants at which
there are holders of Warrants present in person or represented by proxy
representing at least 25% of the aggregate number of the then outstanding
Warrants and passed by the affirmative vote of holders of Warrants representing
not less than two-thirds of the aggregate number of all the then outstanding
Warrants represented at the meeting and voted on the poll upon such resolution;
or (ii) adopted by an instrument in writing signed by the holders or Warrants
representing not less than two-thirds of the number of all the then outstanding
Warrants.
DESCRIPTION OF SECURITIES DISTRIBUTED
The Corporation is authorized to issue 200,000,000 Common
Shares with a par value of US$0.001 per share. As at October 31, 2011, the
Corporation had 16,431,452 Common Shares issued and outstanding. Each Unit
offered pursuant to the short form prospectus is comprised of one Common Share
and one Warrant, each Warrant exercisable into one additional Common Share at a
price of US$0.40 per Common Share for a period of 12 months following the
Closing Date.
In addition, as of February 29, 2012, 1,740,000 Common Shares
are reserved for issuance under stock options granted to directors, officers,
employees and consultants and 699,893 Common Shares are reserved for issuance
upon exercise of outstanding share purchase warrants. 2,342,858 common shares
are reserved for issuance under convertible debentures and loan agreements.
20,000,000 common shares and warrants are reserved for issuance under this short
form prospectus.
The holders of Common Shares are entitled to receive notice of
and attend all meetings of shareholders with each common share held entitling
the holder to one vote on any resolution to be passed at such shareholder
meetings. The holders of Common Shares are entitled to dividends if, as and when
declared by the board of directors of the Corporation. The Common Shares are
entitled upon liquidation, dissolution or winding up of the Corporation, to
receive the remaining assets of the Corporation available for distribution to
shareholders. The Corporations constating documents contain no restrictions on
the right to hold or vote the Common Shares.
- 15 -
[ALTERNATIVE CANADIAN PAGE]
PRIOR SALES
During the twelve months preceding the date of this short form
prospectus, the Corporation issued the following securities:
Date of
Grant/Issue
|
Number and Type of Securities
|
Price/Exercise Price US$
|
March 6, 2011
|
106,250 common shares
(7)
|
$0.20 per share
|
June 8, 2011
|
1,500,000 common shares
(6)
|
$0.20 per share
|
June 28, 2011
|
500,000 common shares
(5)
|
$0.20 per share
|
July 11, 2011
|
700,000 stock options
|
$0.35
|
July 13, 2011
|
173,043 common shares
(4)
|
$0.20 per share
|
July 13, 2011
|
200,000 units
(3)
|
$0.35 per unit
|
July 15, 2011
|
118,750 common shares
(2)
|
$0.20 per share
|
August 12, 2011
|
800,000 common shares
(1)
|
$0.34 per share
|
Notes:
|
|
(1)
|
Issued in connection with an Asset Purchase Agreement to
acquire oil and gas assets in Mississippi, at a deemed price of $0.30 per
share.
|
(2)
|
Issued in connection with the exercise of 118,750 stock
options.
|
(3)
|
Issued in connection with a unit offering. Each unit
consists of one restricted common share and one share purchase warrant at
$0.50 per share for a period of two years.
|
(4)
|
Issued in connection with the exercise of 173,043
warrants.
|
(5)
|
Issued in connection with the exercise of 500,000
warrants.
|
(6)
|
Issued in connection with the exercise of 1,500,000
warrants.
|
(7)
|
Issued in connection with the exercise of 106,250 stock
options.
|
The following incentive stock options are outstanding as at the
date of this short form prospectus pursuant to the Corporations stock option
plans:
Date of
Issue
|
|
Number of Options
|
|
|
Exercise Price US$
|
|
|
Expiry Date
|
|
January 20, 2010
|
|
850,000
|
|
$
|
0.20
|
|
|
January 20, 2015
|
|
August 16, 2010
|
|
150,000
|
|
$
|
0.20
|
|
|
August 15, 2015
|
|
July 11, 2011
|
|
700,000
|
|
$
|
0.35
|
|
|
July 11, 2016
|
|
November 15, 2011
|
|
40,000
|
|
$
|
0.30
|
|
|
November 15, 2016
|
|
TOTAL:
|
|
1,740,000
|
|
|
|
|
|
|
|
PRICE RANGE AND TRADING VOLUME OF SECURITIES
The Common Shares are listed for trading on the CNSX and on the
OTCQB and trade under the symbols LXX and LXRP, respectively. The high and
low trading prices and the aggregate volume of trading of the Common Shares on a
monthly basis for the 12 months preceding the date of this short form
prospectus, as reported by the OTCQB, are set forth below:
OTC:QB
Month Ended
|
High
(US$)
|
Low
(US$)
|
Volume
(# of Shares)
|
February, 2012
|
$0.30
|
$0.23
|
131,081
|
January, 2012
|
$0.30
|
$0.22
|
135,785
|
December, 2011
|
$0.30
|
$0.20
|
57,150
|
November, 2011
|
$0.30
|
$0.22
|
113,130
|
- 16 -
[ALTERNATIVE CANADIAN PAGE]
Month Ended
|
High
(US$)
|
Low
(US$)
|
Volume
(# of Shares)
|
October, 2011
|
$0.35
|
$0.26
|
272,208
|
September, 2011
|
$0.37
|
$0.245
|
140,365
|
August, 2011
|
$0.40
|
$0.20
|
76,662
|
July, 2011
|
$0.39
|
$0.26
|
49,285
|
June, 2011
|
$0.42
|
$0.265
|
40,709
|
May, 2011
|
$0.50
|
$0.255
|
174,435
|
April, 2011
|
$0.40
|
$0.35
|
25,000
|
March, 2011
|
$0.28
|
$0.28
|
25,000
|
CNSX
Month Ended
|
High
($)
|
Low
($)
|
Volume
(# of Shares)
|
February, 2012
|
$0.30
|
$0.25
|
79,000
|
January, 2012
|
$0.35
|
$0.28
|
68,500
|
December, 2011
|
$0.32
|
$0.21
|
45,500
|
November, 2011
|
$0.22
|
$0.22
|
1,550
|
October, 2011
|
$0.25
|
$0.20
|
90,500
|
September, 2011
|
$0.36
|
$0.20
|
11,000
|
August, 2011
|
$0.30
|
$0.30
|
10,000
|
July, 2011
|
-
|
-
|
-
|
June, 2011
|
-
|
-
|
-
|
May, 2011
|
$0.40
|
$0.32
|
45,000
|
April, 2011
|
$0.40
|
$0.35
|
25,000
|
March, 2011
|
$0.28
|
$0.28
|
25,000
|
On March 14, 2012, the last trading day prior to the date of
this short form prospectus, the closing price of the Common Shares on the CNSX
and OTCQB was
$♦
and US
$♦
, respectively.
ELIGIBILITY FOR INVESTMENT
In the opinion of Clark Wilson LLP, tax counsel to the
Corporation, based on the current provisions of the
Income Tax Act
(Canada) and the regulations thereunder (the
Tax Act)
and provided
the Unit Shares are listed on the TSX-V on the Closing Date, the Unit Shares and
Warrants comprising the Units on the Closing Date will be qualified investments
under the Tax Act for trusts governed by registered retirement savings plans
(
RRSPs),
registered retirement income funds
(
RRIFs),
deferred profit sharing plans, registered education savings plans,
registered disability savings plans and tax-free savings accounts
(
TFSAs,
and collectively
Deferred Income Plans),
provided that, in the case of Warrants, each person that is an annuitant, a
beneficiary, an employer or a subscriber under, or a holder of such a Deferred
Income Plan, deals at arms length with the Corporation.
Notwithstanding that the Unit Shares and Warrants comprising
the Units will be a qualified investment for a TFSA, the holder of a TFSA will
be subject to a penalty tax on the Unit Shares or Warrants held in the TFSA if
such securities are a prohibited investment for the TFSA as defined in the Tax
Act. Proposed
- 17 -
[ALTERNATIVE CANADIAN PAGE]
amendments to the Tax Act (the Proposed Amendments) will
extend the prohibited investment provisions to investments held by trusts
governed by RRSPs and RRIFs for investments acquired after March 22, 2011.
Generally, the Unit Shares and Warrants comprising the Units should not be a
prohibited investment under the Tax Act for a TFSA (or under the Proposed
Amendments, for a RRSP or RRIF), provided that the holder of the TFSA (or under
the Proposed Amendments, the annuitant of the RRSP or RRIF) deals at arms
length with the Corporation and does not have a significant interest in the
Corporation or any corporation, partnership or trust that does not deal at arms
length with the Corporation (all for purposes of the Tax Act). Generally, a
holder or annuitant will not have a significant interest in the Corporation or
any corporation, partnership or trust that does not deal at arms length with
the Corporation, provided the holder or annuitant, or the holder or annuitant
together with persons and partnerships with whom the holder or annuitant does
not deal at arms length, does not own (nor is deemed to own pursuant to the Tax
Act), have an interest in or the right to acquire, directly or indirectly, 10%
or more of the issued shares of any class of the capital stock of the
Corporation or any corporation, partnership or trust that does not deal at arms
length with the Corporation (all for purposes of the Tax Act). Holders of TFSAs
and annuitants of RRSPs or RRIFs should consult with their own tax advisors as
to whether the Unit Shares and Warrants comprising the Units would be prohibited
investments under the Tax Act and the Proposed Amendments in their particular
circumstances.
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Clark Wilson LLP, tax counsel to the
Corporation, the following is, as of the date hereof, a general summary of the
principal Canadian federal income tax considerations under the Tax Act generally
applicable to a purchaser of Common Shares and Warrants comprising the Units
acquired pursuant to the Offering. This summary is applicable only to a
purchaser who, at all relevant times, deals at arms length and is not
affiliated with the Corporation and the Agent, and who will acquire and hold
such Common Shares and Warrants as capital property (each, a Holder), all
within the meaning of the Tax Act. Any Common Shares and Warrants will generally
be considered to be capital property to a Holder unless the Holder holds such
securities in the course of carrying on a business or has acquired them in a
transaction or transactions considered to be an adventure or concern in the
nature of trade.
This summary does not apply to a holder of Common Shares or
Warrants comprising the Units (i) that is a financial institution, as defined
in the Tax Act for purposes of the mark-to-market property rules; (ii) an
interest in which is or would constitute a tax shelter investment as defined
in the Tax Act; (iii) that is a specified financial institution as defined in
the Tax Act; or (iv) that reports its Canadian tax results in a currency other
than the Canadian currency. Such holders should consult their own tax advisors
with respect to an investment in Common Shares and Warrants comprising the
Units.
This summary is based upon the current provisions of the Tax
Act, specific proposals to amend the Tax Act (the Tax Proposals) which have
been announced by or on behalf the Minister of Finance (Canada) prior to the
date hereof, and counsels understanding of the current published administrative
policies and assessing practices of the Canada Revenue Agency. This summary
assumes that the Tax Proposals will be enacted in the form proposed and does not
take into account or anticipate any other changes in law, whether by way of
judicial, legislative or governmental decision or action, nor does it take into
account provincial, territorial or foreign income tax legislation or
considerations, which may differ from the Canadian federal income tax
considerations discussed herein. No assurances can be given that such Tax
Proposals will be enacted as proposed or at all, or that legislative, judicial
or administrative changes will not modify or change the statements expressed
herein.
This summary is not exhaustive of all possible Canadian federal
income tax considerations applicable to an investment in the Units and is not
intended to be, nor should it be construed to be, legal or income tax advice to
any particular Holder. Holders are urged to consult their own income tax
advisors with respect to the tax consequences applicable to them based on their
own particular circumstances.
- 18 -
[ALTERNATIVE CANADIAN PAGE]
Residents of Canada
This portion of the summary is applicable to a Holder, who, for
the purposes of the Tax Act and any applicable income tax treaty or convention,
is resident or deemed to be resident in Canada at all relevant times (each, a
Resident Holder).
Certain Resident Holders whose Common Shares might
not otherwise qualify as capital property may be entitled to make the
irrevocable election provided by subsection 3 9(4) of the Tax Act to have the
Common Shares and every other Canadian security (as defined by the Tax Act)
owned by such Resident Holder in the taxation year of the election and in all
subsequent taxation years deemed to be capital property. The Warrants are not
Canadian securities for this purpose. Resident Holders should consult their own
tax advisors for advice as to whether an election under subsection 39(4) of the
Tax Act is available and/or advisable in their particular circumstances.
Allocation of Purchase Price
A Resident Holder will be required to allocate the purchase
price of each Unit between the Common Share and the Warrant comprising the Unit
on a reasonable basis, in order to determine their respective costs for purposes
of the Tax Act. The Corporation estimated the fair value, as of a current date,
of each Common Share and each Warrant as US$0.249 and US$0.001, respectively.
Although the Corporation believes such allocation is reasonable, such allocation
will not be binding on the Canada Revenue Agency and counsel expresses no
opinion with respect to such allocation. The adjusted cost base to a Resident
Holder of a Common Share acquired hereunder will be determined by averaging the
cost of that Common Share with the adjusted cost base (determined immediately
before the acquisition of the Common Share) of all other Common Shares held as
capital property at that time by the Resident Holder.
Exercise or Expiry Of Warrants
A Resident Holder will not realize a gain or loss upon the
exercise of a Warrant to acquire a Common Share. Where Warrants are exercised,
the Resident Holders cost of the Common Shares acquired thereby will be equal
to the aggregate of the Resident Holders adjusted cost base of the Warrants so
exercised plus the exercise price paid for the Common Shares. The Resident
Holders adjusted cost base of the Common Shares so acquired will be determined
by averaging the cost of those Common Shares with the adjusted cost base
(determined immediately before the acquisition of the Common Shares) of all
other Common Shares held as capital property by such Resident Holder at the time
of acquisition. In the event of the expiry of an unexercised Warrant, the
Resident Holder will realize a capital loss equal to the Resident Holders
adjusted cost base of such Warrant. The tax treatment of capital losses is
discussed in greater detail below under the subheading Taxation of Capital
Gains and Capital Losses.
Disposition of Common Shares and Warrants
A Resident Holder who disposes of or is deemed to have disposed
of a Common Share (except to the Corporation or in a tax-deferred transaction)
or a Warrant (other than a disposition arising on the exercise or expiry of a
Warrant) will generally realize a capital gain (or incur a capital loss) in the
year of disposition equal to the amount by which the proceeds of disposition in
respect of the Common Share or the Warrant exceed (or are exceeded by) the
aggregate of the adjusted cost base of such Common Share or Warrant, as the case
may be, and any reasonable expenses associated with the disposition. The tax
treatment of capital gains and capital losses is discussed in greater detail
below under the subheading Taxation of Capital Gains and Capital Losses.
Taxation of Capital Gains and Capital Losses
Generally, one-half of any capital gain (a
taxable capital
gain)
realized by a Resident Holder must be included in the Resident
Holders income for the taxation year in which the disposition occurs. Subject
to and in accordance with the provisions of the Tax Act, one-half of any capital
loss incurred by a Resident Holder (an
allowable capital loss)
may be
used to offset taxable capital gains realized by the Resident Holder in the
taxation year of disposition. Allowable capital losses in excess of taxable
capital gains for the taxation year of disposition may be applied to reduce net
taxable capital gains realized by the Resident Holder in the three preceding
taxation years or in any subsequent year in the circumstances and to the extent
provided in the Tax Act. A capital loss realized on the disposition of a Common
Share by a Resident Holder that is a corporation
- 19 -
[ALTERNATIVE CANADIAN PAGE]
may in certain circumstances be reduced by the amount of
dividends which have been previously received or deemed to have been received by
the Resident Holder on such share. Similar rules may apply where a corporation
is, directly or through a trust or partnership, a member of a partnership or a
beneficiary of a trust that owns Common Shares. Capital gains realized by an
individual and certain trusts may result in the individual or trust paying
alternative minimum tax under the Tax Act. A Resident Holder that is a
Canadian-controlled private corporation (as defined in the Tax Act) may be
liable to pay a refundable tax of 6
2/3
% on its aggregate investment
income for the year, which is defined in the Tax Act to include an amount in
respect of taxable capital gains.
Taxation of Dividends Received by Resident Holders
Dividends received or deemed to be received on the Common
Shares will be included in computing the Resident Holders income. Dividends
(including deemed dividends) received on Common Shares by a Resident Holder who
is an individual (and certain trusts) will be included in the Resident Holders
income and be subject to the gross-up and dividend tax credit rules applicable
to taxable dividends received by an individual from taxable Canadian
corporations, including the enhanced gross-up and dividend tax credit for
eligible dividends properly designated as such by the Corporation. Taxable
dividends received by such a Resident Holder may give rise to alternative
minimum tax under the Tax Act. Dividends (including deemed dividends) received
on Common Shares by a Resident Holder that is a corporation will be included in
the Resident Holders income and will normally be deductible in computing such
Resident Holders taxable income. A Resident Holder that is a private
corporation (as defined in the Tax Act) or any other corporation resident in
Canada and controlled, whether by reason of a beneficial interest in one or more
trusts or otherwise, by or for the benefit of an individual (other than a trust)
or a related group of individuals (other than trusts), may be liable to pay a
33
1/3
% refundable tax under Part IV of the Tax Act on dividends
received on the Common Shares to the extent that such dividends are deductible
in computing the Resident Holders taxable income.
Non-Residents of Canada
This portion of the summary is generally applicable to a Holder
who, for purposes of the Tax Act and at all relevant times, is neither resident
nor deemed to be resident in Canada and does not use or hold, and will not be
deemed to use or hold, Common Shares or Warrants in a business carried on in
Canada (each, a
Non-Resident Holder).
Special considerations, which are
not discussed in the summary, may apply to a purchaser under the Offering that
is an insurer that carries on an insurance business in Canada and elsewhere, and
such purchasers should consult their own advisers.
Dispositions
A Non-Resident Holder generally will not be subject to tax
under the Tax Act in respect of a capital gain realized on the disposition or
deemed disposition of a Common Share or a Warrant, nor will capital losses
arising therefrom be recognized under the Tax Act, unless the Common Share or
Warrant constitutes Taxable Canadian Property to the Non-Resident Holder for
purposes of the Tax Act, and the gain is not exempt from tax pursuant to the
terms of an applicable income tax convention between Canada and the country in
which the Non-Resident Holder is resident. Provided the Common Shares are listed
on a designated stock exchange for the purposes of the Tax Act, which currently
includes the TSX-V, at the time of disposition, the Common Shares and Warrants
generally will not constitute taxable Canadian property of a Non-Resident
Holder, unless, at any time during the 60-month period immediately preceding the
disposition, (i) the Non-Resident Holder, persons with whom the Non-Resident
Holder did not deal at arms length, or the Non-Resident Holder together with
all such persons, owned 25% or more of the issued Common Shares or any other
class or series of shares of the Corporation; and (ii) more than 50% of the fair
market value of the Common Shares was derived directly or indirectly, from one
or any combination of real or immovable property situated in Canada, Canadian
resource property, timber resource property, or any option in respect of, or
interest in, such properties. Even if a Common Share or Warrant is taxable
Canadian property to a Non-Resident Holder, any capital gain realized upon the
disposition of such Common Share or Warrant may not be subject to tax under the
Tax Act if such capital gain is exempt from Canadian tax pursuant to the
provisions of an applicable income tax convention. If a Non-Resident Holder to
whom Common Shares or Warrants are taxable Canadian property is not exempt from
- 20 -
[ALTERNATIVE CANADIAN PAGE]
tax under the Tax Act by virtue of a tax treaty, the
consequences described under the heading Residents of Canada will generally
apply.
Taxation of Dividends received by Non-Resident
Holders
Dividends paid or credited or deemed to be paid or credited on
Common Shares to a Non-Resident Holder will be subject to non-resident
withholding tax under the Tax Act at the rate of 25%, although such rate may be
reduced under the terms of an applicable income tax treaty or convention between
Canada and the country in which the Non-Resident Holder is resident.
RISK FACTORS
An investment in the Units is subject to certain risks.
Investors should carefully consider the risks described hereunder, together with
those risk factors discussed in the Corporations Form 10K, annual and interim
financial statements and management discussion & analysis as filed on
www.sedar.com.
The oil and gas industry is very competitive and is subject to
many risks. Many of these risks are outside of Lexarias control. Management has
identified the following key risks and their potential impact on Lexarias
operations. Other risks are set out below.
Focus of Belmont Lake Field Exploration
The Corporation will focus its exploration efforts and
deployment of the majority of proceeds raised under this short form prospectus
on exploration in the Belmont Lake Field. In the event that this exploration
program fails to generate commercial production and to justify the Corporations
focus on the Belmont Lake Field, the Corporation will have diminished a
significant portion of its available capital and will have no other material
property on which to focus its exploration efforts.
Ongoing Need for Financing
The Corporation is expected to generate modest revenue in 2012
and 2013, and its ability to continue exploration, development and acquisition
efforts will also be dependent on its continued attractiveness to equity
investors. The Corporation may incur operating losses as it continues to expend
funds to explore and develop its properties. The failure to raise additional
capital could result in the Corporation having to, entirely or partially,
curtail or suspend its future exploration or development activities or
acquisition efforts or dispose of all or substantially of its assets or cease to
carry on business.
The Corporation had cash in the amount of US$31,000 and working
capital deficiency of US$(1,291,674) as of February 29, 2012. Lexaria currently
does not generate significant revenues from its operations. Any direct
acquisition of a claim under lease or option is subject to our ability to obtain
the financing necessary for Lexaria to fund and carry out exploration programs
on potential properties. The requirements are substantial. Obtaining additional
financing would be subject to a number of factors, including market prices for
resources, investor acceptance of the Corporations properties and investor
sentiment. These factors may negatively affect the timing, amount, terms or
conditions of any additional financing available. The most likely source of
future funds presently available to Lexaria is through the sale of equity
capital and loans. Any sale of share capital will result in dilution to existing
shareholders.
Market for Warrants
There is currently no market through which the Warrants may be
sold and purchasers may not be able to resell the Warrants that comprise a
portion of the Units being issued under this short form prospectus. The
Corporation does not intend to apply to list the Warrants distributed under this
short form prospectus on the TSX-V or any other stock exchange.
Volatility of Market Price of Common Shares
The market price of the Common Shares may be volatile. The
volatility may affect the ability of holders of Common Shares to sell the Common
Shares at an advantageous price. Market price fluctuations in the Common
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[ALTERNATIVE CANADIAN PAGE]
Shares may be due to the Corporations operating results
failing to meet the expectations of securities analysts or investors in any
quarter, downward revision in securities analysts estimates, governmental
regulatory action, adverse change in general market conditions or economic
trends, acquisitions, dispositions or other material public announcements by the
Corporation or its competitors, along with a variety of additional factors,
including, without limitation, those set forth under "Forward-Looking
Statements" in this short form prospectus.
Forward-Looking Statements May Prove Inaccurate
Investors are cautioned not to place reliance on
forward-looking statements. By their nature, forward-looking statements involve
numerous assumptions, known and unknown risks and uncertainties, of both a
general and specific nature, that could cause actual results to differ
materially from those suggested by the forward-looking statements or contribute
to the possibility that predictions, forecasts or projections will prove to be
materially inaccurate. Additional information on the risks, assumptions and
uncertainties may be found under the heading "Cautionary Note Regarding
Forward-Looking Information" in this short form prospectus.
Exploration, Development and Production Risks
The long-term commercial success of Lexaria depends on its
ability to find, acquire, develop and commercially produce oil and natural gas
reserves.
Oil and natural gas exploration involves a high degree of risk
and there is no assurance that expenditures made on future exploration by
Lexaria will result in new discoveries of oil or natural gas in commercial
quantities.
Lexarias oil and gas exploration may prove unprofitable, not
only from dry wells, but from wells that do not produce sufficient net revenues
to return a profit after drilling, operating and other costs. Completion of a
well does not assure profit on the investment or recovery of drilling,
completion or operating costs. Additionally, drilling hazards or environmental
damage could greatly increase the cost of operations or adversely affect the
production from successful wells.
Project Risks
Lexarias ability to execute projects and market oil and
natural gas will depend upon numerous factors beyond Lexarias control,
including:
-
the availability and proximity of pipeline capacity;
-
security issues;
-
the supply of and demand for oil and natural gas;
-
the effects of inclement weather;
-
the availability of drilling, production and related equipment and
supplies, as well as services, all of which may be disrupted for a number of
reasons;
-
the hazards related to drilling and associated operations;
-
unexpected cost increases;
-
accidental events;
-
currency fluctuations; and
-
the availability and productivity of skilled labour.
Because of these factors, Lexaria could be unable to execute
projects on time, on budget or at all, and may not be able to effectively market
the oil and natural gas that it may produce.
Strong Competition
The international petroleum industry is highly competitive in
all its phases. Competition is particularly intense in the acquisition of
prospective oil and natural gas properties, exploration and production licences,
and oil and gas reserves. Lexarias competitive position depends on its
geological, geophysical and engineering expertise, its financial resources, its
ability to develop its properties on time and on budget and its ability to
select, acquire and develop proved reserves. Lexaria competes with numerous
other participants in the search for oil and gas
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[ALTERNATIVE CANADIAN PAGE]
and the acquisition of oil and gas properties on time and on
budget. Lexarias competitors include oil and gas companies which have greater
financial resources, staff and facilities than Lexaria.
Reliance on Key Personnel
The success of Lexaria depends in large measure on certain key
personnel especially its President and C.E.O. The loss of the services of such
key personnel could have a material adverse effect on Lexaria. Lexaria does not
have any key person insurance in effect. The contributions of the existing
management team to the immediate and near term operations of Lexaria are likely
to be of central importance.
Limited Revenues
To date, Lexaria has had only limited revenues in connection
with its non-material producing oil and gas properties. Lexaria has not been
profitable. Management of Lexaria expects that significant losses will occur in
the near future and there is no assurance that Lexaria will be profitable in the
future. Lexarias operating expenses and capital expenditures may increase in
subsequent years as consultants, personnel and equipment associated with
advancing exploration, development and commercial production of the Belmont Lake
Field property increases. Lexaria expects to continue to incur losses unless and
until such time as it enters into commercial production and generates sufficient
revenues to fund its continuing operations. There can be no assurance that
Lexaria will generate any revenues or achieve profitability.
For the fiscal year 2011, Lexaria earned revenues of
US$1,133,766. Lexaria currently has only modest oil or gas reserves that are
deemed proved, probable or possible pursuant to American standards of disclosure
for oil and gas activities. All of Lexarias existing wells are in Mississippi,
USA.
There can be no assurance that our current or future drilling
activities will be successful, and Lexaria cannot be sure that its overall
drilling success rate or its production operations within a particular area will
ever come to fruition, and if they do, will not decline over time. Lexaria may
not recover all or any portion of its capital investment in the wells or the
underlying leaseholds. Unsuccessful drilling activities would have a material
adverse effect upon Lexarias results of operations and financial condition. The
cost of drilling, completing and operating wells is often uncertain, and a
number of factors can delay or prevent drilling operations, including: (i)
unexpected drilling conditions; (ii) pressure or irregularities in geological
formation; (iii) equipment failures or accidents; (iv) adverse weather
conditions; and (v) shortages or delays in the availability of drilling rigs and
the delivery of equipment.
In addition, Lexarias exploration and development plans may be
curtailed, delayed or cancelled as a result of lack of adequate capital and
other factors, such as weather, compliance with governmental regulations,
current and forecasted prices for oil and changes in the estimates of costs to
complete the projects. Lexaria will continue to gather information about its
exploration projects, and it is possible that additional information may cause
the Corporation to alter its schedule or determine that a project should not be
pursued at all. You should understand that Lexarias plans regarding its
projects are subject to change.
Lexaria recognizes that if it is unable to generate significant
revenues from its activities, it will not be able to earn profits or continue
operations. Lexaria cannot guarantee that it will be successful in raising
capital to fund these operating losses or generate revenues in the future.
Lexaria can provide investors with no assurance that it will generate any
operating revenues or ever achieve profitable operations. If Lexaria is
unsuccessful in addressing these risks, its business will most likely fail and
our investors could lose their investment.
Substantial Capital Requirements
Lexaria anticipates making substantial capital expenditures for
the exploration, development and potential production of oil and natural gas
reserves. Lexarias results will impact its access to the capital necessary to
undertake or complete future drilling and development programs. Lexarias
ability to access the equity or debt markets in the future may be affected by
any prolonged market instability. There can be no assurance that debt or equity
financing, or future cash (if any) generated by operations, would be available
or sufficient to meet these requirements or for other corporate purposes or, if
debt or equity financing is available, that it will be on
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[ALTERNATIVE CANADIAN PAGE]
terms acceptable to Lexaria. The inability of Lexaria to access
sufficient capital for its operations could have a material adverse effect on
Lexarias financial condition, results of operations and prospects.
Dilution
Lexaria is currently authorized to issue an additional
4,782,751 Common Shares upon the exercise of previously issued stock options,
warrants and convertible securities to purchase Common Shares. The issuance of
Common Shares upon the exercise of stock option or warrants will have a dilutive
impact on the shareholders of the Corporation.
Lexaria may make future acquisitions or enter into financings
or other transactions involving the issuance of securities of Lexaria that may
also be dilutive.
Prices, Markets and Marketing
The marketability and price of oil and natural gas that may be
acquired or discovered by Lexaria is, and will continue to be, affected by
numerous factors beyond its control including the impact that the various levels
of government may have on the ultimate price received for oil and gas sales.
Lexarias ability to market its oil and natural gas may depend upon its ability
to secure transportation. Lexaria may also be affected by deliverability
uncertainties related to the proximity of its potential production to pipelines
and processing facilities and operational problems affecting such pipelines and
facilities as well as potential government regulation relating to price, the
export of oil and natural gas and other aspects of the oil and natural gas
business. This would have a material adverse effect on Lexarias financial
condition, business, prospects and results of operations.
Insurance and Liability
Lexarias involvement in the exploration for and development of
oil and gas properties may result in Lexaria becoming subject to liability for
pollution, blow-outs, environmental damage, cratering and fires all of which
would result in property damage, personal injury or other hazards. Although
Lexaria will obtain insurance in accordance with industry standards to address
such risks, such insurance has limitations on liability that may not be
sufficient to cover the full extent of such liabilities. In addition, such risks
may not, in all circumstances be insurable or, in certain circumstances, Lexaria
may elect not to obtain insurance to deal with specific risks due to the high
premiums associated with such insurance or other reasons. The payment of such
uninsured liabilities would reduce the funds available to Lexaria. The
occurrence of a significant event that Lexaria is not fully insured against, or
the insolvency of the insurer of such event, could have a material adverse
effect on Lexarias financial position, business, results of operations or
prospects.
Conflicts of Interest
Most of the officers and directors of Lexaria are also officers
and directors of other natural resource companies and, to the extent that such
other companies may participate in ventures in which Lexaria may participate, or
such other companies pursue the acquisition of assets that Lexaria also
considers pursuing, the directors and officers of Lexaria may have a conflict of
interest in negotiating and concluding terms respecting such participation.
Limited Operating History
Lexaria has a limited operating history. Lexarias operations
will be subject to all the uncertainties arising from the absence of a
significant operating history. Potential investors should be aware of the
difficulties normally encountered by resource exploration companies and the high
rate of failure of such enterprises. The likelihood of success must be
considered in light of the problems, expenses, difficulties, complications and
delays encountered in connection with the exploration of the properties that
Lexaria plans to undertake. These potential problems include, but are not
limited to, unanticipated problems relating to exploration, and additional costs
and expenses that may exceed current estimates. The expenditures to be made by
Lexaria in the exploration of its properties may not result in the discovery of
reserves. Problems such as unusual or unexpected formations of rock or land and
other conditions are involved in resource exploration and often result in
unsuccessful exploration efforts. If the results of Lexarias exploration do not
reveal viable commercial
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[ALTERNATIVE CANADIAN PAGE]
reserves, it may decide to abandon its properties and acquire
new properties for new exploration or cease operations. The acquisition of
additional properties will be dependent upon Lexaria possessing capital
resources at the time in order to purchase such claims. If no funding is
available, Lexaria may be forced to abandon its operations. There can be no
assurance that it will be able to operate on a profitable basis.
Because management has limited experience and training in the
oil and gas industry, Lexaria may not have sufficient expertise to make informed
best practices decisions regarding oil and gas operations. Lexaria does not have
a petroleum engineer on staff to provide internal oversight. It is possible
that, due to its limited knowledge, Lexaria might elect to complete a well and
incur financial burdens that a more experienced petroleum team might elect not
to complete.
There can be no assurance that Lexaria will discover oil or
natural gas in any commercial quantity on its properties.
Exploration for economic reserves of oil and natural gas is
subject to a number of risks. There is competition for the acquisition of
available oil and natural gas properties. Few properties that are explored are
ultimately developed into producing oil and/or natural gas wells. If Lexaria
cannot discover oil or natural gas in any commercial quantity thereon, its
business will fail.
Even if Lexaria acquires an oil and natural gas exploration
property and establish that it contains oil or natural gas in commercially
exploitable quantities, the potential profitability of oil and natural gas
ventures depends upon factors beyond the control of the Corporation.
The potential profitability of oil and natural gas properties
is dependent upon many factors beyond our control. For instance, world prices
and markets for oil and natural gas are unpredictable, highly volatile,
potentially subject to governmental fixing, pegging, controls or any combination
of these and other factors, and respond to changes in domestic, international,
political, social and economic environments. Additionally, due to worldwide
economic uncertainty, the availability and cost of funds for production and
other expenses have become increasingly difficult, if not impossible, to
project. In addition, adverse weather conditions can hinder drilling operations.
These changes and events may materially affect Lexarias future financial
performance. These factors cannot be accurately predicted and the combination of
these factors may result in Lexaria not receiving an adequate return on invested
capital.
In addition, a productive well may become uneconomic in the
event water or other deleterious substances are encountered which impair or
prevent the production of oil and/or natural gas from the well. Production from
any well may be unmarketable if it is impregnated with water or other
deleterious substances. Also, the marketability of oil and natural gas which may
be acquired or discovered will be affected by numerous related factors,
including the proximity and capacity of oil and natural gas pipelines and
processing equipment, market fluctuations of prices, taxes, royalties, land
tenure, allowable production and environmental protection, all of which could
result in greater expenses than revenue generated by the well.
The marketability of natural resources will be affected by
numerous factors beyond Lexarias control which may result in it not receiving
an adequate return on invested capital to be profitable or viable.
The marketability of natural resources which may be acquired or
discovered by Lexaria will be affected by numerous factors beyond Lexarias
control. These factors include market fluctuations in oil and natural gas
pricing and demand, the proximity and capacity of natural resource markets and
processing equipment, governmental regulations, land tenure, land use,
regulation concerning the importing and exporting of oil and natural gas and
environmental protection regulations. The exact effect of these factors cannot
be accurately predicted, but the combination of these factors may result in
Lexaria not receiving an adequate return on invested capital to be profitable or
viable.
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[ALTERNATIVE CANADIAN PAGE]
Oil and natural gas operations are subject to comprehensive
regulation which may cause substantial delays or require capital outlays in
excess of those anticipated causing an adverse effect on Lexaria.
Oil and natural gas operations are subject to federal, state,
and local laws relating to the protection of the environment, including laws
regulating removal of natural resources from the ground and the discharge of
materials into the environment. Oil and natural gas operations are also subject
to federal, state, and local laws and regulations which seek to maintain health
and safety standards by regulating the design and use of drilling methods and
equipment. Various permits from government bodies are required for drilling
operations to be conducted; no assurance can be given that standards imposed by
federal, provincial, or local authorities may be changed and any such changes
may have material adverse effects on our activities. Moreover, compliance with
such laws may cause substantial delays or require capital outlays in excess of
those anticipated, thus causing an adverse effect on Lexaria. Additionally,
Lexaria may be subject to liability for pollution or other environmental
damages. To date, Lexaria has not been required to spend any material amount on
compliance with environmental regulations. However, Lexaria may be required to
do so in the future and this may affect its ability to expand or maintain its
operations.
Exploratory drilling involves many risks and Lexaria may
become liable for pollution or other liabilities which may have an adverse
effect on its financial position.
Drilling operations generally involve a high degree of risk.
Hazards such as unusual or unexpected geological formations, power outages,
labor disruptions, blow-outs, sour natural gas leakage, fire, inability to
obtain suitable or adequate machinery, equipment or labor, and other risks are
involved. Lexaria may become subject to liability for pollution or hazards
against which it cannot adequately insure or which it may elect not to insure.
Incurring any such liability may have a material adverse effect on its financial
position and operations.
Any change to government regulation/administrative practices
may have a negative impact on Lexarias ability to operate and its
profitability.
The business of oil and natural gas exploration and development
is subject to substantial regulation under various countries laws relating to
the exploration for, and the development, upgrading, marketing, pricing,
taxation, and transportation of oil and natural gas and related products and
other matters. Amendments to current laws and regulations governing operations
and activities of oil and natural gas exploration and development operations
could have a material adverse impact on Lexarias business. In addition, there
can be no assurance that income tax laws, royalty regulations and government
incentive programs related to the properties subject to Lexarias farm-out
agreements and the oil and natural gas industry generally will not be changed in
a manner which may adversely affect Lexarias progress and cause delays,
inability to explore and develop or abandonment of these interests.
Permits, leases, licenses, and approvals are required from a
variety of regulatory authorities at various stages of exploration and
development. There can be no assurance that the various government permits,
leases, licenses and approvals sought will be granted in respect of Lexarias
activities or, if granted, will not be cancelled or will be renewed upon expiry.
There is no assurance that such permits, leases, licenses, and approvals will
not contain terms and provisions which may adversely affect Lexarias
exploration and development activities.
Lexaria is not the "operator" of any of its oil and gas
exploration interests, and Lexaria is exposed to the risks of its third-party
operators.
Lexaria relies on the expertise of its contracted third-party
oil and gas exploration and development operators and third-party consultants
for their judgment, experience and advice. Lexaria can give no assurance that
these third party operators or consultants will always act in its best
interests, and Lexaria is exposed as a third party to their operations and
actions and advice in those properties and activities in which Lexaria is
contractually bound.
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[ALTERNATIVE CANADIAN PAGE]
AUDITORS, REGISTRAR AND TRANSFER AGENT OF THE
CORPORATION
The auditors of the Corporation are MNP LLP, Vancouver, B.C.
The registrar and transfer agent for the Common Shares is Olympia Trust Company
at its principal offices in Vancouver, B.C.
INTERESTS OF EXPERTS
Certain legal matters relating to the Common Shares offered
hereunder will be passed upon by Macdonald Tuskey and Clark Wilson LLP on behalf
of the Corporation and Salley Bowes Harwardt LC on behalf of the Agent. As of
the date of this short form prospectus, the partners and associates of these
firms, as well as the Corporations auditors, each as a group, beneficially own,
directly or indirectly, less than 1% of the Common Shares.
Chang Lee LLP, Chartered Accountants, which merged with MNP LLP
effective June 1, 2011, has been the auditor of Lexaria since September 14, 2006
and is independent of Lexaria within the meaning of the Rules of Professional
Conduct of the Institute of Chartered Accountants of British Columbia.
The 51-101 Report prepared by the consulting firm of Veazey
& Associates LLC is incorporated in this short form prospectus by reference.
Veazey & Associates LLC do not have any interest, to the knowledge of the
Corporation, in the Corporation.
STATUTORY RIGHTS OF WITHDRAWAL AND RESCISSION
Securities legislation in certain of the provinces of Canada
provides purchasers with the right to withdraw from an agreement to purchase
securities. This right may be exercised within two business days after receipt
or deemed receipt of a prospectus and any amendment. In several of the
provinces, the securities legislation further provides a purchaser with remedies
for rescission or, in some jurisdictions, revisions of the price or damages if
the prospectus and any amendment contains a misrepresentation or is not
delivered to the purchaser, provided that the remedies for rescission, revision
of the price or damages are exercised by the purchaser within the time limit
prescribed by the securities legislation of the purchasers province. The
purchaser should refer to any applicable provisions of the securities
legislation of the purchasers province for the particulars of these rights or
consult with a legal adviser.
UNITED STATES PROSPECTUS
Attached is the prospectus forming part of the registration
statement on Form S-1 (the
U.S. Prospectus
) filed with the United
States Securities and Exchange Commission in the United States in connection
with the offering of the Units. The U.S. Prospectus forms an integral part of
this short form prospectus. Rights and remedies may be available to purchasers
under United States law, however, such rights and remedies may differ from those
available under Canadian law. Purchasers may wish to consult with a United
States legal advisor for particulars of these rights.
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[ALTERNATIVE CANADIAN PAGE]
AUDITORS CONSENT
We have read the short form prospectus of Lexaria Corp. (the
Corporation) dated March 15, 2012 qualifying the distribution of a minimum of
2,000,000 units and a maximum of 20,000,000 units with each unit comprising one
share and one share purchase warrant of the Corporation for a price US$0.25. We
have complied with accounting principles generally accepted in the United States
of America for an auditors involvement with offering documents.
We consent to the incorporation by reference in the
above-mentioned short form prospectus of our report to the shareholders of the
Corporation on the balance sheet of the Corporation as at October 31, 2011 and
related statements of stockholders equity, operations and comprehensive loss
and cash flows for the year then ended. Our report is dated January 26,
2012.
Vancouver, British Columbia, Canada
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March 15, 2012
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- 28 -
[ALTERNATIVE CANADIAN PAGE]
[Insert Form S-1 here]
- 29 -
[ALTERNATIVE CANADIAN PAGE]
CERTIFICATE OF THE CORPORATION
Dated: March 15, 2012
This short form prospectus, together with the documents
incorporated by reference, constitutes full, true and plain disclosure of all
material facts relating to the securities offered by this short form prospectus
as required by the securities legislation of each of the Provinces of Ontario,
Alberta and British Columbia.
On behalf of Lexaria Corp.
By:
Chris Bunka
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By:
Bal Bhullar
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Chief Executive Officer
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Chief Financial
Officer
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On behalf of the Board of Directors of Lexaria Corp.
By:
Nicholas W. Baxter
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By:
David DeMartini
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Director
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Director
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[ALTERNATIVE CANADIAN PAGE]
CERTIFICATE OF THE AGENT
Dated: March 15, 2012
To the best of our knowledge, information and belief, this
short form prospectus, together with the documents incorporated by reference,
constitutes full, true and plain disclosure of all material facts relating to
the securities offered by this short form prospectus as required by the
securities legislation of each of the Provinces of Ontario, British Columbia and
Alberta.
LEEDE FINANCIAL MARKETS INC.
By:
Richard H. Carter
Richard H. Carter,
Senior
Vice President, General Counsel & Secretary
[ALTERNATIVE CANADIAN PAGE]
PART II
Item 13. Other Expenses of Issuance and Distribution
Our estimated expenses in connection with the issuance and
distribution of the securities being registered in this Prospectus are as
follows:
Commission filing fee
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$
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615
|
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Legal fees and expenses
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130,000
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Accounting fees and expenses
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15,000
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Printing and marketing expenses
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2,000
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Miscellaneous
|
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2,385
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Total
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$
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150,000
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Item 14. Indemnification of Directors and Officers
The only statute, charter provision, bylaw, contract, or other
arrangement under which any controlling person, director or officer of us is
insured or indemnified in any manner against any liability which he may incur in
his capacity as such, is as follows:
Chapter 78 of the Nevada Revised
Statutes (the NRS).
Nevada Revised Statutes
Section 78.138 of the NRS provides for immunity of directors
from monetary liability, except in certain enumerated circumstances, as
follows:
Except as otherwise provided in NRS 35.230, 90.660, 91.250,
452.200, 452.270, 668.045 and 694A.030, or unless the Articles of Incorporation
or an amendment thereto, in each case filed on or after October 1, 2003, provide
for greater individual liability, a director or officer is not individually
liable to the corporation or its stockholders or creditors for any damages as a
result of any act or failure to act in his capacity as a director or officer
unless it is proven that:
(a)
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his act or failure to act constituted a breach of his
fiduciary duties as a director or officer; and
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(b)
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his breach of those duties involved intentional
misconduct, fraud or a knowing violation of law.
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Section 78.5702 of the NRS provides as follows:
1.
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A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, except an action by or in the right of
the corporation, by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with the action, suit or proceeding if he:
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(a)
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is not liable pursuant to NRS 78.138;
or
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(b)
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acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful.
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2.
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A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure
a judgment in its favor by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses, including amounts paid in settlement
and attorneys fees actually and reasonably incurred by him in connection
with the defense or settlement of the action or suit if he:
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(a)
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is not liable pursuant to NRS 78.138; or
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(b)
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acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the
corporation.
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To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections 1 and 2, or in defense of
any claim, issue or matter therein, the corporation shall indemnify him against
expenses, including attorneys fees, actually and reasonably incurred by him in
connection with the defense.
Item 15. Recent Sales of Unregistered Securities
During the last three years, we completed the following sales
of unregistered securities:
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On July 18, 2008, we issued common shares for a private
placement which comprised of the sale of 612,500 units at the price of
$0.40 per unit for total proceeds of $245,000. Each unit is comprised of
one restricted share and one warrant to purchase one additional share of
common stock at a price of $.60, exercisable until June 30, 2011. The
units were issued to non-US persons pursuant to the exemption from
registration provided by Regulation S promulgated under the United States
Securities Act of 1933, as amended.
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On October 27, 2008, we entered into a Purchase Agreement
with CAB Financial Services Ltd., Chris Bunka, and another shareholder for
an aggregate amount of CDN $900,000. The purchasers agreed to purchase an
18% interest bearing Promissory Note subject to and upon the terms and
conditions of the Purchase Agreement. As long as the Promissory Note is
outstanding, the purchasers may voluntarily convert the Promissory Note
into common shares at the conversion price of $0.45 per share of Common
Stock. Additionally, in consideration for the purchasers agreeing to
purchase the Promissory Notes, we agreed to issue warrants to the
purchasers, which warrants shall have the following terms:
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each Series A warrant entitling the holder to purchase
one-half of one warrant share for a term of one year from issuance and an
exercise price of US $0.45 per whole warrant share;
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each Series B warrant entitling the holder to purchase
one-half of one warrant share for a term of two years from issuance and
exercise price of US $0.90 per whole warrant share; and
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Mandatory conversion of the warrants at our option upon
our common stock closing at 200% of the applicable exercise price for
twenty consecutive trading days.
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Two whole warrants and the exercise price are required to
purchase one share.
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The Promissory Notes and Warrants were issued
to 3 non-US persons pursuant to the exemption from registration provided by
Regulation S promulgated under the United States Securities Act of 1933, as
amended.
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On July 20, 2007, we adopted a Stock Option Plan. Based on this original
Stock Option Plan, on March 4, 2009, we granted 800,000 stock options to our
directors and consultants. The exercise price of the stock options is $0.12,
which are vested immediately and expire July 20, 2011. We issued the options
pursuant to the exemption from registration provided for under Section 4(2) of
the United States Securities Act 1933, as amended.
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On July 24, 2009, we closed our private placement from July 10, 2009,
which comprised of the sale of 4,545,000 units at a unit price of $0.05 per
unit. This was comprised of a partial debt settlement of $45,000 dated October
27, 2008 and net proceeds received of $182,250. Each unit is comprised of one
restricted common share and one warrant to purchase one additional share of
common stock, exercisable for a period of two years from the closing of this
offering. The exercise price of the warrants is $0.20. We issued the shares
and share purchase warrants to three (3) US persons pursuant to the exemption
from registration provided for under Rule 506 Regulation D, promulgated under
the United States Securities Act 1933, as amended and thirteen (13) non-US
persons in an off-shore transaction pursuant to the exemption from
registration provided for under Regulation S, promulgated under the United
States Securities Act of 1933, as amended.
-
On December 24, 2009, we closed a private placement of 1,617,752 units at
a price of $0.12 per unit for gross proceeds of CDN$194,130, US$184,909. Each
unit consisted of one common share and one half of a non-transferable share
purchase warrant, each full warrant entitling the holder to purchase one
additional common share until December 24, 2010, at a purchase price of
CDN$0.22, US$0.21 per share. We issued the units to three (3) US persons
pursuant to the exemption from registration provided for under Rule 506 of
Regulation D, promulgated under the United States Securities Act 1933, as
amended and to four (4) non-US persons in an off-shore transaction pursuant to
the exemption from registration provided for under Regulation S, promulgated
under the United States Securities Act of 1933, as amended.
-
Effective January 20, 2010, our board of directors adopted the 2010 Equity
Compensation Plan (the 2010 Plan). On January 20, 2010, we granted 975,000
stock options to our directors and executive officers. The exercise price of
each of the stock options granted is $0.20. All of the options vest
immediately and expire on January 20, 2015. We issued the options pursuant to
the exemption from registration provided for under Section 4(2) of the United
States Securities Act 1933, as amended.
-
On April 1, 2010, we entered into a purchase agreement with CAB Financial
Services Ltd., a company controlled by Chris Bunka, our President, Chief
Executive Officer and Director, US $75,000. The promissory note is due and
payable on April 1, 2012 or, if mutually agreed to by all parties then April
1, 2011. The promissory note may be prepaid in whole or in part at any time
prior to April 1, 2012 by payment of 108% of the outstanding principal amount
including accrued and unpaid interest. As long as the promissory note is
outstanding, the purchaser may voluntarily convert the promissory note
including accrued and unpaid interest to common shares of our company at the
conversion price of $0.30 per common share. We issued the debt and warrants
pursuant to the exemption from registration provided for under Regulation S of
the United States Securities Act 1933, as amended.
-
On May 31, 2010 we agreed to allot and issue 499,893 restricted shares at
a deemed price of US$0.12 per share for each US$0.12 of the claim amount, and
for each such share so issued, issue one warrant to purchase a further share
at a price of US$0.20 per share for a term of two years as full and final settlement of a claim
of US$59,987.13. We issued the shares and warrants to one (1) US person
pursuant to the exemption from registration provided for under Rule 506 of
Regulation D, promulgated under the United States Securities Act 1933, as
amended.
-
Based on our 2010 Stock Option Plan, on August 16, 2010, we granted
150,000 stock options to a consultant. The exercise price of the stock options
is $0.20, of which 75,000 stock options are vested immediately and 75,000
stock options vest on August 16, 2011 and expire August 16, 2015. We issued
the options pursuant to the exemption from registration provided for under
Section 4(2) of the United States Securities Act 1933, as amended.
-
On October 21, 2010 we entered into an Amendment to extend the original
Purchase Agreement dated October 27, 2008 with CAB Financial Services Ltd.,
Christopher Bunka, and another shareholder of the Company for a revised
aggregate sum of CAD$843,547.10 on a month to month basis. The purchasers had
purchased an 18.0% Secured Promissory Note of the Company, subject to and upon
the terms and conditions of the October 27, 2008 Agreement. We settled a
portion of the debt, namely US$1,625 with CAB Financial Services by converting
65,000 warrants into 32,500 common shares as per Purchase Agreement dated
October 27, 2008 at a price of $0.05 per share. We settled a portion of the
debt, namely US$2,166.65 with Christopher Bunka by converting 86,667 warrants
into 43,333 common shares as per Purchase Agreement dated October 27, 2008 at
a price of $0.05 per share. The Promissory Notes and Warrants were issued to 3
non-US persons pursuant to the exemption from registration provided by
Regulation S promulgated under the United States Securities Act of 1933, as
amended.
-
On August 5, 2010 we entered into a three month consulting agreement with
Mr. Tom Ihrke, whereby Mr. Ihrke would act as our Senior Vice President,
Business Development. We settled the debt incurred as a result of that
consulting agreement, being US$9,375, to Mr. Tom Ihrke by issuing 40,761
restricted common shares at a price of $0.23 per share. The Company issued the
shares to one (1) US persons pursuant to the exemption from registration
provided for under Rule 506 of Regulation D, promulgated under the United
States Securities Act 1933, as amended.
-
On November 30, 2010, we closed the first tranche of a private placement
offering of convertible debentures in the aggregate amount of US$450,000. The
convertible debentures mature on November 30, 2012, subject to forced
conversion as set out in the convertible debenture certificate. The
convertible debentures pay an interest rate of 12% per annum (on a simple
basis) and are convertible at US$0.35 per unit. Each unit is comprised of one
share of our common stock and one share purchase warrant. Each warrant
entitles the holder thereof to purchase one share at a price of US$0.40 per
share from the earlier of the maturity date of the convertible debenture or
one year from conversion of the convertible debenture. The convertible
debentures were issued to four (4) US persons, including Mr. David DeMartini
an insider of our company, pursuant to the exemption from registration
provided for under Rule 506 Regulation D, promulgated under the United States
Securities Act 1933, as amended.
-
On December 20, 2010, we closed the final tranche of a private placement
offering of convertible debentures in the aggregate amount of US$170,000. The
convertible debentures mature on November 30, 2012, subject to forced
conversion as set out in the convertible debenture certificate. The
convertible debentures pay an interest rate of 12% per annum (on a simple
basis) and are convertible at US$0.35 per unit. Each unit is comprised of one
share of our common stock and one share purchase warrant. Each warrant
entitles the holder thereof to purchase one share at a price of US$0.40 per
share from the earlier of the maturity date of the convertible debenture or
one year from conversion of the convertible debenture. The convertible debentures were issued to two (2)
US persons, including Mr. David DeMartini an insider of our company, pursuant
to the exemption from registration provided for under Rule 506 Regulation D,
promulgated under the United States Securities Act 1933, as amended.
-
On January 4, 2011, we accepted and received gross proceeds of CDN$14,586,
US$14,586, for the conversion of 132,600 warrants into 66,300 common shares.
David DeMartini, our Director, converted 100,000 warrants into 50,000 shares
as part of this transaction. We issued the units to two (2) US persons
pursuant to the exemption from registration provided for under Rule 506 of
Regulation D, promulgated under the United States Securities Act 1933, as
amended. Each of the subscribers represented that they were an accredited
investor as such term is defined in Regulation D.
-
On March 16, 2011, we accepted and received gross proceeds of US$21,250,
for the exercise of 106,250 stock options into 106,250 common shares from
David DeMartini, our Director. We issued the shares pursuant to the exemption
from registration provided for under Section 4(2) of the United States
Securities Act 1933, as amended.
-
On June 8, 2011, we accepted and received gross proceeds of US$300,000,
for the conversion of 1,500,000 warrants into 1,500,000 common shares by David
DeMartini our Director. We issued the shares pursuant to the exemption from
registration provided for under Section 4(2) of the United States Securities
Act 1933, as amended.
-
On June 28, 2011, we accepted and received gross proceeds of US$100,000,
for the conversion of 500,000 warrants into 500,000 common shares of the
Company by CAB Financial Services, a wholly owned company by our Chairman/CEO.
We issued the shares to one (1) non-US persons in an off-shore transaction
pursuant to the exemption from registration provided for under Regulation S,
promulgated under the United States Securities Act of 1933, as amended.
-
On July 13, 2011, we accepted and received gross proceeds of US$34,609,
for the conversion of 173,043 warrants at $0.20 each, into 173,043 common
shares and closed a private placement of 200,000 units at a price of $0.35 per
unit for gross proceeds of $70,000. Each unit consisted of one common share in
the capital of the Company and one full non-transferable share purchase
warrant, each full warrant entitling the holder to purchase one additional
common share in the capital of the Company until July 14, 2013, at a purchase
price of $0.50 per share. The private placement units were issued to two (2)
US persons, and the warrant shares to one (1) US person, pursuant to the
exemption from registration provided for under Rule 506 of Regulation D,
promulgated under the United States Securities Act 1933, as amended. Each of
the subscribers represented that they were an accredited investor as such
term is defined in Regulation D. Additionally, we issued the warrant shares to
two (2) non-US persons in an off-shore transaction pursuant to the exemption
from registration provided for under Regulation S, promulgated under the
United States Securities Act of 1933, as amended.
-
On July 15, 2011, we accepted and received gross proceeds of US$23,750,
for the exercise of 118,750 stock options at $0.20 each, into 118,750 common
share. Chris Bunka, our CEO/Chairman, converted 100,000 stock options into
100,000 shares. Tom Ihrke our VP Business Development, converted 18,750 stock
options into 18,750 shares. We issued the shares in reliance on exemptions
from registration found in Section 4(2) and Regulation S of the Securities Act
of 1933, as amended.
-
On August 12, 2011, we issued 800,000 common shares at the price of $0.34
for the acquisition of acquiring an additional 10% working interest in Belmont
Lake. We issued the
shares in reliance on exemptions from registration found in Section 4(2) and Regulation S of the Securities Act of 1933, as amended.
Our reliance upon the exemption under Section 4(2) of the Securities Act of 1933 was based on the fact that the issuance of the securities did not involve a “public offering.” Each offering was not a "public offering" as defined in
Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of securities offered. We did not undertake an offering in which we sold a high number of shares to a high number
of investors. In addition, the investors had the necessary investment intent as required by Section 4(2) since they agreed to and received a share certificate bearing a legend stating that such shares are restricted pursuant to Rule 144 of the
Securities Act. This restriction ensures that these shares would not be immediately redistributed into the market and therefore not be part of a "public offering." The investors negotiated the terms of the transactions directly with our executive
officers. No general solicitation was used, no commission or other remuneration was paid in connection with these transactions, and no underwriter participated. Based on an analysis of the above factors, these transactions were effected in reliance
on the exemption from registration provided in Section 4(2) of the Securities Act for transactions not involving any public offering.
Our reliance upon the exemption under Rule 903 of Regulation S of the Securities Act was based on the fact that the sales of the securities were completed in an "offshore transaction", as defined in Rule 902(h) of Regulation S. We did not engage in
any directed selling efforts, as defined in Regulation S, in the United States in connection with the sale of the securities. Each investor was not a US person, as defined in Regulation S, and was not acquiring the securities for the account or
benefit of a US person.
Item 16. Exhibits
Exhibit No.
|
Document Description
|
(3)
|
Articles of Incorporation
and By-laws
|
3.1
(1)
|
Articles of Association
|
3.2
(1)
|
Bylaws
|
3.3
(9)
|
Amendments to Articles of Incorporation
|
3.4
(10)
|
Amended and restated Bylaws
|
(4)
|
Instruments defining the rights of security
holders, including indentures
|
4.1
(1)
|
Specimen Stock Certificate
|
(5)
|
Opinion Regarding Legality
|
5.1
|
Legal Opinion of Macdonald
Tuskey*
|
(10)
|
Material Contracts
|
10.1
(1)
|
Strachan Participation &
Farmout Agreement
|
10.2
(1)
|
Griffin Model Form Operating Agreement
|
10.3
(1)
|
Griffin Drilling Program
Agreement
|
10.4
(2)
|
Management Services Agreement with Leonard
MacMillan
|
10.5
(3)
|
Consulting Agreement with CAB
Financial Services Ltd.
|
10.6
(4)
|
Agreement with Brink Resources
|
10.7
(4)
|
Agreement with 0743608 BC Ltd.
|
10.8
(5)
|
Amended Agreement and Promissory Notes
|
10.9
(6)
|
Consulting Agreement with CAB
Financial Services Ltd.
|
10.10
(7)
|
Agreement with Delta Oil & Gas, Inc. and
The Stallion Group
|
10.11
(8)
|
Agreement with BKB Management
Ltd.
|
10.12
(11)
|
Equity Compensation Plan 2007
|
10.13
(12)
|
Form of Stock Option Agreement
|
10.14
(13)
|
Form of Stock Option Agreement
|
10.15
(17)
|
Assignment Agreements and Loan
Agreement
|
10.16
(18)
|
Consulting Agreement with Tom Ihrke
|
10.17
(19)
|
Equity Compensation Plan 2010
|
10.18
(20)
|
Form of Convertible Debt
|
10.19
(22)
|
Agreement for Marketing
Services
|
(14)
|
Code of Ethics
|
14.1
(14)
|
Code of Business Conduct and
Ethics
|
(16)
|
Letter regarding change in certifying
accountant
|
16.1
(21)
|
Letter from Chang Lee LLP
|
(23)
|
Consents of experts and Counsel
|
23.1
|
Consent of MNP LLP*
|
23.2
|
Consent of Macdonald Tuskey (incorporated in
Exhibit 5.1)*
|
(99)
|
Exhibit No.
|
99.1
(15)
|
Haas Reserve Reports
|
99.2
(16)
|
Veazey Reserve Report
|
* Filed herewith
(1)
|
Incorporated by reference from Form SB-2 Registration
Statement filed on March 1, 2006.
|
(2)
|
Incorporated by reference from Form SB-2 Registration
Statement filed on May 5, 2006.
|
(3)
|
Incorporated by reference from our current report on Form
8-K filed.
|
(4)
|
Incorporated by reference from our current report on Form
8-K filed on June 21, 2007.
|
(5)
|
Incorporated by reference from our current report on Form
8-K filed on October 22, 2010.
|
(6)
|
Incorporated by reference from our current report on Form
8-K filed on December 1, 2008.
|
(7)
|
Incorporated by reference from our current report on Form
8-K filed on April 7, 2009.
|
(8)
|
Incorporated by reference from our current report on Form
8-K filed on May 19, 2009.
|
(9)
|
Incorporated by reference from our current report on Form
8-K filed on June 23, 2009.
|
(10)
|
Incorporated by reference from our current report on Form
8-K filed on December 22, 2009
.
|
(11)
|
Incorporated by reference from our current report on Form
S8 filed on May 7, 2007.
|
(12)
|
Incorporated by reference from our current report on Form
8-K filed on March 4, 2009.
|
(13)
|
Incorporated by reference from our current report on Form
8-K filed on July 10, 2009.
|
(14)
|
Incorporated by reference from Form SB-2 Registration
Statement filed on September 20, 2007.
|
(15)
|
Incorporated by reference from our current report on Form
8-K filed on July 17, 2007.
|
(16)
|
Incorporated by reference from our current report on Form
8-K filed on October 31, 2007.
|
(17)
|
Incorporated by reference from our current report on Form
8-K filed on September 13, 2010.
|
(18)
|
Incorporated by reference from our current report on Form
8-K filed on August 6, 2010.
|
(19)
|
Incorporated by reference from our current report on Form
8-K filed on January 21, 2010.
|
(20)
|
Incorporated by reference from our current report on Form
8-K filed on November December 1, 2010.
|
(21)
|
Incorporated by reference from our current report on Form
8-K filed on November June 23, 2011.
|
(22)
|
Incorporated by reference from our current report on Form
8-K filed on November April 18, 2011.
|
Item 17. Undertakings
The registrant hereby undertakes:
1.
|
To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
|
|
|
|
|
(i)
|
To include any prospectus required by section 10(a)(3) of
the Securities Act;
|
|
|
|
|
(ii)
|
To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the SEC pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
registration statement; and
|
|
|
|
|
(iii)
|
To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement;
|
|
|
|
2.
|
That for the purpose of determining liability under the
Securities Act, each post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof;
|
|
|
|
3.
|
To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering; and
|
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
Each prospectus filed pursuant to Rule 424(b) as part of a
registration statement relating to an offering, other than registration
statements relying on Rule 430B or other than prospectuses filed in reliance on
Rule 430A, shall be deemed to be part of and included in the registration
statement as of the date it is first used after effectiveness. Provided,
however, that no statement made in a registration statement or prospectus that
is part of the registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a time
of contract of sale prior to such first use, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made in
any such document immediately prior to such date of first use.
For the purpose of determining liability of the undersigned
registrant under the Securities Act of 1933 to any purchaser in the distribution
of the securities, the undersigned registrant undertakes that in a primary
offering of securities of the undersigned registrant pursuant to this
registration statement, regardless of the underwriting method used to sell the
securities to the purchaser, if the securities are offered or sold to such
purchaser by means of any of the following communications, the undersigned
registrant will be a seller to the purchaser and will be considered to offer or
sell such securities to such purchaser:
1. Any preliminary prospectus or
prospectus of the undersigned registrant relating to the offering required to be
filed pursuant to Rule 424;
2. Any free writing prospectus relating
to the offering prepared by or on behalf of the undersigned registrant or used
or referred to by the undersigned registrant;
3. The portion of any other free
writing prospectus relating to the offering containing material information
about the undersigned company or its securities provided by or on behalf of the
undersigned registrant; and
4. Any other communication that is an
offer in the offering made by the undersigned registrant to the purchaser.
Signatures
Pursuant to the requirements of the Securities Act, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Vancouver,
British Columbia, on March 15, 2012.
|
LEXARIA CORP.
|
|
|
|
|
By:
|
/s/
Christopher Bunka
|
|
|
Christopher Bunka
|
|
|
President, Chief Executive Officer (Principal
|
|
|
Executive Officer), Director
|
|
|
|
|
By:
|
/s/
Bal Bhullar
|
|
|
Bal Bhullar
|
|
|
Chief Financial Officer (Principal Accounting
|
|
|
Officer), Director
|
In accordance with the requirements of the Securities Act, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
SIGNATURES
|
TITLE
|
DATE
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Christopher Bunka
|
|
|
Christopher Bunka
|
President, Chief Executive
|
March 15, 2012
|
|
Officer (Principal Executive
|
|
|
Officer), Director
|
|
|
|
|
|
|
|
/s/ Bal Bhullar
|
|
|
Bal Bhullar
|
Chief Financial Officer
|
March 15, 2012
|
|
(Principal Accounting
|
|
|
Officer), Director
|
|
|
|
|
/s/ David DeMartini
|
|
|
David De Martini
|
Director
|
March 15, 2012
|