UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM S-4 /A
Amendment No. 2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF
1933
LEXARIA BIOSCIENCE CORP.
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of
incorporation or organization)
2000
(Primary Standard Industrial
Classification Code Number)
20-2000871
(I.R.S. Employer Identification
Number)
156 Valleyview Road, Kelowna, British Columbia, Canada V1X
3M4
Telephone: (250) 765-6424
(Address, including zip
code, and telephone number,
including area code, of registrants principal
executive offices)
Nevada Agency and Transfer Company
50
West Liberty, Suite 880, Reno, Nevada 89501. (755) 322-0626
(Name, address, including zip code, and telephone number,
including
area code, of agent for service)
Copy of Communications To:
Macdonald Tuskey
Attention: William Macdonald
Suite 409 221 West
Esplanade
North Vancouver, British Columbia V7M 3J3
Telephone: (604) 973-0580
Facsimile: (604)
973-0280
Approximate date of commencement of proposed sale of the
securities to the public:
As soon as practicable after the effectiveness of
this registration statement and the continuation described in this registration
statement is approved by the stockholders of the registrant.
If the securities being registered on this Form are being
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box [ ]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) 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. See definitions of large accelerated filer, accelerated
filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated
filer
[ ]
|
Accelerated
filer
[ ]
|
Non-accelerated
filer
[ ]
|
Smaller reporting company [X]
|
(Do not check if a smaller reporting company)
|
|
If applicable, place an X in the box to designate the
appropriate rule provision relied upon in conducting this transaction:
|
Exchange Act Rule 13e-4(i) (Cross-Border Issuer
Tender Offer)
|
[ ]
|
|
Exchange Act Rule 14d-1(d) (Cross-Border
Third-Party Tender Offer)
|
[ ]
|
CALCULATION OF REGISTRATION FEE
Title of Each Class
of Securities to be
Registered
|
Amount to
be
Registered
(1)
|
Proposed
Maximum
Offering Price
Per
Share
(2),(3)
|
Proposed
Maximum
Aggregate Offering
Price
(2),(3)
|
Amount
of
Registration Fee
(3)
|
Common Shares
|
71,001,039
|
$1.18
|
$83,781,226.02
|
$10,430.75
(4)
|
Notes
(1)
|
Based upon the number of common shares of Lexaria Bioscience Corp., a British Columbia corporation, expected to be issued to the existing stockholders of Lexaria Bioscience Corp., a Nevada corporation, on a one-for-one basis upon completion of the continuation described in this registration statement and based on 71,001,039 shares of common stock of Lexaria Bioscience Corp., a Nevada corporation, outstanding as of February 5, 2018.
|
|
|
(2)
|
Estimated solely for the purpose of calculating the
amount of the registration fee in accordance with Rules 457(c) and (f)
under the Securities Act of 1933.
|
|
|
(3)
|
Based on the average of the last reported bid and ask price per share ($1.16 bid; $1.20 ask) for the registrant's common stock on February 5, 2018 as reported by the OTC Markets on the OTCQX.
|
|
|
(4)
|
Previously Paid
|
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.
2
LEXARIA BIOSCIENCE CORP.
156 Valleyview Road,
Kelowna, British Columbia, Canada V1X 3M4
NOTICE OF ANNUAL AND SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON
♦
, 2018
Dear Stockholder:
Our annual and special meeting of stockholders will be held at
the office of our law firm, Macdonald Tuskey, located at Suite 409 221 West
Esplanade, North Vancouver, British Columbia V7M 3J3, Canada, at 10:00 a.m.,
local time, on ♦, ♦, 2018 for the following purposes:
|
1.
|
our corporate jurisdiction will be changed from the State
of Nevada to the Province of British Columbia, Canada by means of a
process called a conversion and a continuation;
|
|
|
|
|
2.
|
To elect Chris Bunka, John Docherty, Nicholas Baxter and
Ted McKechnie as the directors of our company;
|
|
|
|
|
3.
|
To ratify the continued appointment of Davidson &
Company LLP, Chartered Accountants, as our independent registered public
accounting firm for the fiscal year ending August 31, 2018; and
|
|
|
|
|
4.
|
To transact such other business as may properly come
before the annual and special meeting or any adjournment
thereof.
|
These items of business are more fully described in the
accompanying proxy statement/prospectus.
Our board of directors has fixed the close of business on
♦
, 2018
as the record date for the determination of the stockholders
entitled to notice of, and to vote at, the annual and special meeting or any
adjournment thereof. Only the stockholders of record on the record date are
entitled to vote at the annual and special meeting.
Appraisal rights are available to the stockholders of record
for their shares of our common stock under Chapter 92A.300 92A.500 (inclusive)
of the
Nevada Revised Statutes
, a copy of which is attached as Schedule
B to the accompanying proxy statement/prospectus. See Appraisal Rights
beginning on page 25 of the accompanying proxy statement/prospectus for a
discussion of appraisal rights and how to exercise them.
Whether or not you plan on attending the annual and special
meeting, we ask that you vote by proxy by following the instructions provided in
the enclosed proxy card as promptly as possible. If your shares are held of
record by a broker, bank, or other nominee, please follow the voting
instructions sent to you by your broker, bank, or other nominee in order to vote
your shares.
Even if you have voted by proxy, you may still vote in
person if you attend the annual and special meeting. Please note, however, that
if your shares are held of record by a broker, bank, or other nominee and you
wish to vote at the annual and special meeting, you must obtain a valid proxy
issued in your name from that record holder.
Sincerely,
By Order of the Board of Directors
|
|
Chris Bunka
|
|
Chief Executive Officer and Chairman of the Board
ofDirector
|
|
♦, 2018
|
|
3
The information in this proxy statement/prospectus is not
complete and may be changed. We may not sell these securities until the
registration statement filed with the Securities and Exchange Commission
is effective. This proxy statement/prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
|
Subject to Completion, Dated ______________, 2018
Proxy Statement/Prospectus
LEXARIA BIOSCIENCE CORP.
Dear Stockholder:
You are cordially invited to attend an annual and special
meeting of stockholders to be held at the office of our law firm, Macdonald
Tuskey, located at Suite 409 221 West Esplanade, North Vancouver, British
Columbia V7M 3J3, Canada, at 10:00 a.m., local time, on ♦
,
♦
,
2018
for the following purposes:
|
1.
|
To approve the plan of conversion, a copy of which is
attached as Schedule A to this proxy statement/prospectus, whereby our
corporate jurisdiction will be changed from the State of Nevada to the
Province of British Columbia, Canada by means of a process called a
conversion and a continuation;
|
|
|
|
|
2.
|
To elect Chris Bunka, John Docherty, Nicholas Baxter and
Ted McKechnie as the directors of our company;
|
|
|
|
|
3.
|
To ratify the continued appointment of Davidson &
Company LLP, Chartered Accountants, as our independent registered public
accounting firm for the fiscal year ending August 31, 2018; and
|
|
|
|
|
4.
|
To transact such other business as may properly come
before the annual and special meeting or any adjournment
thereof.
|
Following the completion of the continuation, we anticipate
that our common shares will continue to be quoted on the OTC Markets OTCQX under
a new symbol, LXRPF. We also anticipate that our common shares will continue
to be listed on the Canadian Securities Exchange under our current symbol LXX.
See the Risk Factors beginning on page 10 of this proxy
statement/prospectus for a discussion of certain risks that you should consider
as stockholders of our company in regards to the continuation, and the ownership
of shares of our common stock.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
determined if this proxy statement/prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
This proxy statement/prospectus is dated _____________, 2018 and is first being sent or given to our stockholders on or about _____________,
2018
4
This proxy statement/prospectus incorporates important
business and financial information about our company that is not included in or
delivered with this document. This information is available without charge to
our stockholders upon written or oral request. Requests should be made to our
company at the following address.
LEXARIA BIOSCIENCE CORP.
Attention: President
156 Valleyview Road, Kelowna, British Columbia, Canada V1X 3M4
Telephone: (250) 765-6424
To obtain timely delivery, you must request the information
no later than
♦
, 2018.
5
TABLE OF CONTENTS
PROXY STATEMENT/PROSPECTUS
SUMMARY
|
9
|
Our Business
|
9
|
Summary of Financial Data
|
9
|
Proposal 1 The
Continuation
|
9
|
Reasons for the Change of Our Corporate
Jurisdiction
|
10
|
Regulatory Approvals
|
10
|
Appraisal Rights
|
10
|
Certain Tax Consequences for Stockholders
|
11
|
Our Authorized Capital after the Change of Our
Corporate Jurisdiction
|
12
|
Accounting Treatment of the Change of Our Corporate
Jurisdiction
|
12
|
How the Change of Our Corporate Jurisdiction
will Affect Your Rights as a Stockholder
|
12
|
Exchange of Share Certificates
|
12
|
Reporting Obligations under Securities Laws
|
12
|
Quotation on the OTCQX and Listing on the Canadian Securities
Exchange
|
13
|
Proposal
2 Election of Directors
|
13
|
Proposal 3 - Ratification
of the Continued Appointment of the Independent Registered Public
Accounting Firm
|
13
|
|
|
RISK FACTORS
|
13
|
Risks
Relating to the Continuation
|
13
|
Risks Associated With Our
Business
|
15
|
Risks
Associated with Our Company
|
19
|
Risks Associated with Our
Common Stock
|
21
|
|
|
FORWARD-LOOKING STATEMENTS
|
22
|
|
|
QUESTIONS AND ANSWERS ABOUT THE ANNUAL AND SPECIAL
MEETING OF
STOCKHOLDERS
|
23
|
Why am I
receiving these materials?
|
23
|
What is included in these
materials?
|
23
|
What
items will be voted at the annual and special meeting?
|
23
|
What do I need to do now?
|
23
|
Who can
vote at the annual and special meeting?
|
23
|
How many votes do I have?
|
23
|
How do I
vote my shares?
|
23
|
What is the difference
between a stockholder of record and a street name holder?
|
24
|
What does
it mean if I receive more than one proxy card?
|
24
|
What vote is required for
the election of directors or for the approval of a proposal?
|
24
|
How are
votes counted?
|
24
|
What happens if I do not
make specific voting choices?
|
25
|
What is
the quorum requirement?
|
25
|
How does the board of
directors recommend that I vote?
|
25
|
Can I
change my vote after submitting my proxy?
|
25
|
How can I attend the
annual and special meeting?
|
25
|
Who pays
the cost of proxy preparation and solicitation?
|
26
|
|
|
PROPOSAL 1 THE CONTINUATION
|
26
|
General Overview of the
Continuation
|
26
|
Certain
Terms of the Plan of Conversion
|
27
|
Appraisal Rights
|
28
|
Reasons
for the Continuation
|
29
|
Corporate Law
Requirements
|
29
|
Exchange
of Share Certificates
|
30
|
Description of Our
Securities after the Continuation
|
30
|
Material
Differences of the Rights of Our Stockholders After the Change of Our
Corporate Jurisdiction
|
31
|
Accounting Treatment of
the Change of Our Corporate Jurisdiction
|
36
|
Certain
United States Federal Income Tax Consequences of the Change of Our
Corporate Jurisdiction
|
36
|
Certain Canadian Federal
Income Tax Consequences of the Change of Our Corporate Jurisdiction
|
40
|
6
Reporting Obligations under Securities Laws
|
43
|
Quotation on the
OTCQX and Listing on the Canadian Securities Exchange
|
44
|
|
|
PROPOSAL 2 ELECTION OF DIRECTORS
|
44
|
|
|
PROPOSAL 3 RATIFICATION OF THE CONTINUED APPOINTMENT
OF THE INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
|
44
|
|
|
EXPERTS AND COUNSEL
|
45
|
|
|
INTEREST OF NAMED EXPERTS AND COUNSEL
|
45
|
|
|
DESCRIPTION OF BUSINESS
|
45
|
Corporate
History
|
45
|
Subsidiaries
|
46
|
Our
Business
|
46
|
Patents and Trademarks
|
55
|
|
|
DESCRIPTION OF PROPERTY
|
56
|
Principal
Offices
|
56
|
|
|
LEGAL PROCEEDINGS
|
56
|
|
|
MARKET PRICE OF AND DIVIDENDS ON OUR
COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
|
57
|
Market for Securities
|
57
|
Holders
of Our Common Stock
|
57
|
Dividends
|
57
|
|
|
FINANCIAL STATEMENTS
|
58
|
|
|
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS
|
123
|
Plan of
Operations
|
123
|
Results of Operations
Three Months Ended November 30, 2017
|
126
|
Results
of Operations Years Ended August 31, 2017 and May 31, 2016
|
|
Liquidity and Financial
Condition
|
|
Contractual Obligations
|
130
|
Going Concern
|
130
|
Internal
and External Sources of Liquidity
|
|
Critical Accounting
Policies
|
|
New
Accounting Pronouncements
|
|
|
|
DIRECTORS AND EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE
|
132
|
Directors and Executive
Officers
|
132
|
Family
Relationships
|
134
|
Involvement in Certain
Legal Proceedings
|
134
|
Corporate
Governance
|
135
|
Section 16(a) Beneficial
Ownership Compliance
|
137
|
|
|
EXECUTIVE COMPENSATION
|
137
|
Summary
Compensation
|
137
|
Grants of Plan-Based
Awards Table
|
138
|
Outstanding Equity Awards at Fiscal Year End
|
141
|
Option Exercises
|
141
|
Compensation of Directors
|
142
|
Pension, Retirement or
Similar Benefit Plans
|
142
|
Indebtedness of Directors, Senior Officers, Executive Officers and
Other Management
|
142
|
Compensation Committee
Interlocks and Insider Participation
|
142
|
Compensation Committee Report
|
142
|
|
|
TRANSACTIONS WITH RELATED PERSONS,
PROMOTERS AND CERTAIN CONTROL
PERSONS
|
142
|
7
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
|
142
|
|
|
FEES PAID TO OUR INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
|
144
|
Audit
fees
|
144
|
Policy on
Pre-Approval by Audit Committee of Services Performed by Independent
Registered Public Accounting Firm
|
144
|
|
|
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED
UPON
|
144
|
|
|
HOUSEHOLDING OF PROXY MATERIALS
|
144
|
|
|
STOCKHOLDER PROPOSALS
|
145
|
|
|
WHERE YOU CAN FIND MORE INFORMATION
|
145
|
|
|
OTHER MATTERS
|
145
|
|
|
SCHEDULE A PLAN OF CONVERSION
|
147
|
|
|
SCHEDULE B NEVADA REVISED STATUTES
|
175
|
_________________________________
In this proxy statement/prospectus, unless otherwise specified,
the terms we, us, our and Lexaria mean Lexaria Bioscience Corp., a
Nevada corporation whose shares you currently own. The term you means you, the
reader and a stockholder of our company. The term Lexaria BC means Lexaria
Bioscience Corp., a British Columbia corporation whose shares you are expected
to own after we change the corporate jurisdiction of our company from the State
of Nevada to the Province of British Columbia.
All references to currency in this proxy statement/prospectus
are in United States dollars unless otherwise stated and all financial
statements are prepared in accordance with United States generally accepted
accounting principles. Unless otherwise stated, conversion of Canadian dollars
to United States dollars has been calculated at an exchange rate of CDN$1 equals
US$0.75.
Please read this proxy statement/prospectus carefully. You
should rely only on the information contained in this proxy
statement/prospectus. We have not authorized anyone to provide you with
different information. You should not assume that the information provided by
this proxy statement/prospectus is accurate as of any date other than the date
on the front cover of this proxy statement/prospectus.
8
PROXY STATEMENT/PROSPECTUS SUMMARY
This section highlights selected information in this proxy
statement/prospectus. The summary may not contain all of the information
important to you. To understand the proposals to be voted upon at the annual and
special meeting, you should read this entire document carefully, including the
schedules to this proxy statement/prospectus. See also Where You Can Find More
Information. The plan of conversion, a copy of which is attached as Schedule
A to this proxy statement/prospectus, contains the terms and conditions of the
continuation, including the proposed articles of Lexaria BC.
Our Business
We were incorporated in the State of Nevada on December 9,
2004. We were an exploration and development oil and gas company engaged in the
exploration for and development of petroleum and natural gas in North America
from the date of incorporation until 2014. During 2014 we submitted an
application to enter the legal medical marijuana business in Canada (since
retracted), acquired certain biotechnology-related intellectual property, and
also launched a hemp oil-based food supplement company in the USA. We maintain
our registered agent's office and our U.S. business office at Nevada Agency and
Transfer Company, 50 West Liberty, Suite 880, Reno, Nevada 89501. Our US
telephone number is (755) 322-0626. The address of our principal executive
office is 156 Valleyview Rd., Kelowna, BC, Canada, V1X 3M4.
Our common stock is quoted on the OTCQX under the symbol "LXRP"
and on the Canadian Securities Exchange under the symbol LXX.
Our company currently pursues business opportunities in diverse
industries including the food sciences, technology licensing, and ready-to-eat
food sectors. Our food sciences activities include the development of our
proprietary nutrient infusion technologies for the production of superfoods, and
the production of enhanced food products under our two consumer product brands,
ViPova
TM
and Lexaria Energy. Our patented and patent-pending lipid
nutrient infusion technology is believed to enable higher bioavailability rates
for CBD; THC; NSAIDs; vitamins; nicotine and other molecules than is possible
without lipophilic enhancement technology. This can allow for lower overall
dosing requirements and/or higher effectiveness in active molecule delivery.
Lexaria has caused to be filed several patent pending applications with the US
Patent and Trademark Office (USPTO), and also internationally under the Patent
Cooperation Treaty (PCT). On October 26, 2016, the USPTO issued U.S. Patent No.
9,474,725 (granted June 15 2017 in Australia No. 2015274698), Cannabinoid
Infused Food and Beverage Compositions and Methods of Use Thereof, pertaining to
Lexarias method of improving bioavailability and taste of certain cannabinoid
lipophilic active agents in food products. On October 31, 2017, we announced
that the USPTO has issued a notice of allowance for our patent application no.
15/225,799, Food and Beverage Compositions Infused With Lipophilic Active
Agents and Methods of Use Thereof and on December 13, 2017 we announced that
the USPTO had granted this patent. That application pertains to the use of
Lexarias DehydraTECH
TM
technology as a delivery platform for all
cannabinoids including THC, for fat soluble vitamins, non-steroidal
anti-inflammatory pain medications (NSAIDs), and for nicotine. On November 9,
2017, we announced our filing of a new patent application with the USPTO for the
use of our DehydraTECH
TM
technology for delivery of phosphodiesterase
type 5 (PDE5) inhibitors such as sildenafil and tadalafil, which are commonly
sold under the trade names Viagra
TM
and Cialis
TM
,
respectively. Lexaria hopes to reduce other common but less healthy ingestion
methods such as smoking as it embraces the benefits of public health.
Proposal 1 The Continuation
On August 31, 2017, our board of directors determined that it
would be in the best interest of our company to change our corporate
jurisdiction from the State of Nevada to the Province of British Columbia,
Canada. We intend to change the corporate jurisdiction of Lexaria from the State
of Nevada to the Province of British Columbia, Canada by means of a process
called a conversion under the
Nevada Revised Statutes
and a
continuation under the
Business Corporations Act
(British
Columbia).
If our stockholders approve the proposed continuation then we
intend to file articles of conversion with the Secretary of State of Nevada and
a continuation application with the Registrar of Companies of British Columbia.
Upon receipt of a certificate of continuation from the Registrar of Companies of
British Columbia, we will be continued as a British Columbia corporation and will be governed by the laws of
British Columbia. The assets and liabilities of the British Columbia corporation
immediately after the continuation will be identical to the assets and
liabilities of the Nevada corporation immediately prior to the continuation. The
officers and directors of our company immediately before the continuation
becomes effective will be the officers and directors of the British Columbia
corporation. The change of our corporate jurisdiction will not result in any
material change to our business and will not have any effect on the relative
equity or voting interests of our stockholders. Each previously outstanding
share of our common stock will become one common share of the British Columbia
corporation.
9
The continuation and the plan of conversion are also subject to
approval by the holders of a majority of the outstanding shares of our common
stock and the Canadian Securities Exchange.
Our board of directors approved the plan of conversion as being
in the best interest of our company and recommends that you vote for the
approval of the plan of conversion.
Our board of directors recommends that you vote FOR the
approval of the plan of conversion.
Reasons for the Change of Our Corporate
Jurisdiction
We believe that the change of our corporate jurisdiction from
the State of Nevada to the Province of British Columbia, Canada will more
accurately reflect our operations, which are headquartered in and managed from
the Province of British Columbia, Canada. We also believe that changing our
corporate jurisdiction to the Province of British Columbia, Canada more
accurately reflects the identity of our company because Canada is the country
from which we have derived much of our financing, and our common stock is listed
on the Canadian Securities Exchange in Canada. Furthermore, all of our officers
and the majority of our directors are located in Canada, and a large amount of
our issued and outstanding stock is owned of record by persons not resident in
the United States. We believe that the change of our corporate jurisdiction may
also enable us to qualify as a foreign private issuer in the United States. As
a foreign private issuer, we believe that our regulatory compliance costs may
decrease and our ability to raise capital should improve because it should,
under certain circumstances, enable us to issue securities in private placement
offerings with a four-month hold period (for which we believe there is more
demand than there is for securities issued in a private placement with a minimum
hold period of six months, which is currently the case) without limiting our
access to the U.S. capital markets.
Regulatory Approvals
In order for our company to carry out the continuation, it will
be necessary for us to comply with the provisions of the corporate law of the
State of Nevada
and the
Business Corporations Act
(British
Columbia). Under the Nevada corporate law, a Nevada corporation is required to
obtain approval from the holders of a majority of its voting power in order to
carry out a conversion. We are now seeking approval from the holders of a
majority of the outstanding shares of our common stock.
Our directors and executive officers, who currently hold
approximately 30% of our outstanding common stock, have indicated that they
intend to vote for the approval of the continuation.
If our stockholders approve the continuation, then we intend to
file articles of conversion with the Secretary of State of Nevada. After that,
we intend to submit a continuation application to the Registrar of Companies of
British Columbia. Upon the filing of the continuation application and subsequent
receipt of a certificate of continuation from the Registrar of Companies of
British Columbia, we will be continued as a British Columbia corporation.
The continuation is subject to the approval of the Canadian
Securities Exchange.
Appraisal Rights
Under Nevada law, our stockholders are entitled, after
complying with certain requirements of Nevada law, to dissent from approval of
the continuation pursuant to Chapter 92A of the
Nevada Revised Statutes
(
NRS
) and to be paid the fair value of their shares of our common
stock exclusive of any element of value arising from the accomplishment or
expectation of the continuation, if the continuation is completed. Stockholders
electing to exercise these appraisal rights must comply with the provisions of Chapter 92A of the NRS in
order to perfect their rights. We will require strict compliance with the
statutory procedures.
10
Please refer to the discussion of Appraisal Rights beginning
on page 25 of this proxy statement/prospectus for a more comprehensive
discussion of appraisal rights and how to exercise them. A copy of Chapter 92A
of the NRS is attached as Schedule B to this proxy statement/prospectus.
Certain Tax Consequences for Stockholders
The following is a brief summary of certain tax consequences
the change of our corporate jurisdiction may have for our company and our
stockholders. You should consult your own tax advisers with respect to your
particular circumstances. A more detailed summary of the factors affecting the
tax consequences for our company and our stockholders is set out under Certain
United States Federal Income Tax Consequences of the Change of Our Corporate
Jurisdiction and Certain Canadian Federal Income Tax Consequences of the
Change of Our Corporate Jurisdiction on pages 33 and 37, respectively, of this
proxy statement/prospectus.
United States Federal Income Tax Consequences
Lexaria BC may be treated as a U.S. corporation for U.S.
federal income tax purposes. Lexaria BC, a non-U.S. corporation generally would
be classified as a non-U.S. entity (and, therefore, non-U.S. tax residents)
under general rules of U.S. federal income taxation. However, Section 7874 of
the Internal Revenue Code of 1986, as amended (the Code), contains rules that
can result in a non-U.S. corporation being taxed as a U.S. corporation for U.S.
federal income tax purposes, unless certain specific tests regarding the level
of business activities are satisfied. Based on the anticipated level of business
activities of Lexaria BC and its relevant affiliates, it is unclear whether the
tests would be satisfied. Satisfaction of these tests will not be finally
determined until after the time of the Change of Jurisdiction. If it were
determined that Lexaria BC would be taxed as a U.S. corporation for U.S. federal
income tax purposes, Lexaria BC may be liable for both Canadian and U.S. taxes,
which could have a material adverse effect on its financial condition and
results of operations.
On the other hand, if Lexaria BC is to be treated as a non-U.S.
corporation for U.S. federal tax purposes, certain adverse U.S. federal income
tax consequences could apply to a U.S. Holder if Lexaria BC were treated as a
passive non-U.S. investment company
(PFIC)
for any taxable year during
which the U.S. Holder holds Lexaria BC shares. Lexaria BC may be classified as a
PFIC and there can be no assurance that Lexaria BC or any of its non-U.S.
corporate subsidiaries would not be treated as a PFIC for any taxable year. If
Lexaria BC were treated as a PFIC, U.S. Holders of Lexaria BC shares could be
subject to certain adverse U.S. federal income tax consequences with respect to
a gain realized on a taxable disposition of such shares, and certain
distributions received on such shares. In addition, dividends received with
respect to Lexaria BC shares or with respect to the relevant non-U.S. corporate
subsidiary, as applicable, would not constitute qualified dividend income
eligible for preferential tax rates if Lexaria BC or the relevant non-U.S.
corporate subsidiary, as applicable, were treated as a PFIC for the taxable year
of the distribution or for its preceding taxable year. Certain elections may be
available to U.S. Holders to mitigate some of the adverse tax consequences
resulting from PFIC treatment.
Canadian Federal Income Tax Consequences
As a result of the continuation, Lexaria will be considered to
have disposed of its assets to Lexaria BC for proceeds equal to their fair
market value. Lexaria will be subject to Canadian federal income tax liabilities
with respect to any gains realized as a result of the deemed disposition of all
of its assets that constitute taxable Canadian property for the purposes of
the Canadian federal income tax.
The continuation will not cause a disposition or deemed
disposition of the shares of Lexaria held by any stockholder, and therefore will
not cause the realization of any capital gain or capital loss by the stockholder
in respect of such shares. For a more detailed summary of the Canadian federal
income tax consequences, please see Certain Canadian Federal Income Tax
Consequences of the Change of Our Corporate Jurisdiction on page 37 of this
proxy statement/prospectus.
11
Our Authorized Capital after the Change of Our Corporate
Jurisdiction
The application for the continuation provides that our
authorized capital after the change of our corporate jurisdiction will consist
of an unlimited number of common shares without par value and an unlimited
number of preferred shares without par value. Our certificate of incorporation
presently provides that our authorized capital is 220,000,000 shares of common
stock with a par value of $0.001 per share.
Accounting Treatment of the Change of Our Corporate
Jurisdiction
For United States accounting purposes, the change of our
corporate jurisdiction from the State of Nevada to the Province of British
Columbia, Canada by means of the continuation represents a non-substantive
exchange to be accounted for in a manner consistent with a transaction between
entities under common control. All assets, liabilities, revenues and expenses
will be reflected in the accounts of Lexaria BC based on existing carrying
values at the date of the exchange. The historical comparative figures of
Lexaria BC will be those of Lexaria.
We currently prepare our financial statements in accordance
with the United States generally accepted accounting principles but will begin
to report our financial statements in accordance with IFRS after the
consummation of the change of our corporate jurisdiction.
How the Change of Our Corporate Jurisdiction will Affect
Your Rights as a Stockholder
You will continue to hold the same number of shares you now
hold following the change of our corporate jurisdiction from the State of Nevada
to the Province of British Columbia, Canada. However, the rights of stockholders
under Nevada law differ in certain substantive ways from the rights of
stockholders under British Columbia law. Examples of some of the changes in
stockholder rights which will result from the change of our corporate
jurisdiction are described in the discussion of Material Differences of the
Rights of Our Stockholders After the Change of Our Corporate Jurisdiction
beginning on page 28.
Exchange of Share Certificates
Upon the effectiveness of the continuation, Lexaria BC will
mail a letter of transmittal with instructions to each holder of record of
shares of Lexaria outstanding immediately before the effective time of the
continuation for use in exchanging certificates formerly representing shares of
Lexaria for certificates representing shares of Lexaria BC. Certificates should
not be surrendered by the holder thereof until they have received the letter of
transmittal from Lexaria BC. See page 27 for a more complete discussion
regarding the exchange of share certificates.
Reporting Obligations under Securities Laws
If we change our corporate jurisdiction to the Province of
British Columbia, Canada, we will still have to comply with reporting
requirements under both the United States and Canadian securities laws. However,
these requirements should be reduced because we would no longer be a United
States company.
We currently prepare our financial statements in accordance
with United States generally accepted accounting principles (
US GAAP
).
We file our audited annual financial statements with the Securities and Exchange
Commission on annual reports on Form 10-K and our unaudited interim financial
statements with the Securities and Exchange Commission on quarterly reports on
Form 10-Q. Additionally, we are a reporting issuer in the Provinces of British
Columbia and Alberta. Upon completion of the continuation, we anticipate that we
will meet the definition of a foreign private issuer under the Securities
Exchange Act of 1934. As a foreign private issuer, we anticipate that we will
file an annual report on Form 20-F each year with the Securities and Exchange
Commission. We will not be required to file interim quarterly reports on Form
10-Q, however we will be required to file our interim financial statements and
managements discussion and analysis, in the form required by Canadian
securities legislation, with the Securities and Exchange Commission on Form 6-K.
We anticipate that we will prepare our financial statements in accordance with
IFRS subsequent to the change of our corporate jurisdiction.
In addition, as a foreign private issuer, our directors,
officers and stockholders owning more than 10% of our outstanding common stock
will no longer be subject to the insider reporting requirements of Section 16(b)
of the Securities Exchange Act of 1934 and we will no longer be subject to the
proxy rules of Section 14 of the Securities Exchange Act of 1934. Furthermore, Regulation FD does not apply
to non-United States companies and will not apply to us upon completion of the
continuation.
12
Whether or not we change our corporate jurisdiction to the
Province of British Columbia, Canada, we will remain subject to Canadian
disclosure requirements including those requiring that we publish news releases,
file reports about material changes to or for our company, send you information
circulars with respect to meetings of our stockholders, file annual and
quarterly financial statements and related managements discussion and analysis
and those that require that our officers, directors and major shareholders file
reports about trading in our shares.
Quotation on the OTCQX and Listing on the Canadian
Securities Exchange
Our common stock is quoted on the OTCQX Board under the symbol
LXRP and our shares are listed for trading on the Canadian Securities Exchange
under the symbol LXX. We expect that immediately following the continuation,
the common shares of Lexaria BC will continue to be quoted on the OTCQX under
the new symbol LXRPF, and listed on the Canadian Securities Exchange under the
current symbol LXX.
Proposal 2 Election of Directors
Our board of directors has nominated Chris Bunka, John
Docherty, Nicholas Baxter and Ted McKechnie as candidates for directors to be
elected at the annual and special meeting. These nominees are all of our current
directors.
Each director who is elected will hold office until the next
annual meeting of stockholders and until his or her successor is elected and
qualified. Any director may resign his or her office at any time and may be
removed at any time by the holders of a majority of the shares then entitled to
vote at an election of directors.
Our board of directors recommends that you vote FOR the
nominees.
Proposal 3 - Ratification of the Continued Appointment of
the Independent Registered Public Accounting Firm
Our board of directors is asking our stockholders to ratify the
continued appointment of Davidson & Company LLP, Chartered Accountants, as
our independent registered public accounting firm for the fiscal year ending
August 31, 2018.
Our board of directors recommends that you vote FOR the
ratification.
RISK FACTORS
An investment in our common stock involves a number of very
significant risks. You should carefully consider the following risks and
uncertainties in addition to other information in this proxy
statement/prospectus in evaluating the proposed continuation, our company and
our business. Our business, operating results and financial condition could be
seriously harmed as a result of the occurrence of any of the following risks.
You could lose all or part of your investment due to any of these risks. You
should invest in our common stock only if you can afford to lose your entire
investment.
Risks Relating to the Continuation
We may still be treated as a U.S. corporation and taxed
on our worldwide income after the continuation.
The continuation of our company from the State of Nevada to the
Province of British Columbia, Canada is considered a migration of our company
from the State of Nevada to the Province of British Columbia, Canada. Certain
transactions whereby a U.S. corporation migrates to a foreign jurisdiction can
be considered by the United States Congress to be an abuse of the U.S. tax rules
because thereafter the foreign entity is not subject to U.S. tax on its
worldwide income. Section 7874(b) of the Internal Revenue Code of 1986, as
amended (the
Code
), was enacted in 2004 to address this potential
abuse. Section 7874(b) of the Code provides generally that certain corporations
that migrate from the United States will nonetheless remain subject to U.S. tax
on their worldwide income unless the migrating entity has substantial business
activities in the foreign country to which it is migrating when compared to its
total business activities.
13
If Section 7874(b) of the Code applies to the migration of our
company from the State of Nevada to the Province of British Columbia, Canada,
our company would continue to be subject to United States federal income
taxation on its world-wide income. Section 7874(b) of the Code could apply to
our migration unless we have substantial business activities in Canada when
compared to our total business activities.
If Lexaria BC is treated as a U.S. corporation for U.S. federal
tax purposes under Section 7874 of the Code, then Lexaria BC believes the
Continuation would be treated as a reorganization under Section 368(a) of the
Code and the following U.S. federal income tax consequences generally would
result for U.S. Holders:
(a) no gain or loss will be recognized by a U.S. Holder on the
exchange of Lexaria Shares for Lexaria BC Shares pursuant to the Continuation;
(b) the tax basis of a U.S. Holder in the Lexaria BC Shares acquired in
exchange for Lexaria Shares pursuant to the Continuation would be equal to such
U.S. Holders tax basis in Lexaria Shares exchanged;
(c) the holding period
of a U.S. Holder with respect to the Lexaria BC Shares acquired in exchange for
Lexaria Shares pursuant to the Continuation will include such U.S. Holders
holding period for Lexaria Shares; and
(d) U.S. Holders who exchange Lexaria
Shares for Lexaria BC Shares pursuant to the Continuation generally would be
required to report certain information to the IRS on their U.S. federal income
tax returns for the tax year in which the Continuation occurs, and to retain
certain records related to the Continuation.
We may be classified as a Passive Foreign Investment
Company as a result of the continuation.
Sections 1291 to 1298 of the Code contain the Passive Foreign
Investment Company (
PFIC
) rules. These rules generally provide for
punitive treatment to U.S. holders (as defined in the section titled Certain
United States
Federal Income Tax Consequences) of PFICs. A foreign
corporation is classified as a PFIC if more than 75% of its gross income is
passive income or more than 50% of its assets produce passive income or are held
for the production of passive income.
These rules would not apply if the
Section 7874(b) rules, as noted above, deem Lexaria BC to be considered as a
U.S. corporation for U.S. federal tax purposes.
Because we expect that most of our assets after the continuation will be cash or cash equivalents and shares of our wholly-owned subsidiary, we may in the future be classified as a PFIC if Section 7874 is not applicable. If we are classified as a PFIC after migration, then the holders of shares of our company who are U.S. taxpayers may be subject to PFIC provisions which may impose U.S. taxes, in addition to those normally applicable, on the sale of their shares of our company or on distribution from our company.
If we complete the continuation, we will no longer be
required to file quarterly financial statements that have been reviewed by our
independent auditors on Forms 10-Q, as required by the Securities Exchange Act
of 1934.
If we change our corporate jurisdiction to the Province of
British Columbia, Canada, we will still have to comply with reporting
requirements under United States securities laws. However, these requirements
could be reduced because we will no longer be incorporated in a state of the
United States.
We currently prepare our financial statements in accordance
with United States generally accepted accounting principles (
US GAAP
).
We file our audited annual financial statements with the Securities and Exchange
Commission with our annual reports on Form 10-K and we file our unaudited
interim financial statements with the Securities and Exchange Commission with
our quarterly reports on Form 10-Q. Upon completion of the continuation, we
anticipate that we will meet the definition of a foreign private issuer under
the Securities Exchange Act of 1934, as amended. As a foreign private issuer, we
anticipate that we will be eligible to file our annual reports each year with
the Securities and Exchange Commission on Form 20-F. As a foreign private issuer
filing annual reports on Form 20F, we would not be required to file quarterly
reports on Forms 10-Q. Instead, we would file with the Securities and Exchange
Commission on a quarterly basis interim financial statements that are not
required to be reviewed by our auditors, together with managements discussion
and analysis in the form required under Canadian securities legislation. We
anticipate that we will begin to prepare our financial statements in accordance
with IFRS subsequent to the change of our corporate jurisdiction.
If we complete the continuation, insiders of our company
will no longer be required to file insider reports under Section 16(a) of the
Securities Exchange Act of 1934 and they will no longer be subject to the short
swing profit rule of Section 16(b) of the Securities Exchange Act of
1934.
14
As a foreign private issuer, our directors, officers and
stockholders owning more than 10% of our outstanding common stock will be
subject to the insider filing requirements imposed by Canadian securities laws
but they will be exempt from the insider requirements imposed by Section 16 of
the Securities Exchange Act of 1934. The Canadian securities laws do not impose
on insiders any equivalent of the short swing profit rule imposed by Section
16 and, after completion of the continuation, our insiders will not be subject
to liability for profits realized from any short swing trading transactions,
or a purchase and sale, or a sale and purchase, of our equity securities within
less than six months. As a result, our stockholders may not enjoy the same
degree of protection against insider trading as they would under Section 16 of
the Securities Exchange Act of 1934.
If we complete the continuation, our company will no
longer be required to comply with Regulation FD.
Regulation FD, which was promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934 to prevent certain
selective disclosure by reporting companies, does not apply to non-United States
companies and will not apply to us upon completion of the continuation. As a
result, our stockholders may not enjoy the same degree of protection against
selective disclosure as they would under Section 16 of the Securities Exchange
Act of 1934.
Your rights as a stockholder of our company will change
as a result of the continuation.
Because of the differences between Nevada law and British
Columbia law, your rights as a stockholder will change if the continuation is
completed. For a detailed discussion of these differences, see Material
Differences of the Rights of Our Stockholders After the Change of Our Corporate
Jurisdiction. beginning at page 28 of this proxy statement/prospectus.
The market for shares of our company as a British
Columbia corporation may differ from the market for shares of our company as a
Nevada corporation.
Although we anticipate that our common shares will requalify to
be quoted on the OTC Markets Group Inc.s OTCQX and be listed on the Canadian
Securities Exchange following the completion of the continuation, the market
prices, trading volume and volatility of the shares of our company as a British
Columbia corporation could be different from those of the shares of our company
as a Nevada corporation. We cannot predict what effect, if any, the continuation
will have on the market price prevailing from time to time or the liquidity of
our common shares.
The exercise of dissent and appraisal rights by our
shareholders may adversely impact Lexaria BC.
Pursuant to the Dissenters Rights Provisions of Nevada
corporate law, if the conversion and continuation is completed, former
stockholders who did not vote in favor of the continuation may elect to have the
company purchase their shares for a cash price that is equal to the fair value
of such shares, as determined in a judicial proceeding. The fair value means the
value of such shares immediately before the effectuation of the continuation
excluding any appreciation or depreciation in anticipation of the continuation,
unless exclusion of any appreciation or depreciation would be inequitable. If
sufficient shareholders elect to have us purchase their shares, the liability
resulting from the fair value of those shares will adversely impact the
financial condition of the company, cause significant volatility in the price of
the our companys common shares, or materially impair the ability of our company
to execute its plan of operation.
Risks Associated With Our Business
Because there is no assurance that we will generate
material revenues, we face a high risk of business failure.
There can be no assurance that our current or future products
will be successful, and we cannot be sure that our overall business model within
any particular sector 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 product development, marketing, or other aspects of the business.
Although we will exercise due consideration in our development of new products,
and the marketing of them, ultimate consumer acceptance of these products is not
reliably forecastable.
In addition, our product 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 input costs of food products and changes in the estimates
of costs to complete the projects. We will continue to gather information about
our planned products, and it is possible that additional information may cause
our company to alter our schedule or determine that a product should not be pursued
at all. You should understand that our plans regarding our products are subject
to change.
15
Our revenues now are generated from being a food sciences and
products company. We should be considered to be a start-up: the revenue
recognized for the year ended August 31, 2017 was $63,639.
The food industry is highly competitive and there is no
assurance that we will be successful in developing or successfully selling
products.
The food industry is intensely competitive. We compete with
numerous individuals and companies, including many food manufacturing and
production companies, which have substantially greater technical, financial and
operational resources and staff. Accordingly, there is a high degree of
competition for desirable distribution channels, shelf space and salespeople
in both the food industries as well as the legal cannabis industries. We cannot
predict if the necessary funds can be raised to assist in our development of any
distribution channels that may be helpful to our ability to generate sales and
potential profits.
There can be no assurance that we will develop any
product that will meet with widespread consumer acceptance.
Both new and established food and cannabis products fail to
generate consumer interest on a regular basis. There is no assurance that a food
or cannabis product that is successfully adopted by consumers at one time; will
still be in demand at a future time. If we cannot develop and sell products in
commercial quantities, our business may fail.
Even if we develop food or intellectual property-based
products or revenue streams, the potential profitability of each depends upon
factors beyond the control of our company.
The potential profitability of food products and of
intellectual property revenue streams is dependent upon many factors beyond our
control. For instance, prices and markets for food products are unpredictable,
highly volatile, potentially subject to controls or any combination or other
factors, and respond to changes in domestic, international, political, social
and economic environments. 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 product or technology that is initially
successful and possibly even profitable may not remain so due to changes in
consumer demand, regulatory environments, or other causes. There is no assurance
that an initially successful product or technology will remain so.
Our failure to protect our intellectual property may have
a material adverse effect on our ability to develop and commercialize our
products
.
Because patents involve complex legal and factual questions,
the issuance, scope, validity, and enforceability of patents cannot be predicted
with certainty.
Some of our patent pending applications may not be granted as
patents. Even if patents are issued, they may not be issued with claims of
sufficient breadth to protect our nutrient infusion technology or may not
provide us with competitive advantage against competitors with similar products
or technologies. Issued patents may be challenged, invalidated, or circumvented.
If patents issued to us are invalidated or found to be unenforceable, we could
lose the ability to exclude others from making, using or selling the inventions
claimed. Moreover, an issued patent does not give us the right to use the
patented technology or commercialize a product using the technology. Third
parties may have blocking patents that could be used to prevent us from
developing our products, selling our products, or commercializing our nutrient
infusion technology. Others may also independently develop products or
technologies similar to those that we have developed or may reverse engineer or
discover our trade secrets through proper means.
Enforcing a claim that a third party infringes on, has
illegally obtained or is using an intellectual property right, is expensive and
time-consuming and the outcome is unpredictable. In addition, enforcing such a
claim could divert managements attention from our business. If any intellectual
property rights were to be infringed, disclosed to, or independently developed
by a competitor, our competitive position could be harmed. Any adverse outcome
of such litigation or settlement of such dispute could subject us to significant
liabilities and could put one or more of our patent pending applications at risk
of being invalidated.
16
Furthermore, because of the substantial amount of discovery
required in connection with intellectual property litigation, there is risk that
some of our confidential information could be compromised. This disclosure could
provide our competitors with access to our proprietary information and may harm
our competitive position.
The marketability of food products 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 food products will be affected by numerous
factors beyond our control. These factors include market fluctuations in
consumer preferences for various food items based on factors such as pricing,
macro trends for certain ingredients or flavors, ruling by regulators on health
issues associated with certain foods, and more. 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.
Both food products and cannabis products 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
.
Food production and safety operations, and cannabis products
and sales operations, are subject to federal, state, and local laws relating to
the protection of human health and safety. Food production and cannabis
operations are each also subject to federal, state, and local laws and
regulations which seek to maintain health and safety standards through a wide
variety of regulations. Various permits from government bodies may be required
by us in order to conduct our business. Regulations and standards imposed by
federal, provincial, or local authorities may be changed at any moment in time
and any such changes may have material adverse effects on our activities.
Changes in regulations are impossible to foresee and could be disruptive or
destructive to our business plans and execution. 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 contaminants or other 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.
We are not the "operator" of vertically integrated food
production facilities, and so we are exposed to the risks of our third-party
operators.
We rely on the expertise of contracted third-parties for their
judgment, experience and advice related to the manufacturing and/or packaging of
our food products. 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 operations and
activities in which we are contractually bound.
Our management has limited experience and training in the
food processing and manufacturing industries, and in the cannabis products
industries, and could make uninformed decisions that negatively impact our
operations and our company.
Because our management has limited experience and training in
the food processing and manufacturing industry, and in the cannabis products
industry, we may not have sufficient expertise to make informed best practices
decisions regarding our operations. It is possible that, due to our limited
knowledge, we might elect to undergo manufacturing processes and incur financial
burdens that a more experienced food manufacturing team might elect not to
complete. Our ability to internally evaluate food and cannabis operations and
opportunities could be less thorough than that of a more highly trained
management team.
Our company has no operating history and an evolving
business model which raises doubt about our ability to achieve profitability or
obtain financing.
Our company has no significant history of operations in the
legal medical marijuana sector, the legal hemp oil infused products sector, or
in the food products sector. Moreover, our business model is still evolving and
subject to change. Our company's ability to continue as a going concern is
dependent upon our ability to obtain adequate financing and to reach profitable
levels of operations. In that regard we have no proven history of performance,
earnings or success. There can be no assurance that we will achieve
profitability or obtain future financing.
Uncertain demand for our products may cause our business plan
to be unprofitable.
17
Demand for medical marijuana and for cannabis or hemp related
products is dependent on a number of social, political and economic factors that
are beyond the control of our company. While we believe that demand for
marijuana and hemp products will continue to grow across North America, there is
no assurance that such increase in demand will happen or that our endeavors will
be profitable.
We may not acquire market share or achieve profits due to
competition in our industries.
Our company operates in highly competitive marketplaces with
various competitors. Increased competition may result in reduced gross margins
and/or loss of market share, either of which would seriously harm its business
and results of operations. Management cannot be certain that the company will be
able to compete against current or future competitors or that competitive
pressure will not seriously harm its business. Some of our company's competitors
are much larger and have greater access to capital, sales, marketing and other
resources. These competitors may be able to respond more rapidly to new
regulations or devote greater resources to the development and promotion of
their business model than the company can. Furthermore, some of these
competitors may make acquisitions or establish co-operative relationships among
themselves or with third parties in the industry to increase their ability to
rapidly gain market share.
The speculative nature of our business plan may result in
the loss of your investment.
Our operations are in the start-up stage only, and are
unproven. We may not be successful in implementing our business plan to become
profitable. There may be less demand for our services than we anticipate. There
is no assurance that our business will succeed and you may lose your entire
investment.
Changing consumer preferences may cause our planned
products to be unsuccessful in the marketplace.
The decision of a potential client to purchase our products may
be motivated by cultural phenomena or by perceived health or nutritional
benefits. The cultural desirability or popularity of hemp related products is
subject to change due to factors beyond our immediate control. Similarly, the
perceived nutritional or health related benefits of our products are subject to
change in light of continuing research or the introduction of competitive
products. Changes in consumer and commercial preferences, or trends, toward or
away from cannabis or hemp related products would have a corresponding impact on
the development of the market for our current and planned products. There can be
no assurance that the products supplied by our company and or its partners will
be successful in establishing or maintaining a significant share of the consumer
market.
General economic factors may negatively impact the market
for our planned products.
The willingness of businesses to spend time and money on
non-essential food and health products may be dependent upon general economic
conditions; and any material downturn may reduce the likelihood of consumers
incurring costs toward what some may consider a discretionary expense item.
Willingness by customers to buy our products may be dependent upon general
economic conditions and any material downturn may reduce the potential
profitability of the food sciences or cannabis business sectors.
A wide range of economic and logistical factors may
negatively impact our operating results.
Our operating results will be affected by a wide variety of
factors that could materially affect revenues and profitability, including the
timing and cancellation of customer orders and projects, competitive pressures
on pricing, availability of personnel, and market acceptance of our services. As
a result, we may experience material fluctuations in future operating results on
a quarterly and annual basis which could materially affect our business,
financial condition and operating results.
Loss of consumer confidence in our company or in our
industry may harm our business.
Demand for our services may be adversely affected if consumers
lose confidence in the quality of our services or the industrys practices.
Adverse publicity may discourage businesses from buying our services and could
have a material adverse effect on our financial condition and results of
operations.
The failure to secure customers may cause our operations
to fail.
18
We currently do not have many long-term agreements with any
customers. Many of our products and services may be provided on a onetime
basis. Accordingly, we will require new customers on a continuous basis to
sustain our operations.
We could be required to enter into fixed price contracts
which will expose us to significant market risk.
Fixed price contracts require the service provider to perform
all agreed services for a specified lump-sum amount. We anticipate a material
percentage of our services will be performed on a fixed price basis. Fixed price
contracts expose us to some significant risks, including under-estimation of
costs, ambiguities in specifications, unforeseen costs or difficulties, and
delays beyond our control. These risks could lead to losses on contracts which
may be substantial and which could adversely affect the results of our
operations.
If we fail to effectively and efficiently advertise, the
growth of our business may be compromised.
The future growth and profitability of our food products
business will be dependent in part on the effectiveness and efficiency of our
advertising and promotional expenditures, including our ability to (i) create
greater awareness of our services, (ii) determine the appropriate creative
message and media mix for future advertising expenditures, and (iii) effectively
manage advertising and promotional costs in order to maintain acceptable
operating margins. There can be no assurance that we will experience benefits
from advertising and promotional expenditures in the future. In addition, no
assurance can be given that our planned advertising and promotional expenditures
will result in increased revenues, will generate levels of service and name
awareness or that we will be able to manage such advertising and promotional
expenditures on a cost-effective basis.
Our success is dependent on our unproven ability to
attract qualified personnel.
We will depend on our ability to attract, retain and motivate
our management team, consultants and other employees. There is strong
competition for qualified technical and management personnel in the food science
sector, and it is expected that such competition will increase. Our planned
growth will place increased demands on our existing resources and will likely
require the addition of technical personnel and the development of additional
expertise by existing personnel. There can be no assurance that our compensation
packages will be sufficient to ensure the continued availability of qualified
personnel who are necessary for the development of our business.
We may not be able to obtain all of the licenses
necessary to operate our business, which would cause our business to
fail.
Our operations may require licenses and permits from various
governmental authorities to conduct our business activities. We believe that we
will be able to obtain all necessary licenses and permits under applicable laws
and regulations for our operations and believe we will be able to comply in all
material respects with the terms of such licenses and permits. However, such
licenses and permits are subject to change in various circumstances. There can
be no guarantee that we will be able to obtain or maintain all necessary
licenses and permits.
If we fail to effectively manage our growth our future
business results could be harmed and our managerial and operational resources
may be strained.
As we proceed with our business plan, we expect to experience
significant and rapid growth in the scope and complexity of our business. We
will need to add staff to market our services, manage operations, handle sales
and marketing efforts and perform finance and accounting functions. We will be
required to hire a broad range of additional personnel in order to successfully
advance our operations. This growth is likely to place a strain on our
management and operational resources. The failure to develop and implement
effective systems, or to hire and retain sufficient personnel for the
performance of all of the functions necessary to effectively service and manage
our potential business, or the failure to manage growth effectively, could have
a materially adverse effect on our business and financial condition.
Risks Associated with Our Company
We have a limited operating history on which to base an
evaluation of our business and prospects and we can provide investors with no
assurance that we will generate any operating revenues or ever achieve
profitable operations.
19
We have only relatively recently entered into the business that
is our current operations and we have not yet generated any material revenues
from our operations. In addition, our operating history has been restricted to
the acquisition and exploration of our properties and subsequently the
development of our current business and this does not provide a meaningful basis
for an evaluation of our prospects. We anticipate that we will continue to incur
operating costs without realizing any material revenues during the next fiscal
year. During the 12 month period ending August 31, 2018, we expect to spend
approximately $1,750,000 on the expansion of our business and operations and on
general and administrative expenses. We therefore expect to continue to incur
significant losses into the foreseeable future. If we are unable to generate
significant revenues from operations, we will not be able to earn profits or
continue operations. At this early stage of our operation, we also expect to
face the risks, uncertainties, expenses and difficulties frequently encountered
by companies at the start up stage of their business development. We cannot be
sure that we will be successful in addressing these risks and uncertainties and
our failure to do so could have a materially adverse effect on our financial
condition. There is no history upon which to base any assumption as to the
likelihood that we will prove successful and we can provide investors with no
assurance that we will generate any operating revenues or ever achieve
profitable operations.
Our independent certified public accounting firm, in the
notes to the audited financial statements for the year ended August 31, 2017
states that there is a substantial doubt that we will be able to continue as a
going concern.
We have experienced significant losses since inception.
Although our management believes that we have sufficient funds to meet our
obligations as they become due for the next twelve months, future 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.
Without additional financing to develop our business
plan, our business may fail.
Because we have generated only minimal revenue from our
business and cannot anticipate when we will be able to generate meaningful
revenue from our business, we will need to raise additional funds to conduct and
grow our business. We do not currently have sufficient financial resources to
completely fund the development of our business plan. We anticipate that we will
need to raise further financing. We do not currently have any arrangements for
financing and we can provide no assurance to investors that we will be able to
find such financing if required. The most likely source of future funds
presently available to us is through the sale of equity capital. Any sale of
share capital will result in dilution to existing security-holders.
Conflicts of interest between our company and our
directors and officers may result in a loss of business opportunity.
Our directors and officers 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 future operations and
those of other businesses. In the course of their 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 corporations 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 have adopted 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. Despite
our intentions, conflicts of interest may nevertheless arise which may deprive
our company of a business opportunity, which may impede the successful
development of our business and negatively impact the value of an investment in
our company.
20
Because all of our officers and directors are located
outside of the United States, you may have no effective recourse against them
for misconduct and you may not be able to enforce judgment and civil liabilities
against them.
All of our directors and officers are nationals and/or
residents of countries other than the United States and all or a substantial
portion of their assets are located outside 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.
Risks Associated with Our Common Stock
Trading on the OCTQB and CSE 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 OTCQX electronic quotation
service operated by OTC Markets Group Inc. Trading in stock quoted on the OTCQX 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 OTCQX is not a
stock exchange, and trading of securities on the OTCQX 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.
Our stock is a penny stock. Trading of our stock may be
restricted by the Securities and Exchange Commissions penny stock regulations
which may limit a stockholders ability to buy and sell our stock.
Our stock is a penny stock. The Securities and Exchange
Commission has adopted Rule 15g-9 which generally defines penny stock to be
any equity security that has a market price (as defined) less than $5.00 per
share or an exercise price of less than $5.00 per share, subject to certain
exceptions. Our securities are covered by the penny stock rules, which impose
additional sales practice requirements on broker-dealers who sell to persons
other than established customers and accredited investors. The term
accredited investor refers generally to institutions with assets in excess of
$5,000,000 or individuals with a net worth in excess of $1,000,000 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 customers
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 customers 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
purchasers 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.
The Financial Industry Regulatory Authority, or FINRA,
has adopted sales practice requirements which may also limit a stockholders
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 our shares.
21
Because we do not intend to pay any dividends on our
shares, investors seeking dividend income or liquidity should not purchase our
shares.
We have not declared or paid any dividends on our shares since
inception, and do not anticipate paying any such dividends for the foreseeable
future. We presently do not anticipate that we will pay dividends on any of our
common stock in the foreseeable future. If payment of dividends does occur at
some point in the future, it would be contingent upon our revenues and earnings,
if any, capital requirements, and general financial condition. The payment of
any common stock dividends will be within the discretion of our Board of
Directors. We presently intend to retain all earnings to implement our business
plan; accordingly, we do not anticipate the declaration of any dividends for
common stock in the foreseeable future.
Investors seeking dividend income or liquidity should not
invest in our shares.
FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus contains forward-looking
statements. Forward-looking statements are projections of events, revenues,
income, future economic performance or managements plans and objectives for
future operations. In some cases, you can identify forward-looking statements by
the use of terminology such as may, should, expect, plan, anticipate,
believe, estimate, predict, potential or continue or the negative of
these terms or other comparable terminology. Examples of forward-looking
statements made in this proxy statement/prospectus include statements about:
|
|
Our future product development and results,
|
|
|
|
|
|
Our future capital expenditures, and
|
|
|
|
|
|
Our future investments in and acquisitions of other
companies or technologies.
|
These statements are only predictions and involve known and
unknown risks, uncertainties and other factors, including:
|
|
General economic and business conditions,
|
|
|
|
|
|
Exposure to market risks in our financial
instruments,
|
|
|
|
|
|
Fluctuations in worldwide prices and demand for
our products,
|
|
|
|
|
|
Fluctuations in the levels of our research and
development activities,
|
|
|
|
|
|
Regulatory uncertainties and potential product
liabilities,
|
|
|
|
|
|
Political changes in Canada and the United
States, which could affect our operations there, and
|
|
|
|
|
|
The risks in the section of this proxy
statement/prospectus entitled Risk Factors,
|
any of which may cause our companys 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.
While these forward-looking statements and any assumptions upon
which they are based are made in good faith and reflect our current judgment
regarding the direction of our business, actual results will almost always vary,
sometimes materially, from any estimates, predictions, projections, assumptions
or other future performance suggested herein. Except as required by applicable
law, including the securities laws of the United States and Canada, we do not
intend to update any of the forward-looking statements to conform these
statements to actual results.
22
QUESTIONS AND ANSWERS ABOUT THE ANNUAL AND SPECIAL MEETING OF
STOCKHOLDERS
Why am I receiving these materials?
Our board of directors is soliciting proxies for use at the
annual and special meeting to be held at the office of our law firm, Macdonald
Tuskey, located at Suite 409 221 West Esplanade, North Vancouver, British
Columbia V7M 3J3, Canada, at 10:00 a.m., local time, on ♦
,
♦
,
2018
or at any adjournment of the meeting. These materials were first sent
or given to our stockholders on or about ♦, 2018.
What is included in these materials?
These materials include:
|
|
the notice of the annual and special meeting of
stockholders;
|
|
|
|
|
|
this proxy statement/prospectus for the annual and
special meeting of stockholders; and
|
|
|
|
|
|
the proxy card.
|
What items will be voted at the annual and special
meeting?
Our stockholders will vote on:
|
|
the approval of the plan of conversion, whereby our
corporate jurisdiction will be changed from the State of Nevada to the
Province of British Columbia, Canada by means of a process called a
conversion and a continuation;
|
|
|
|
|
|
the election of directors; and
|
|
|
|
|
|
the ratification of the continued appointment of our
independent registered public accounting firm.
|
What do I need to do now?
We urge you to carefully read and consider the information
contained in this proxy statement/prospectus. We request that you cast your vote
on each of the proposals described in this proxy statement/prospectus. You are
invited to attend the annual and special meeting, but you do not need to attend
the annual and special meeting in person in order to vote your shares. Even if
you do not plan to attend the annual and special meeting, please vote by proxy
by following the instructions provided in the proxy card.
Who can vote at the annual and special meeting?
Our board of directors has fixed the close of business on ♦,
2018 as the record date for the determination of the stockholders entitled to
notice of, and to vote at, the annual and special meeting or any adjournment. If
you were a stockholder of record on the record date, you are entitled to vote at
the annual and special meeting.
As of the record date, 71,001,039 shares of our common stock were issued and outstanding and no other voting securities were issued and outstanding. Therefore, a total of 71,001,039 votes are entitled to be cast at the annual and special meeting.
How many votes do I have?
On each proposal to be voted upon, you have one vote for each
share of our common stock that you owned on the record date. There is no
cumulative voting.
How do I vote my shares?
If you are a stockholder of record, you may vote in person or
by proxy.
|
|
To vote in person, come to the annual and special
meeting, and we will give you a ballot when you arrive.
|
|
|
|
|
|
If you do not wish to vote in person or if you will not
be attending the annual and special meeting, you may vote by proxy by
mail, by telephone or via the Internet by following instructions provided
in the proxy card.
|
23
If you hold your shares in street name and:
|
|
you wish to vote in person at the annual and special
meeting, you must obtain a valid proxy from your broker, bank, or other
nominee that holds your shares giving you the right to vote the shares at
the annual and special meeting. Please follow the instructions from your
broker, bank or other nominee, or contact your broker, bank or other
nominee to request a proxy card.
|
|
|
|
|
|
you do not wish to vote in person or you will not be
attending the annual and special meeting, you must vote your shares in the
manner prescribed by your broker, bank or other nominee. Your broker, bank
or other nominee should have enclosed or otherwise provided a voting
instruction card for you to use in directing the broker, bank or nominee
how to vote your shares.
|
What is the difference between a stockholder of record and a
street name holder?
If your shares are registered directly in your name with our
transfer agent, Computershare Investor Services Inc., then you are a stockholder
of record with respect to those shares.
If your shares are held in a stock brokerage account or by a
bank or other nominee, then the broker, bank, or other nominee is the
stockholder of record with respect to those shares. However, you are still the
beneficial owner of those shares, and your shares are said to be held in street
name. Street name holders generally cannot vote their shares directly and must
instead instruct the broker, bank, or other nominee how to vote their shares.
Street name holders are also invited to attend the annual and special meeting.
What does it mean if I receive more than one proxy card?
If you receive more than one proxy card, it means that you hold
shares registered in more than one name or in different accounts. To ensure that
all of your shares are voted, please vote by proxy by following instructions
provided in each proxy card. If some of your shares are held in street name,
you should have received voting instructions with these materials from your
broker, bank or other nominee. Please follow the voting instructions provided to
ensure that your vote is counted.
What vote is required for the election of directors or for
the approval of a proposal?
The proposals for approval and adoption of the plan of
conversion must receive votes For from the holders of a majority of the
outstanding shares of our common stock.
For the election of directors, the nominees who receive more
votes For than the combined number of votes Against plus votes that abstain
will be elected as directors. There is no cumulative voting in the election of
directors.
For the ratification of the continued appointment of the
independent registered public accounting firm to be approved, the proposals must
receive more votes For than the combined number of votes Against plus votes
that abstain.
How are votes counted?
For the approval and adoption of the plan of conversion, you
may vote For, Against, or Abstain for the proposals. Votes that abstain
and broker non-votes will have the same effect as Against votes.
For the election of directors, you may vote For, Against,
or Abstain for each nominee for director. Votes that abstain will have the
same effect as Against votes. Broker non-votes will have no effect on the
outcome of the vote on the election of directors.
For the ratification of the continued appointment of the
independent registered public accounting firm, you may vote For, Against, or
Abstain for the proposals. Votes that abstain will have the same effect as
Against votes. Broker non-votes will have no effect on the outcome of the vote
on these proposals.
A broker non-vote occurs when a broker, bank, or other
nominee holding shares for a beneficial owner in street name does not vote on a
particular proposal because it does not have discretionary voting power with
respect to that proposal and has not received instructions with respect to that
proposal from the beneficial owner of those shares, despite voting on at least
one other proposal for which it does have discretionary authority or for which
it has received instructions.
24
What happens if I do not make specific voting choices?
If you are a stockholder of record and you submit your proxy
without specifying how you want to vote your shares, then the proxy holder will
vote your shares in the manner recommended by our board of directors on all
proposals.
If you hold your shares in street name and you do not give
instructions to your broker, bank or other nominee to vote your shares, the
rules that govern brokers, banks, and other nominees who are the stockholders of
record of shares held in street name generally give the discretion to vote
uninstructed shares on routine matters but withhold the discretion to vote them
on non-routine matters.
What is the quorum requirement?
A quorum of stockholders is necessary for the transaction of
business at the annual and special meeting. The presence in person or by proxy
of stockholders entitled to cast at least one third of the shares entitled to
vote at the annual and special meeting constitutes a quorum. Your shares will be
counted towards the quorum requirement only if you or the registered holder of
your shares is present in person or by proxy at the annual and special meeting.
Votes that abstain and broker non-votes will be counted towards the quorum
requirement. If there is no quorum, the officer presiding at the meeting will
have power to adjourn the meeting from time to time until a quorum is present.
How does the board of directors recommend that I vote?
Our board of directors recommends that you vote your shares:
|
|
For the approval of the plan of conversion;
|
|
|
|
|
|
For the election of all nominees for directors; and
|
|
|
|
|
|
For the ratification of the continued appointment of
the independent registered public accounting firm.
|
Can I change my vote after submitting my proxy?
Yes. You may revoke your proxy and change your vote at any time
before the final vote at the annual and special meeting. If you are a
stockholder of record, you may vote again on a later date via the Internet or by
telephone (only your latest Internet or telephone proxy submitted prior to the
annual and special meeting will be counted), by signing and returning a new
proxy card with a later date, or by attending the annual and special meeting and
voting in person.
Your attendance at the annual and special meeting will not
automatically revoke your proxy unless you vote again at the annual and special
meeting or specifically request in writing that your prior proxy be revoked.
You may also request that your prior proxy be revoked by delivering to us at
Lexaria Bioscience Corp., 156 Valleyview Road, Kelowna, British Columbia, Canada
V1X 3M4, Attention: Chief Executive Officer, a written notice of revocation
prior to the annual and special meeting.
If you hold your shares in street name, you will need to follow
the voting instructions provided by your broker, bank or other nominee regarding
how to revoke or change your vote.
How can I attend the annual and special meeting?
You may call us at (250) 765-6424 or the toll-free number
1-866-__________________________if you want to obtain directions in order to
attend the annual and special meeting and vote in person.
You may be asked to present valid government issued picture
identification, such as a drivers license or passport, before being admitted to
the annual and special meeting. If you hold your shares in street name, you will
also need proof of ownership to be admitted to the annual and special meeting. A
recent brokerage statement or letter from your broker, bank or other nominee is
an example of proof of ownership.
25
Who pays the cost of proxy preparation and
solicitation?
We pay the cost of proxy preparation and solicitation,
including the reasonable charges and expenses of brokers, banks or other
nominees for forwarding proxy materials to street name holders.
We are soliciting proxies primarily by mail. In addition, our
directors, officers and regular employees may solicit proxies by telephone,
facsimile, mail, other means of communication or personally. These individuals
will receive no additional compensation for such services.
We will ask brokers, banks, and other nominees to forward the
proxy materials to their principals and to obtain their authority to execute
proxies and voting instructions. We will reimburse them for their reasonable
charges and expenses.
Common Stock
Holders of our common stock have one vote for each share on
each matter submitted to a vote of our stockholders. Except as otherwise
provided by law or as provided in any resolution adopted by our board of
directors providing for the issuance of any series of preferred stock, the
holders of our common stock possess all voting power. There is no cumulative
voting in the election of directors. According to our bylaws, generally, all
elections and questions are decided by the vote of a majority in interest of our
stockholders present in person or represented by proxy and entitled to vote at
the meeting. According to our bylaws, generally, the presence in person or by
proxy of our stockholders entitled to cast at least one third of the shares
entitled to vote at the meeting constitutes a quorum. According to our bylaws,
generally, any action required to be taken at the meeting of our stockholders,
or any action which may be taken at such meeting, may be taken without a meeting
if a consent in writing, setting forth the action so taken, is signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon are present and voted. Our certificate of
incorporation provides that our board of directors is expressly authorized to
make, alter or repeal our bylaws.
The holders of our common stock are entitled to receive, when,
as and if declared by our board of directors, out of funds legally available
therefore, dividends payable in cash, stock or otherwise. Our board of directors
is not obligated to declare a dividend. Any future dividends will be subject to
the discretion of our board of directors and will depend upon, among other
things, future earnings, the operating and financial condition of our company,
its capital requirements, general business conditions and other pertinent
factors. It is not anticipated that dividends will be paid in the foreseeable
future.
Upon any liquidation of our company, the remaining net assets
of our company are to be distributed pro rata to the holders of our common
stock, to the exclusion of holders of our preferred stock.
Our common stock is not convertible or redeemable and has no
preemptive, subscription or conversion rights. There are no conversions,
redemption, sinking fund or similar provisions regarding our common stock.
PROPOSAL 1 THE CONTINUATION
General Overview of the Continuation
On August 31, 2017, our board of directors determined that it
would be in the best interest of our company to change our corporate
jurisdiction from the State of Nevada to the Province of British Columbia,
Canada. We intend to change the corporate jurisdiction of Lexaria from the State
of Nevada to the Province of British Columbia, Canada by means of a process
called a conversion under the
Nevada Revised Statutes
and a
continuation under the
Business Corporations Act
(British
Columbia).
If our stockholders approve the proposed continuation then we
intend to file articles of conversion with the Secretary of State of Nevada and
a continuation application with the Registrar of Companies of British Columbia.
Upon receipt of a certificate of continuation from the Registrar of Companies of
British Columbia, we will be continued as a British Columbia corporation and
will be governed by the laws of British Columbia. The assets and liabilities of
the British Columbia corporation immediately after the continuation will be
identical to the assets and liabilities of the Nevada corporation immediately
prior to the continuation. The officers and directors of Lexaria Nevada
immediately before the continuation becomes effective will be the officers and
directors of the British Columbia corporation. The change of our corporate
jurisdiction will not result in any material change to our business and will not
have any effect on the relative equity or voting interests of our stockholders.
Each previously outstanding share of our common and preferred stock will become
one common or preferred share, as the case may be, of the British Columbia
corporation.
26
The continuation and the plan of conversion are also subject to
approval by the holders of a majority of the outstanding shares of our common
stock and the Canadian Securities Exchange.
The change of our corporate jurisdiction will result in changes
in the rights and obligations of our current stockholders under applicable
corporate laws. For an explanation of these differences see the discussion of
Material Differences of the Rights of Our Stockholders After the Change of Our
Corporate Jurisdiction beginning on page 28 of this proxy statement/prospectus.
In addition, the change of our corporate jurisdiction may have material tax
consequences to stockholders which may or may not be adverse to any particular
stockholder depending on the stockholders particular circumstances. For a more
detailed explanation of the tax consequences, see Certain United States Federal
Income Tax Consequences of the Change of Our Corporate Jurisdiction and
Certain Canadian Federal Income Tax Consequences of the Change of Our Corporate
Jurisdiction beginning on pages 33 and 37, respectively, of this proxy
statement/prospectus.
Certain Terms of the Plan of Conversion
A summary of the material terms of the plan of conversion is
set forth below. The full text of the plan of conversion is attached as Schedule
A to this proxy statement/prospectus.
Principal Terms of the Conversion
The plan of conversion provides that at the effective time of
the conversion, Lexaria will be converted into Lexaria Bioscience Corp., a
British Columbia corporation continued under the
Business Corporations
Act
(British Columbia). At the effective time of the conversion, the
continuation application and articles of Lexaria BC, in the forms attached as
Appendix A and Appendix B, respectively, of the plan of conversion will
replace the articles of incorporation and bylaws of Lexaria.
Effective Time of the Conversion
The plan of conversion provides that, as promptly as
practicable after the approval of the plan of conversion by the holders of a
majority of the outstanding shares of common stock of Lexaria, Lexaria will file
the articles of conversion with the Secretary of State of Nevada and a
continuation application with the Registrar of Companies of British Columbia.
The plan of conversion provides that the effective date and time of the
conversion will be the date and time on and at which the continuation becomes
effective under the laws of Nevada or the date and time on and at which the
continuation becomes effective under the laws of British Columbia, whichever
occurs later.
Manner and Basis of Converting Shares of Common
Stock
At the effective time of the conversion, each share of common
stock of Lexaria, with a par value of $0.001 per share, issued and outstanding
immediately before the effective time of the conversion will, by virtue of the
conversion and without any action on the part of the holder thereof, be
converted into and become one validly issued, fully paid and non-assessable
common share, without par value, of Lexaria BC.
Manner and Basis of Converting Options and Other
Rights
At the effective time of the conversion, each option, warrant
or other right to acquire shares of common stock of Lexaria Nevada that is or
was outstanding immediately before the effective time of the conversion will, by
virtue of the conversion and without any action on the part of the holder
thereof, be converted into and become an option, warrant or right, respectively,
to acquire, upon the same terms and conditions, the number of common shares of
Lexaria BC that such holder would have received had such holder exercised such
option, warrant or right, respectively, in full immediately before the effective
time of the conversion (whether or not such option, warrant or right was then
exercisable) and the exercise price per share under each such option, warrant or
right, respectively will be equal to the exercise price per share thereof immediately before the
effective time of the conversion, unless otherwise provided in the instrument or
agreement granting such option, warrant or right, respectively.
27
Effect of the Conversion
At the effective time of the conversion, Lexaria will cease to
exist as a Nevada corporation, and the title to all real estate vested by deed
or otherwise under the laws of any jurisdiction, and the title to all other
property, real and personal, owned by Lexaria, and all debts due to Lexaria on
whatever account, as well as all other things in action or belonging to Lexaria
immediately before the conversion, will be vested in Lexaria BC, without
reservation or impairment. Lexaria BC will have all of the debts, liabilities
and duties of Lexaria Nevada, and all rights of creditors accruing and all liens
placed upon any property of Lexaria up to the effective time of the conversion
will be preserved unimpaired, and all debts, liabilities and duties of Lexaria
immediately before the conversion will attach to Lexaria BC and may be enforced
against it to the same extent as if it had incurred or contracted such debts,
liabilities and duties. Any proceeding pending against Lexaria may be continued
as if the conversion had not occurred or Lexaria BC may be substituted in the
proceeding in place of Lexaria.
Amendment
The boards of directors of Lexaria may amend the plan of
conversion at any time before the effective time of conversion, provided,
however, that an amendment made subsequent to the approval of the conversion by
the stockholders of Lexaria must not (a) alter or change the manner or basis of
exchanging a stockholders shares of Lexaria for a stockholders shares, rights
to purchase a stockholders shares, or other securities of Lexaria BC, or for
cash or other property in whole or in part or (b) alter or change any of the
terms and conditions of the plan of conversion in a manner that adversely
affects the stockholders of Lexaria.
Termination
At any time before the effective time of the conversion, the
plan of conversion may be terminated and the conversion may be abandoned by the
board of directors of Lexaria, notwithstanding approval of the plan of
conversion by the stockholders of Lexaria. We anticipate that the plan of
conversion will be terminated if the proposed conversion is not approved by our
stockholders at the annual and special meeting.
Appraisal Rights
Under Nevada law, pursuant to the NRS §§ 78.3793, 92A.300
92A.500 (inclusive) (the
Dissenters Rights Provisions
) our stockholders
are entitled, after complying with certain requirements of Nevada law, to
dissent from approval of the continuation pursuant to Chapter 92A of the
Nevada Revised Statutes
of the State of Nevada (
NRS
) and to be
paid the fair value of their shares of our common stock exclusive of any
element of value arising from the accomplishment or expectation of the
continuation, if the continuation is completed. Stockholders electing to
exercise these appraisal rights must comply with the provisions of Chapter 92A
of the NRS in order to perfect their rights. We will require strict compliance
with the statutory procedures.
In the context of the continuation, the Dissenters Rights
Provisions provides that the former stockholders may elect to have our company
purchase their shares held by the former stockholders for a cash price that is
equal to the fair value of such shares, as determined in a judicial proceeding
in accordance with the Dissenters Rights Provisions. The fair value of the
shares of any former stockholder means the value of such shares immediately
before the effectuation of the continuation excluding any appreciation or
depreciation in anticipation of the continuation, unless exclusion of any
appreciation or depreciation would be inequitable.
A copy of the Dissenters Rights Provisions is attached as
Schedule B hereto. If you wish to exercise your dissenters rights or preserve
the right to do so, you should carefully review Schedule B hereto. IF YOU FAIL
TO COMPLY WITH THE PROCEDURES SPECIFIED IN THE DISSENTERS RIGHTS PROVISIONS IN
A TIMELY MANNER, YOU MAY LOSE YOUR DISSENTERS RIGHTS. BECAUSE OF THE COMPLEXITY
OF THOSE PROCEDURES, YOU SHOULD SEEK THE ADVICE OF COUNSEL IF YOU ARE
CONSIDERING EXERCISING YOUR DISSENTERS RIGHTS. Former stockholders who perfect
their dissenters rights by complying with the procedures set forth in the
Dissenters Rights Provisions will have the fair value of their Shares
determined by a Nevada state district court and will be entitled to receive a
cash payment equal to such fair value. Any such judicial determination of the fair value of shares could be based upon
any valuation method or combination of methods the court deems appropriate. The
value so determined could be more or less than the continuation to be paid in
connection with the continuation. In addition, former stockholders who invoke
dissenters rights may be entitled to receive payment of a fair rate of interest
from the effective time of the continuation on the amount determined to be the
fair value of their shares. If you do NOT plan to seek an appraisal of all of
your shares, please execute (or, if you are not the record holder of such
shares, to arrange for such record holder or such holders duly authorized
representative to execute) and mail postage paid the enclosed Letter of
Transmittal to the agent at the address set forth in the Letter of Transmittal.
You should note that surrendering to Lexaria certificates for your shares will
constitute a waiver of your appraisal rights under the NRS.
28
All demands for appraisal should be addressed to Chris Bunka at
Lexaria Bioscience Corp., 156 Valleyview Road, Kelowna, British Columbia, Canada
V1X 3M4, before the vote on the continuation is taken at the annual and special
meeting, and should be executed by, or on behalf of, the record holder of the
shares of the common stock. The demand must reasonably inform us of the identity
of the stockholder and the intention of the stockholder to demand appraisal of
his, her or its shares of our common stock.
In view of the complexity of the Dissenters Rights Provisions
in Chapter 92A, stockholders desiring to dissent from the continuation and
pursue appraisal rights should consult their legal advisers.
Reasons for the Continuation
We believe that the change of our corporate jurisdiction to the
Province of British Columbia, Canada will more accurately reflect our
operations, which are headquartered in and managed from the Province of British
Columbia, Canada. We also believe that changing our corporate jurisdiction to
the Province of British Columbia, Canada more accurately reflects the identity
of our company because Canada is the country from which we have derived much of
our financing, and our common stock is listed on the Canadian Securities
Exchange in Canada. Furthermore, all of our officers and the majority of our
directors are located in Canada, and a large amount of our issued and
outstanding stock is owned of record by persons not resident in the United
States. We believe that the change of our corporate jurisdiction may also enable
us to qualify as a foreign private issuer in the United States. As a foreign
private issuer, we believe that our regulatory compliance costs may decrease and
our ability to raise capital should improve because it should, under certain
circumstances, enable us to issue securities in private placement offerings with
a four-month hold period (for which we believe there is more demand than there
is for securities issued in a private placement with a minimum hold period of
six-months, which is currently the case) without limiting our access to the U.S.
capital markets.
In addition to the potential benefits described above, the
continuation will impose some moderate costs on our company and will expose us
and our stockholders to some risk, including the risk of liability for taxation
and the potential for greater impediments to enforcement of judgments and orders
of United States courts and regulatory authorities against our company following
the consummation of the continuation. Please see the section entitled Risk
Factors commencing on page 10 for a more comprehensive discussion regarding the
risk factors of the continuation. There are also differences between the laws of
the State of Nevada and the laws of the Province of British Columbia. Please see
the section entitled Material Differences of the Rights of Our Stockholders
After the Change of Our Corporate Jurisdiction commencing on page 28 for a more
comprehensive discussion of our stockholders rights before and after the
proposed change of our corporate jurisdiction. Regardless of the risks and costs
associated with the change of our corporate jurisdiction, our board of directors
has determined that the potential advantages of the change of our corporate
jurisdiction outweigh the risks and costs.
Although our board of directors evaluated variations in the
basic structure of the continuation, our board of directors believes, based on
advice from management and its professional advisors, that the proposed
structure of our company as a British Columbia corporation is the best structure
to provide the advantages which our company is seeking without substantial
operational or financial risks. No assurance can be given, however, that the
anticipated benefits of the continuation will be realized.
Corporate Law Requirements
In order for our company to carry out the continuation, it will
be necessary for us to comply with the provisions of the corporate law of the
State of Nevada
and the
Business Corporations Act
(British
Columbia).
29
The corporate law of the State of Nevada allows a corporation
that is incorporated under the Nevada corporate law to convert into a foreign
entity pursuant to a conversion approved by the stockholders of the Nevada
corporation. Pursuant to the Nevada corporate law, the board of directors of
Lexaria has adopted the plan of conversion attached as Schedule A to this
proxy statement/prospectus and Lexaria, subject to approval by our
stockholders.
If holders of a majority of the voting power of our
stockholders vote to approve the plan of conversion, we intend to file articles
of conversion with the Nevada Secretary of State. After we file the articles of
conversion and pay to the Secretary of State of the State of Nevada all
prescribed fees, and we comply with all other requirements, the conversion will
become effective in accordance with the Nevada corporate law.
As we are proposing to continue into the jurisdiction of the
Province of British Columbia, we must also comply with the applicable provisions
of the
Business Corporations Act
(British Columbia) in order to
successfully complete the continuation.
A foreign corporation is permitted to continue from a foreign
jurisdiction into British Columbia by filing with the Registrar of Companies of
British Columbia a continuation application and providing to the Registrar of
Companies certain records and information that the Registrar of Companies may
require. We expect that the continuation of Lexaria into British Columbia will
be effective on the date and time that the continuation application, the form of
which is attached hereto as Appendix A of the plan of conversion, is filed
with the Registrar of Companies, assuming we provide the Registrar of Companies
with any records and information it may require. After Lexaria Nevada is
continued into British Columbia, the Registrar of Companies must issue a
certificate of continuation showing the name of the continued company (expected
to be Lexaria Bioscience Corp.) and the date and time on which it is continued
into British Columbia as a continued company.
If the continuation is approved by our stockholders, we expect
to file the articles of conversion and the continuation application promptly.
Exchange of Share Certificates
Upon the effectiveness of the continuation, Lexaria BC will
mail a letter of transmittal with instructions to each holder of record of
shares of common stock of Lexaria outstanding immediately before the effective
time for use in exchanging certificates formerly representing shares of common
stock of Lexaria for certificates representing shares of Lexaria BC.
Certificates should not be surrendered by the holder thereof until they have
received the letter of transmittal from Lexaria BC.
Description of Our Securities after the Continuation
Upon completion of the continuation, we will be authorized to
issue an unlimited number of common shares without par value and an unlimited
number of preferred shares without par value.
Common Shares
The holders of common shares of Lexaria BC will be entitled to
dividends, if, as and when declared by the board of directors of Lexaria BC,
entitled to one vote per share at meetings of shareholders or Lexaria BC and,
upon dissolution, entitled to share equally in such assets of Lexaria BC as are
distributable to the holders of common shares of Lexaria BC and subject to the
rights of the holders of preferred shares.
Preferred Shares
Lexaria BC will be authorized to issue preferred shares in one
or more series. Subject to the
Business Corporations Act
(British
Columbia), the directors of Lexaria BC may, by resolution, if none of the shares
of any particular series are issued, alter articles of Lexaria BC and authorize
the alteration of the notice of articles of Lexaria BC, as the case may be, to
do one or more of the following:
|
|
determine the maximum number of shares of that series
that Lexaria BC is authorized to issue, determine that there is no such
maximum number, or alter any such determination;
|
30
|
|
create an identifying name for the shares of that series,
or alter any such identifying name; and
|
|
|
|
|
|
attach special rights or restrictions to the shares of
that series, or alter any such special rights or restrictions.
|
The holders of preferred shares will be entitled, on the
liquidation or dissolution of Lexaria BC, whether voluntary or involuntary, or
on any other distribution of the assets of Lexaria BC among shareholders of
Lexaria BC for the purpose of winding up its affairs, to receive, before any
distribution is made to the holders of common shares of Lexaria BC or any other
shares of Lexaria BC ranking junior to the preferred shares with respect to the
repayment of capital on the liquidation or dissolution of Lexaria BC, whether
voluntary or involuntary, or on any other distribution of the assets of Lexaria
BC among shareholders of Lexaria BC for the purpose of winding up its affairs,
the amount paid up with respect to each preferred share held by them, together
with the fixed premium (if any) thereon, all accrued and unpaid cumulative
dividends (if any and if preferential) thereon, which for such purpose will be
calculated as if such dividends were accruing on a day-to-day basis up to the
date of such distribution, whether or not earned or declared, and all declared
and unpaid non-cumulative dividends (if any and if preferential) thereon. After
payment to the holders of the preferred shares of the amounts so payable to
them, they will not, as such, be entitled to share in any further distribution
of the property or assets of Lexaria BC, except as specifically provided in the
special rights and restrictions attached to any particular series. All assets
remaining after payment to the holders of preferred shares as aforesaid will be
distributed rateably among the holders of common shares of Lexaria BC.
Except for such rights relating to the election of directors on
a default in payment of dividends as may be attached to any series of the
preferred shares by the directors, holders of preferred shares will not be
entitled, as such, to receive notice of, or to attend or vote at, any general
meeting of shareholders of Lexaria BC.
Material Differences of the Rights of Our Stockholders After
the Change of Our Corporate Jurisdiction
After the continuation, our stockholders will become the
holders of shares in the capital of a British Columbia corporation organized
under the
Business Corporations Act
(British Columbia) (the
BCBCA
). The
Nevada Revised Statutes
of Nevada (the
NRS
)
differs in many respects from the BCBCA. The following is a summary description
of the principal differences that could affect the rights of our stockholders.
Director Election
Under the BCBCA, shareholders of a corporation must, by
ordinary resolution at each annual meeting at which an election of directors is
required, elect directors to hold office. An ordinary resolution means a
resolution passed at a meeting of shareholders by a simple majority of the votes
cast by shareholders voting shares that carry the right to vote at a meeting.
Under the BCBCA, public companies such as our company must have at least three
directors. The proposed articles of Lexaria BC provide that changes in the
number of directors must be approved by ordinary resolution. However, the
proposed articles of Lexaria BC also provide that the directors of Lexaria BC
may appoint up to one-third of the number of the directors at the time of the
appointments (other than directors appointed by this method). Any director so
appointed ceases to hold office immediately before the next election or
appointment of directors, but is eligible for re-election or re-appointment.
The NRS requires that a corporation have a minimum of one
director. The number of directors must be fixed by, or in the manner provided
in, the bylaws, unless the certificate of incorporation fixes the number of
directors, in which case a change in the number of directors must be made only
by amendment to the certificate, which requires stockholder approval. The number
of directors may be changed by resolution of the board of directors if the
certificate of incorporation or bylaws so provide. The certificate of
incorporation of Lexaria provides that the board of directors of Lexaria must
determine the number of directors, subject to the bylaws of Lexaria. The bylaws
of Lexaria provide that the number of directors must be a minimum of 1 and a
maximum of 8 unless and until otherwise determined by a vote of a majority of
the board of directors of Lexaria. Within these limits, the number of directors
must be determined from time to time by resolution of the board of directors or
by the stockholders at a meeting. The bylaws of Lexaria provide that generally
all elections must be decided by the vote of a majority in interest of the
stockholders present in person or represented by proxy and entitled to vote at
the meeting.
31
Removal of Directors
Under the BCBCA, a company may remove a director before the
expiration of the directors term of office by a special resolution. The special
resolution means a resolution passed at a meeting of shareholders by at least
2/3 of the votes cast by shareholders voting shares that carry the right to vote
at a meeting.
Under the NRS, any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors.
Personal Liability of Directors and Derivative Actions
The BCBCA entitles a shareholder, including a beneficial owner
of a share of a corporation, or a director of a corporation and any person whom
the court considers an appropriate person to make application, with the approval
of the Supreme Court of British Columbia, and in the name of the corporation, to
commence legal proceedings to enforce a right, duty or obligation owed to the
corporation that could be enforced by the corporation itself or to obtain
damages for any breach of a right, duty or obligation whether the right, duty or
obligation arises under the BCBCA or otherwise. Derivative actions, therefore,
may be brought by shareholders on behalf of a corporation against the
corporations directors for damages or to enforce rights or duties owed by the
director to the corporation. With leave of the court, a complainant may, in the
name of and on behalf of a corporation, defend a legal proceeding brought
against the corporation. Under the BCBCA, there is no statutory limitation with
respect to the monetary liability which may be imposed on directors.
Under the NRS, a stockholder may bring a derivative action
against officers and directors of a corporation for breach of their fiduciary
duties to a corporation and its stockholders or for other fraudulent misconduct,
so long as the stockholder was a stockholder of the corporation at the time of
the transaction in question, or the stockholder obtained the stock thereafter
solely by operation of law, and remained so through the duration of the suit;
the plaintiff makes a demand on the directors of the corporation to assert the
corporate claim unless the demand would be futile; and the plaintiff is an
adequate representative of the other stockholders.
The NRS permits a corporation to adopt a provision in its
certificate of incorporation eliminating the liability of a director to the
corporation or its stockholders for monetary damages for breach of the
directors fiduciary duty of care, except under certain circumstances. The
certificate of incorporation of Lexaria provides that no director of the
corporation will be liable to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided, however, that this
provision shall not eliminate or limit the liability of a director
|
|
from a breach of the directors duty of loyalty to the
corporation or its stockholders;
|
|
|
|
|
|
from acts or omissions not in good faith involving
intentional misconduct or a knowing violation of law;
|
|
|
|
|
|
from unlawfully paying a dividend or approving Nevada
stock repurchases or redemptions;
|
|
|
|
|
|
from a transaction where the director derived an improper
personal benefit.
|
Interested Shareholder Transactions and Anti-Takeover
Provisions
Some powers granted to companies under the NRS may allow a
Nevada corporation to make itself potentially less vulnerable to hostile
takeover attempts. These powers include the ability to:
|
|
require that notice of nominations for directors be given
to the corporation prior to a meeting where directors will be elected,
which may give management an opportunity to make a greater effort to
solicit its own proxies;
|
|
|
|
|
|
only allow the board of directors to call a special
meeting of stockholders, which may thwart a raiders ability to call a
meeting to make disruptive changes;
|
32
|
|
provide that the power to determine the number of
directors and to fill vacancies be vested solely in the board, so that the
incumbent board, not a raider, would control vacant board positions;
|
|
|
|
|
|
provide for supermajority voting in some circumstances,
including mergers and certificate of incorporation amendments;
|
There is no similar provision under the BCBCA.
Amendments to the Governing Documents
A BCBCA corporation may resolve to alter its articles:
|
|
by the type of resolution specified by the BCBCA;
|
|
|
|
|
|
if the BCBCA does not specify the type of resolution, by
the type of resolution specified by the articles;
|
|
|
|
|
|
if neither the BCBCA nor the articles specify the type of
resolution, by a special resolution.
|
The special resolution means a resolution passed at a meeting
of shareholders by at least 2/3 of the votes cast by shareholders voting shares
that carry the right to vote at a meeting.
According to the proposed articles of Lexaria BC, subject to
the BCBCA, Lexaria BC may by resolution of the directors:
|
|
create one or more classes or series of shares or, if
none of the shares of a class or series of shares are allotted or issued,
eliminate that class or series of shares;
|
|
|
|
|
|
increase, reduce or eliminate the maximum number of
shares that Lexaria BC is authorized to issue out of any class or series
of shares or establish a maximum number of shares that Lexaria BC is
authorized to issue out of any class or series of shares for which no
maximum is established;
|
|
|
|
|
|
if Lexaria BC is authorized to issue shares of a class of
shares with par value:
|
|
(i)
|
decrease the par value of those shares;
|
|
|
|
|
(ii)
|
if none of the shares of that class of shares are
allotted or issued, increase the par value of those shares;
|
|
|
|
|
(iii)
|
subdivide all or any of its unissued, or fully paid
issued, shares with par value into shares of smaller par value;
or
|
|
|
|
|
(iv)
|
consolidate all or any of its unissued, or fully paid
issued, shares with par value into shares of larger par
value;
|
|
|
subdivide all or any of its unissued, or fully paid
issued, shares without par value;
|
|
|
|
|
|
consolidate all or any of its unissued, or fully paid
issued, shares without par value;
|
|
|
|
|
|
subdivide all or any of its unissued, or fully paid
issued, shares by way of a share dividend;
|
|
|
|
|
|
change all or any of its unissued, or fully paid issued,
shares with par value into shares without par value or all or any of its
unissued shares without par value into shares with par value;
|
|
|
|
|
|
alter the identifying name of any of its shares; or
|
|
|
|
|
|
otherwise alter its shares or authorized share structure
when required or permitted to do so by the BCBCA.
|
33
According to the proposed articles of Lexaria BC, Lexaria BC
may by resolution of the directors alter its notice of articles in order to
change its name or adopt or change any transaction of that name. Also, if the
BCBCA does not specify the type of resolution and the articles of Lexaria BC do
not specify another type of resolution, Lexaria BC may by resolution of the
directors alter the articles.
A BCBCA corporation may, by the type of shareholders
resolution specified by the articles, or, if the articles do not specify the
type of resolution, by a special resolution:
|
|
create special rights or restrictions for, and attach
those special rights or restrictions to, the shares of any class or series
of shares, whether or not any or all of those shares have been issued;
|
|
|
|
|
|
vary or delete any special rights or restrictions
attached to the shares of any class or series of shares, whether or not
any or all of those shares have been issued.
|
A right or special right attached to issued shares must not be
prejudiced or interfered with under the BCBCA or under the memorandum, notice of
articles or articles unless the shareholders holding the shares of the class or
series of shares to which the right or special right is attached consent by a
special separate resolution of those shareholders which, if passed at a meeting,
requires the majority of the votes specified in the articles for a special
separate resolution (or, failing which, a separate resolution) of that class or
series. If the articles do not specify the majority required, then a majority of
two-thirds of the votes cast is required. The special separate resolution is in
addition to the resolution authorizing the alterations.
The NRS provide that the vote of holders of a majority of the
outstanding shares entitled to vote is required to alter, amend, change or
repeal a corporations certificate of incorporation, unless otherwise specified
in a corporations certification of incorporation or bylaws. In addition, if the
amendment to the certificate of incorporation would increase or decrease the
aggregate number of authorized shares of a class, increase or decrease the par
value of the shares of such class, or alter or change the powers, preferences or
special rights of the shares of such class so as to affect them adversely, that
class is entitled to vote separately on the amendment whether or not it is
designated as voting stock. Furthermore, if the proposed amendment would alter
or change the powers, preferences or special rights of one or more series of any
class so as to affect them adversely, but will not so affect the entire class,
then only the shares of the series so affected by the amendment will be
considered a separate class for purposes of the class vote. The NRS reserves the
power to the stockholders to adopt, amend or repeal the bylaws unless the
certificate of incorporation confers such power on the board of directors in
addition to the stockholders. The certificate of incorporation of Lexaria
provides that the board of directors of Lexaria is expressly authorized to make,
alter or repeal our bylaws.
Shareholder Quorum and Voting Requirements
Under the BCBCA, the quorum for the transaction of business at
a meeting of shareholders of a company may be established by the articles. The
proposed articles of Lexaria BC provides that, generally, the quorum for the
transaction of business at a meeting of shareholders is 2 persons who are, or
who represent by proxy, shareholders who, in the aggregate, hold at least 1/20
of the issued shares entitled to be voted at the meeting.
Except where the BCBCA or the articles require approval by a
special resolution or unanimous resolution, a simple majority of the votes cast
by shareholders voting shares that carry the right to vote at a meeting is
required to approve any resolution properly brought before the stockholders.
Under the NRS, a corporations certificate of incorporation and
bylaws may specify the number of shares necessary to constitute a quorum at any
meeting of shareholders; provided, however, that a quorum may not consist of
less than one-third of the shares entitled to vote at the meeting. The bylaws of
Lexaria provide that the presence in person or by proxy of stockholders entitled
to cast at least one third of the shares entitled to vote at the meetings of
stockholders constitutes a quorum.
The bylaws of Lexaria provide that generally all elections and
questions must be decided by the vote of a majority in interest of the
stockholders present in person or represented by proxy and entitled to vote at
the meeting.
34
Special Meeting of Shareholders
The BCBCA provides that a board of directors or the holders of
5% of the issued shares of a corporation with a right to vote can call or
requisition a special meeting.
Under the NRS, a special meeting may be called by a board of
directors or by any other person authorized to do so in the corporations
certificate of incorporation or bylaws. The bylaws of Lexaria provide that
special meetings of the stockholders or of any class or series thereof entitled
to vote may be called by the President or by the chairman of the board of
directors, or at the request in writing by stockholders of record owning at
least 20% percent of the issued and outstanding voting shares of common stock of
Lexaria.
Votes Required for Extraordinary Transactions
Under the BCBCA, approvals of amalgamations (except
amalgamations between a corporation and wholly owned subsidiaries),
consolidations, and sales, leases, or exchanges of substantially all the
property of a corporation, other than in the ordinary course of business of the
corporation requires approval by the stockholders by a special resolution at a
duly called meeting. The special resolution means a resolution passed at a
meeting of shareholders by at least 2/3 of the votes cast by shareholders voting
shares that carry the right to vote at a meeting.
Under the NRS, mergers or consolidations generally require the
approval of the holders of a majority of the outstanding stock of the
corporation entitled to vote and stockholder approval is not required by a
Nevada corporation:
|
|
if it is the surviving corporation in a merger requiring
the issuance of common stock not exceeding 20% of the corporations common
stock outstanding immediately prior to the merger, the merger agreement
does not amend in any respect the survivors certification of
incorporation, and stockholder approval is not specifically mandated in
the survivors certification of incorporation;
|
|
|
|
|
|
if it is the surviving corporation in a merger with a
subsidiary in which it ownership was 90% or greater.
|
Unless a greater percentage is required by the certificate of
incorporation, a sale, lease, or exchange of all or substantially all the
property or assets of a Nevada corporation or an amendment to its certificate of
incorporation also requires the approval of the holders of a majority of the
outstanding stock entitled to vote on the matter.
Shareholder Action by Written Consent (In Lieu of a
Meeting)
Under the BCBCA, any action required or permitted to be taken
at a meeting of the stockholders by an ordinary resolution may be taken by a
written resolution signed by a special majority of the stockholders entitled to
vote on such resolution. The proposed articles of Lexaria BC provide that a
special majority is two-thirds of the votes cast on the resolution. Any action
required or permitted to be taken at a meeting of the stockholders by a special
resolution may be taken by a written resolution signed by all the shareholders
entitled to vote on such resolution.
Under the NRS, stockholders may execute an action by written
consent in lieu of a stockholder meeting, unless such right is eliminated in the
corporations certificate of incorporation or bylaws, if holders of outstanding
stock representing not less than the minimum number of votes that would be
necessary to take the action at an annual or special meeting execute a written
consent providing for the action.
Rights of Dissent and Appraisal
Under the BCBCA, in certain circumstances, a registered
shareholder who disagrees with a proposed corporate action can require the
company to purchase his or her shares for their fair value. The actions giving
rise to a right of dissent are as follows:
|
|
an alteration in the articles of a company by altering
the restrictions on the business carried on or to be carried on by the
company, or in its powers;
|
|
|
|
|
|
various forms of corporation reorganizations,
amalgamation, or arrangements (where permitted);
|
35
|
|
a proposed sale, lease or exchange of all or
substantially all of the corporations assets; or
|
|
|
|
|
|
in respect of any resolution or court order or
arrangement permitting dissent.
|
Under the NRS, stockholders have the right to dissent and
exercise appraisal rights only with respect to forms of corporate mergers and
consolidations and not in the case of other fundamental change such as the sale
of all or substantially all of the assets of the corporation or amendments to
the certification of incorporation, unless so provided in the corporations
certificate of incorporation. Stockholders who have neither voted in favor of
nor consented to the merger or consolidation have the right to seek appraisal of
their shares by demanding payment in cash for their shares equal to the fair
value of such shares. Fair value is determined by a court in an action timely
brought by the stockholders who have properly demanded appraisal of their
shares. In determining fair value, the court may consider all relevant factors,
including the rate of interest which the resulting or surviving corporation
would have had to pay to borrow money during the pendency of the court
proceedings. In addition, under the NRS, appraisal rights are not available for
any shares of the surviving corporation if the merger did not require the vote
of the stockholders of the surviving corporation.
Oppression Remedies
Under the BCBCA, a shareholder of a corporation has the right
to apply to a court on the grounds that the corporation is acting or proposes to
act in a way that is prejudicial to the shareholder. After the application is
filed, the court may make any order as it sees fit, including an order to
prohibit any act proposed by the corporation.
There are no equivalent statutory remedies under the NRS;
however, stockholders may be entitled to remedies for a violation of a
directors fiduciary duties under Nevada common law.
Inspection of Corporate Books and Records
Under the BCBCA, current shareholders of a corporation are
entitled to inspect, without charge, all of the records the corporation is
required to maintain under the BCBCA, except for minutes of directors meetings
and directors consent resolutions (and those of committees of directors) and
written dissents to resolutions of directors. However, shareholders have the
right to inspect the portions of minutes of directors meetings, or of
directors consent resolutions and other records that contain disclosures of
conflicts of interest by directors and senior officers, and the right to inspect
disclosures of certain financial assistance made by the corporation.
Under NRS, stockholders have the right for any proper purpose
to inspect, upon written demand under oath stating the purpose for such
inspection, the corporations stock ledger, list of stockholders and its other
books and records, and to make copies or extracts of the same. A proper purpose
means a purpose reasonably related to a persons interests as a stockholder.
Accounting Treatment of the Change of Our Corporate
Jurisdiction
For United States accounting purposes, the change of our
corporate jurisdiction from the State of Nevada to the Province of British
Columbia, Canada by means of the continuation represents a non-substantive
exchange to be accounted for in a manner consistent with a transaction between
entities under common control. All assets, liabilities, revenues and expenses
will be reflected in the accounts of Lexaria BC based on existing carrying
values at the date of the exchange. The historical comparative figures of
Lexaria BC will be those of Lexaria.
We currently prepare our financial statements in accordance
with the United States generally accepted accounting principles and will begin
to submit our financial statements in accordance with IFRS after the
consummation of the change of our corporate jurisdiction.
Certain United States Federal Income Tax Consequences of the
Change of Our Corporate Jurisdiction
The following is a general summary of certain U.S. federal
income tax considerations applicable to Shareholders resulting from the change of our
corporate jurisdiction from the State of Nevada to the Province of British
Columbia, Canada by means of the continuation (the Continuation) and the
ownership and disposition of Lexaria BC Shares.
36
This summary is for general information purposes only and does
not purport to be a complete analysis or listing of all potential U.S. federal
income tax considerations that may apply to a Shareholder. For example, it does
not take into account the individual facts and circumstances of any particular
Shareholder that may affect the U.S. federal income tax considerations
applicable to such holder, nor does it address the state and local, federal
estate and gift, federal alternative minimum tax or foreign tax consequences to
a Shareholder relating to the Continuation and the ownership and disposition of
Lexaria BC Shares acquired thereby. Accordingly, this summary is not intended to
be, and should not be construed as, legal or U.S. federal income tax advice with
respect to any Shareholder. Each Shareholder is urged to consult its own tax
advisor regarding the U. S. federal tax consequences which may apply as a result
of the Continuation and the ownership and disposition of Lexaria and Lexaria BC
shares.
No legal opinion from U.S. legal counsel or ruling from the
Internal Revenue Service (the IRS) has been requested, or will be obtained,
regarding the U.S. federal income tax consequences to Shareholders as a result
of the of the Continuation. This summary is not binding on the IRS, and the IRS
is not precluded from taking a position that is different from, and contrary to,
the positions taken in this summary. In addition, because the authorities on
which this summary are based are subject to various interpretations, the IRS and
the U.S. courts could disagree with one or more of the positions taken in this
summary.
This summary is based on the Internal Revenue Code of 1986, as
amended (the Code), Treasury Regulations (whether final, temporary, or
proposed), published rulings of the IRS, published administrative positions of
the IRS, the Convention Between Canada and the United States of America with
Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended
(the Canada-U.S. Tax Convention), and U.S. court decisions that are applicable
and, in each case, as in effect and available, as of the date of this
registration statement. Any of the authorities on which this summary is based
could be changed in a material and adverse manner at any time, and any such
change could be applied on a retroactive or prospective basis which could affect
the U.S. federal income tax considerations described in this summary. This
summary does not discuss the potential effects, whether adverse or beneficial,
of any proposed legislation that, if enacted, could be applied on a retroactive
or prospective basis.
As used in this summary, the term U.S. Holder means a
beneficial owner of Lexaria Shares (or, after the Continuation has been
consummated, a beneficial owner of Lexaria BC Shares) that is for U.S. federal
income tax purposes:
(a) an individual who is a citizen or resident of the
U.S.;
(b) a corporation, or other entity classified as a corporation that is
created or organized in or under the laws of the U.S. or any state in the U.S.,
including the District of Columbia;
(c) an estate if the income of such
estate is subject to U.S. federal income tax regardless of the source of such
income; or
(d) a trust if (i) such trust has validly elected to be treated
as a U.S. person for U.S. federal income tax purposes; or (ii) is subject to the
supervision of a court within the United States and the control of one or more
U.S. persons as described in the Code.
For purposes of this summary, a Non-U.S. Holder is a
beneficial owner of Lexaria Shares (or, after the Continuation, a beneficial
owner of Lexaria BC Shares) that is neither a U.S. Holder nor a partnership.
This summary does not address the U.S. federal income tax
considerations of the Continuation to Shareholders that are subject to special
provisions under the Code, including: (a) Shareholders that are tax-exempt
organizations, qualified retirement plans, individual retirement accounts, or
other tax-deferred accounts; (b) Shareholders that are financial institutions,
underwriters, insurance companies, real estate investment trusts, or regulated
investment companies; (c) Shareholders that are broker-dealers, dealers, or
traders in securities or currencies that elect to apply a mark-to-market
accounting method; (d) Shareholders that have a functional currency other than
the U.S. dollar; (e) Shareholders that own Lexaria Shares (or after the
Continuation is consummated, Lexaria BC Shares) as part of a straddle, hedging
transaction, conversion transaction, constructive sale, or other arrangement
involving more than one position; (f) Shareholders that acquired Lexaria Shares
(or after the Continuation is consummated, Lexaria BC Shares) in connection with
the exercise of employee stock options or otherwise as compensation for
services; (g) Shareholders that hold Lexaria Shares (or after the Continuation
is consummated, Lexaria BC Shares) other than as a capital asset within the
meaning of Section 1221 of the Code (generally, property held for investment
purposes); and (h) partnerships and other pass-through entities (and investors
in such partnerships and entities).
37
This summary also does not address the U.S. federal income tax
considerations applicable to Shareholders who are: (a) U.S. expatriates or
former long-term residents of the U.S.; (b) persons that have been, are, or will
be a resident or deemed to be a resident in Canada for purposes of the
Income
Tax Act
(Canada) (the
Canadian Act
); (c) persons that use or hold,
will use or hold, or that are or will be deemed to use or hold Lexaria Shares
(or after the Continuation is consummated, Lexaria BC Shares) in connection with
carrying on a business in Canada; (d) persons whose Lexaria Shares (or after the
Continuation is consummated, Lexaria BC Shares) constitute taxable Canadian
property under the Canadian Act; or (e) persons that have a permanent
establishment in Canada for the purposes of the Canada-U.S. Tax Convention.
Shareholders that are subject to special provisions under the Code, including
Shareholders described immediately above, should consult their own tax advisor
regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal
estate and gift, U.S. state and local, and foreign tax consequences relating to
the Continuation and the ownership and disposition of Lexaria BC Shares received
pursuant to the Continuation.
Finally, this summary does not address the U.S. federal income
tax consequences of transactions effected prior or subsequent to, or
concurrently with the Continuation, including, without limitation: any vesting,
conversion, assumption, disposition, exercise, exchange or other transaction
involving any rights to acquire Lexaria Shares or Lexaria BC Shares, including
any options or warrants of Lexaria; and any transaction, other than the
Continuation, in which securities of Lexaria or Lexaria BC are acquired.
If an entity that is classified as a partnership (or
pass-through entity) for U.S. federal income tax purposes holds Lexaria Shares
(or after the Continuation is consummated, Lexaria BC Shares), the U.S. federal
income tax consequences to such partnership and the partners of such partnership
of participating in the Continuation and the ownership of Lexaria BC Shares
received pursuant to the Continuation generally will depend on the activities of
the partnership and the status of such partners. Partners of entities that are
classified as partnerships for U.S. federal income tax purposes should consult
their own tax advisors regarding the U.S. federal income tax consequences of the
Continuation and the ownership and disposition of Lexaria BC Shares received
thereby.
This discussion provides general information only and is not
intended to be tax advice to any particular Shareholder. Any U.S. Federal,
state, or local tax advice included in this discussion was not intended or
written to be used, and it cannot be used by any Shareholder, for the purpose of
avoiding any penalties that may be imposed by any U.S. Federal, state or local
governmental taxing authority or agency. This discussion was written solely to
support the promotion or marketing of the transactions or matters addressed in
this Memorandum. Investors should consult their own independent tax advisors in
determining the application to them of the U.S. federal income tax consequences
set forth below and any other U.S. federal, state, local foreign or other tax
consequences to them of the purchase, ownership and disposition of Lexaria and
Lexaria BC shares. Investors should note that no rulings have been or will be
sought from the IRS with respect to any of the U.S. federal income tax
consequences discussed below and no assurance can be given that the IRS will not
take positions contrary to the conclusions stated below.
Tax Consequences of the Transaction to Lexaria and Lexaria
BC
Neither Lexaria nor Lexaria BC will recognize a gain or loss in
the Continuation.
The U.S. Anti-Inversion Rules
Lexaria BC will be incorporated under the laws of British
Columbia, Canada. Generally, corporations incorporated outside of the United
States are not treated as U.S. corporations for U.S. federal income tax
purposes. However, as described below, Section 7874 of the Code treats certain
corporations incorporated outside the United States as U.S. corporations for
U.S. federal income tax purposes. Lexaria BC believes that it will be treated as
a U.S. corporation for U.S. federal income tax purposes as a result of the
Continuation.
Under Section 7874 of the Code, a corporation created or
organized outside the United States (i.e., a non-U.S. corporation) may
nevertheless be treated as a U.S. corporation for U.S. federal income tax
purposes (and, therefore, a U.S. tax resident and subject to U.S. federal income
tax on its worldwide income) if each of the following three conditions are met:
(i) the non-U.S. corporation acquires, directly or indirectly, or is treated as
acquiring under applicable Treasury Regulations, substantially all of the assets
held, directly or indirectly, by a U.S. corporation, (ii) after the acquisition,
the former stockholders of the U.S. corporation hold at least 80% (by vote or
value) of the shares of the non-U.S. corporation by reason of holding shares of
the U.S. corporation, and (iii) after the acquisition, the non-U.S. corporations expanded affiliated group does not have
substantial business activities in the non-U.S. corporations country of
organization or incorporation when compared to the expanded affiliated groups
total business activities.
38
As a result of the Continuation, (i) Lexaria BC will likely be
treated as indirectly acquiring all of the assets of Lexaria and (ii) after the
Continuation, the former stockholders of Lexaria will likely own, in the
aggregate, at least 80% (by vote and value) of Lexaria BC common shares by
reason of their ownership of Lexaria common stock. Lexaria BC believes that it
does not have sufficient business activities in Canada, its country of
incorporation, to satisfy the substantial business activity exception under
applicable Section 7874 Treasury Regulations. Therefore, under current law,
Lexaria BC should be treated as a U.S. corporation for U.S. federal income tax
purposes.
The remainder of this discussion assumes that Lexaria BC will
be treated as a U.S. corporation for U.S. federal income tax purposes. The U.S.
federal income tax consequences of owning Lexaria BC shares would be materially
different than those stated herein if, notwithstanding Lexaria BCs expectation,
Lexaria BC were to be treated as a non-U.S. corporation for U.S. federal income
tax purposes. See the discussion above under
Risk Factors We may be
classified as a Passive Foreign Investment Company
No ruling from the IRS or legal opinion concerning the U.S.
federal income tax consequences of the Continuation has been obtained and none
will be requested. Thus, there can be no assurance that the IRS will not
challenge the qualification of the Continuation as a tax-deferred F
reorganization under Section 368(a)(1)(F) of the Code, or that, if challenged, a
U.S. court would not agree with the IRS.
If the Continuation qualifies as an F reorganization and
Lexaria BC is treated as a U.S. corporation for U.S. federal tax purposes under
Section 7874 of the Code, then the following U.S. federal income tax
consequences generally would result for U.S. Holders:
(a) no gain or loss will be recognized by a U.S. Holder on the
exchange of Lexaria Shares for Lexaria BC Shares pursuant to the Continuation;
(b) the tax basis of a U.S. Holder in the Lexaria BC Shares acquired in
exchange for Lexaria Shares pursuant to the Continuation would be equal to such
U.S. Holders tax basis in Lexaria Shares exchanged;
(c) the holding period
of a U.S. Holder with respect to the Lexaria BC Shares acquired in exchange for
Lexaria Shares pursuant to the Continuation will include such U.S. Holders
holding period for Lexaria Shares; and
(d) U.S. Holders who exchange Lexaria
Shares for Lexaria BC Shares pursuant to the Continuation generally would be
required to report certain information to the IRS on their U.S. federal income
tax returns for the tax year in which the Continuation occurs, and to retain
certain records related to the Continuation.
U.S. Holders are urged to consult their tax advisors as to the
particular consequences of the exchange of Lexaria stock for Lexaria BC shares
pursuant to the Continuation.
Distributions by Lexaria BC
The gross amount of cash distributions on Lexaria BC shares
would generally be taxable to U.S. Holders as dividend income to the extent of
the earnings and profits of Lexaria BC as determined for U.S. federal income
purposes.
To the extent that the amount of any distribution exceeds
Lexaria BCs earnings and profits, the distribution would generally first be
treated as a tax-free return of capital (with a corresponding reduction in the
adjusted tax basis of a U.S. holders Lexaria BC common shares), and thereafter
would be taxed as a capital gain recognized on a taxable disposition.
Dividends paid in a currency other than U.S. dollars will be
included in a U.S. Holders gross income in a U.S. dollar amount based on the
spot exchange rate in effect on the date of actual or constructive receipt,
whether or not the payment is converted into U.S. dollars at that time. The U.S.
Holder will have a tax basis in such currency equal to such U.S. dollar amount,
and any gain or loss recognized upon a subsequent sale or conversion of the
foreign currency for a different U.S. dollar amount will be U.S. source ordinary
income or loss. If the dividend were converted into U.S. dollars on the date of
receipt, a U.S. Holder generally should not be required to recognize foreign
currency gain or loss in respect of the dividend income.
39
A U.S. Holder would generally recognize a taxable gain or loss
on any sale or other taxable disposition of Lexaria BC shares in an amount equal
to the difference between the amount realized from such sale or other taxable
disposition and the U.S. Holders adjusted tax basis in such shares. Such
recognized gain or loss generally would be a capital gain or loss. Capital gains
of non-corporate U.S. Holders (including individuals) generally would be subject
to U.S. federal income tax at preferential rates if the U.S. Holder has held the
Lexaria BC shares for more than one year as of the date of the sale or other
taxable disposition. The deductibility of capital losses is subject to
limitations. Any gain or loss recognized by a U.S. Holder on the sale or other
taxable disposition of Lexaria BC common shares generally would be treated as
U.S. source gain or loss.
Material U.S. Federal Income Tax Considerations for
Non-U.S. Holders
A non-U.S. Holder of Lexaria shares generally would not be
subject to U.S. federal income or withholding tax on any gain realized on the
disposition of Lexaria shares unless:
the gain is effectively connected with a U.S. trade or
business of such non-U.S. Holder (or, if an income tax treaty applies, is
attributable to a United States permanent establishment); or
such non-U.S. Holder is an individual who is present in the
United States for 183 days or more in the taxable year of the disposition, and
certain other conditions are met.
Gain recognized by a non-U.S. Holder of Lexaria shares
described in the first bullet point above would generally be subject to tax
under the rules described above as if it were a U.S. Holder of Lexaria shares.
An individual non-U.S. Holder of Lexaria shares described in the second bullet
point above would generally be subject to a 30% tax on the gain, which may be
offset by U.S. source capital losses realized in the same year, even though the
individual is not considered a resident of the United States.
Additionally, non-U.S. Holders generally would be required to recognize gain and be liable for U.S. federal income and withholding tax with respect to a taxable sale, exchange or other disposition of Lexaria shares if Lexaria were treated for U.S. federal income tax purposes as a “U.S. real property interest”
(“USRPHI”)
. Subject to certain exceptions, Lexaria would generally be a USRPHI if at any point in the preceding 5 years the fair market value of its U.S. real property interests equaled or exceeded 50% of the sum of the fair market values of its worldwide real property interests and other assets used or held for use in a trade or business, all as determined under applicable Treasury Regulations. While not free from doubt, Lexaria believes that Lexaria has not been and will not be at the time of the Change of Jurisdiction a USRPHI for U.S. federal income tax purposes. Non-U.S. Holders are urged to consult their tax advisor about the consequences that could result if Lexaria were a USRPHI.
Assuming that Lexaria BC is to be treated as a U.S. corporation
for U.S. federal tax purposes, a non-U.S. Holder generally would be subject to
U.S. federal withholding tax on dividends received from Lexaria BC, and could be
subject to U.S. federal income tax if the dividends were effectively connected
with the non-U.S. Holders conduct of a trade or business in the United States
(and, if an income tax treaty applies, the dividends are attributable to a
permanent establishment or fixed place of business maintained by the non-U.S.
Holder in the United States).
Opinion of Tax Advisors
The forgoing information under the heading “Certain United States Federal Income Tax Consequences of the Change of Our Corporate Jurisdiction - The Continuation” has been reviewed by, and is the opinion of, Dale Matheson Carr-Hilton LaBonte LLP, United States and Canadian tax advisors to our company.
Certain Canadian Federal Income Tax Consequences of the
Change of Our Corporate Jurisdiction
The following summarizes certain Canadian federal income tax
consequences under the
Canadian Act applicable to our company and our
stockholders resulting from the change of our corporate jurisdiction by means of
the continuation, and thereafter of holding and disposing of common shares in
the capital of Lexaria BC.
Comments on tax consequences to shareholders is restricted to
shareholders (each in this summary a
Holder
) of our company each of
whom is an individual (other than a trust) or corporation who or which, at all
material times for the purposes of the Canadian Act, holds all of its common
shares in the capital of Lexaria BC solely as capital property, acts at arms
length with Lexaria BC, and is not a financial institution to which the mark
to market rules apply, a specified financial institution nor a shareholder in
respect of whom our company is a foreign affiliate under the Canadian Act.
Comment is further restricted, in the case of any Holder who is not resident in
Canada for Canadian federal income tax purposes (in this commentary, a
Non-resident Holder
), to Non-resident Holders whose common shares in
the capital of Lexaria BC are not used in or in the course of carrying on a
business in Canada, and will not constitute taxable Canadian property at any
particular time after the change of our corporate jurisdiction. In general, a
common share of Lexaria BC held by a Non-resident Holder will
not constitute taxable Canadian property at any particular time after the change
of our corporate jurisdiction provided that at that time the common shares of
Lexaria BC are listed on a designated stock exchange for the purposes of the
Canadian Act, which includes Tiers 1 and 2 of the Canadian Securities Exchange,
unless at any particular time during the five year period that ends at that time
either the Non-resident Holder, or any one or more persons with whom the
Non-resident Holder does not deal at arms length, alone or in any combination,
held or had a right to acquire 25% or more of the issued shares of any class in
the capital stock of Lexaria BC and more than 50% of the fair market value of
the common shares of Lexaria BC was derived directly or indirectly from one or
any combination of real or immovable property situated in Canada, Canadian
resource properties, timber resource properties, or options in respect of or
interests in the foregoing.
40
This summary assumes that we will not, at the time of the
change of our corporate jurisdiction, own shares of a corporation that is
resident in Canada for the purposes of the Canadian Act.
Comment is based on the current provisions of the Canadian Act
and regulations, all amendments thereto publicly proposed by the Minister of
Finance of Canada to the date hereof, and our Canadian tax advisors
understanding of the published administrative practices of the Canada Revenue
Agency (
CRA
). Unless otherwise expressly stated, it is assumed that all
such amendments will be enacted substantially as currently proposed, and that
there will be no other material change to any relevant law or administrative
practice, although no assurances can be given in these respects. Except to the
extent otherwise expressly provided, this summary does not take into account any
provincial, territorial or foreign tax law, nor any bilateral income tax treaty
to which Canada is a party. Canadian income tax laws, regulations and the
interpretation thereof are subject to change, which could materially alter the
following summary. If there should be any change having retroactive effect in
the Canadian Act, regulations or administrative practices of the CRA then there
may also be material changes to the following summary.
This summary is of a general nature only and is not, and is not
to be construed as, Canadian tax advice to any particular Holder. Each Holder is
urged to obtain independent advice as to the legal and Canadian tax implications
of the continuation, and thereafter of holding and disposing of common shares in
the capital of Lexaria BC, applicable to the Holders particular circumstances.
The Continuation
Our Company
Continuation
As a result of the continuation, Lexaria BC will be deemed to
have been incorporated in British Columbia from that point onward, and not to
have been incorporated elsewhere. Lexaria BC will be deemed to have had a
taxation year end immediately before the time of the continuation, and will be
deemed to have commenced a new tax year at the time of the continuation. Lexaria
BC will be able to choose a new fiscal year end falling within the 53 weeks
following the date of the continuation.
As a result of the continuation, Lexaria will be deemed to have disposed of, and Lexaria BC will be deemed to have immediately thereafter reacquired, each property owned by Lexaria at its fair market value immediately before the time of the continuation. Lexaria will be subject to Canadian federal income tax liabilities with respect to any gains realized as a result of the deemed disposition of all of its assets that constitute “taxable Canadian property” for the purposes of the Canadian federal income tax. Following the continuation, gains arising on the future disposition of property of Lexaria BC will be subject to tax in Canada. However, the effect of the deemed disposition and reacquisition is that any gains or losses that accrued to Lexaria before the continuation of Lexaria to Canada will generally not be taken into account in determining Lexaria BC's liability for tax under the Canadian Act when Lexaria BC actually disposes of, or is deemed to dispose of, the property. The deemed disposition and reacquisition will be relevant not only for capital gains purposes but also in determining the cost of the Lexaria BC's property for capital cost allowance and inventory purposes.
41
Resident Holders and Non-resident Holders
Continuation
The continuation will not cause a disposition or deemed
disposition of the shares of common stock of Lexaria Nevada held by any Holder,
and therefore will not cause the realization of any capital gain or capital loss
by the Holder in respect of such shares.
The paid-up capital of shares of common stock of Lexaria BC may
be subject to adjustment upon the continuation. Lexaria BC will be deemed to
have disposed of all of its assets immediately before the continuation and to
have reacquired them on the continuation at a cost equal to their fair market
value. If the resulting tax cost of Lexaria BCs assets, net of Lexaria BCs
outstanding liabilities at the time of the continuation (
Net Tax Cost
)
is less than the aggregate paid-up capital of the common shares of Lexaria BC,
the paid-up capital of the common shares of Lexaria BC will be reduced to an
amount equal the Net Tax Cost. If Lexaria BCs Net Tax Cost is greater than the
aggregate paid-up capital of the common shares of Lexaria BC, Lexaria BC may
elect within 90 days of the continuation to increase the paid-up capital of the
common shares of Lexaria BC. If Lexaria BC makes such an election, Lexaria BC
will be deemed to have paid prior to the continuation, and the holders of the
common shares of Lexaria BC will be deemed to have received pro rata, a dividend
in respect of the common shares of Lexaria BC. It is not intended that Lexaria
BC will make this election if available.
Disposing of Common Shares
Canadian Resident Holders
The normal rules for the taxation of capital gains and losses
applicable before the change of our corporate jurisdiction to Holders who are
resident in Canada for the purposes of the Canadian Act (each a
Resident
Holder
) will continue to apply to Resident Holders in respect of a
disposition of common shares in the capital of Lexaria BC after the
continuation.
In summary, these rules will provide that a Resident Holder who
disposes of such a common share after the continuation will realize a capital
gain (capital loss) equal to the amount by which the proceeds received by the
Resident Holder on the disposition exceed (are exceeded by) the adjusted cost
base of the common share to the Resident Holder.
The Resident Holder will be required to include one half of any
such capital gain (taxable capital gain) in income to be taxed at normal rates.
The Resident Holder may deduct one half of any such capital
loss (allowable capital loss) from taxable capital gains realized in the
taxation year of the Resident Holder in which the disposition occurs and, to the
extent not so deductible, from taxable capital gains realized in any of the
three preceding taxation years or any subsequent taxation year.
The Resident Holder, if a Canadian-controlled private
corporation as defined for the purposes of the Canadian Act, will be required
to include any taxable capital gain so arising in its aggregate investment
income and pay an additional refundable tax equal to 10 2/3% of its aggregate
investment income, and will be entitled to a refund of such additional tax at
the rate of 38 1/3% of refund for every CDN$1 of taxable dividends that it
subsequently pays.
Non-resident Holders
Generally, a Non-resident Holder who is a US resident for the
purposes of the Canada U.S. Income Tax Convention who disposes of common
shares in the capital of Lexaria BC after the change of our corporate
jurisdiction will not incur any tax liability provided that at the time of
disposition not more than 50% of the value of the common shares in the capital
of Lexaria BC derives from real property situated in Canada as defined for the
purposes of the Canada U.S. Income Tax Convention (which includes among other
things, any right to explore for or exploit mineral deposits and sources in
Canada and other natural resources in Canada, or any right to an amount computed
by reference to the production, including profit, from, or to the value of
production from, mineral deposits and sources in Canada and other natural
resources in Canada).
42
A Non-resident Holder who disposes of common shares in the
capital of Lexaria BC after the change of our corporate jurisdiction will not
incur any liability for Canadian federal income tax in respect of any taxable
capital gain so arising, nor be permitted to deduct any allowable capital loss
so arising from taxable capital gains (if any) of the Non-resident Holder
otherwise subject to Canadian federal income tax if at the time of disposition
such common shares are not taxable Canadian property to the Non-resident Holder.
The Non-resident Holder will not be required to obtain a tax
clearance certificate from CRA in respect of the disposition provided that at
the time of disposition the common shares in the capital of Lexaria BC are
listed on a Canadian or foreign recognized stock exchange (as defined under
the Canadian Act), which includes a designated stock exchange, such as the
Canadian Securities Exchange.
Any Non-resident Holder who is contemplating disposing of
common shares in the capital of Lexaria BC after the change of our corporate
jurisdiction should obtain Canadian tax advice as to whether the Non-resident
Holder will be subject to Canadian tax, or be required to obtain a tax clearance
certificate from CRA, in respect of the disposition.
Dividends on Common Shares
Canadian Resident Holders
A Resident Holder who is an individual will be required to
include the amount of any dividend actually or deemed to have been received
after the change of our corporate jurisdiction on a common share in the capital
of Lexaria BC in income, subject to the usual dividend gross-up and dividend tax
credit rules applicable to dividends paid by a taxable Canadian corporation.
A Resident Holder that is a corporation will be required to
include the amount of any dividend actually or deemed to have been received by
it after the change of our corporate jurisdiction on a common share in the
capital of Lexaria BC in income, but generally will be entitled to deduct an
equivalent amount in computing its taxable income. The corporation, if it is a
private corporation as defined for the purposes of the Canadian Act, or a
corporation controlled by or for the benefit of an individual or any related
group of individuals, may be liable for a 38 1/3% refundable tax (
Part IV
Tax
) on any such dividend to the extent that the dividend was deductible in
computing its taxable income, and will be entitled to a refund of such Part IV
Tax at the rate of 38 1/3% of refund for every CDN$1 of taxable dividends that
it subsequently pays.
Non-resident Holders
Each Non-resident Holder will be required to pay Canadian
withholding tax on the amount of any dividend, including any stock dividend,
paid or credited or deemed to be paid or credited by Lexaria BC after the change
of our corporate jurisdiction to the Non-resident Holder on a common share. The
rate of withholding tax is 25% of the gross amount of the dividend, or such
lesser rate as may be available under an applicable income tax treaty. The rate
of withholding tax under the Canada U.S. Income Tax Convention, subject to the
limitation of benefits article, applicable to a dividend paid to a Non-resident
Holder who is a resident of the United States for the purposes of the Canada
U.S. Income Tax Convention is 5% if the Non-resident Holder is a company that
owns at least 10% of the voting stock of Lexaria BC, and 15% in any other case,
of the gross amount of the dividend. Lexaria BC will be required to withhold any
such tax from the dividend, and remit the tax directly to CRA for the account of
the Non-resident Holder.
Opinion of Tax Advisors
The forgoing information under the heading “Certain Canadian Federal Income Tax Consequences of the Change of Our Corporate Jurisdiction - The Continuation” has been reviewed by, and is the opinion of, Dale Matheson Carr-Hilton LaBonte LLP, United States and Canadian tax advisors to our company.
Reporting Obligations under Securities Laws
If we change our corporate jurisdiction to the Province of
British Columbia, Canada, we will still have to comply with reporting
requirements under both the United States and Canadian securities laws. However,
these requirements should be reduced because we would no longer be a United
States company.
We currently prepare our financial statements in accordance
with United States generally accepted accounting principles (
US GAAP
).
We file our audited annual financial statements with the Securities and Exchange
Commission on annual reports on Form 10-K and our unaudited interim financial
statements with the Securities and Exchange Commission on quarterly reports on
Form 10-Q. Additionally, we are a reporting issuer in the Provinces of British
Columbia and Ontario. Upon completion of the continuation, we anticipate that we
will meet the definition of a foreign private issuer under the Securities
Exchange Act of 1934. As a foreign private issuer, we anticipate that we will
file an annual report on Form 20-F each year with the Securities and
Exchange Commission. We will not be required to file interim quarterly reports
on Form 10-Q, however we will be required to file our interim financial
statements and managements discussion and analysis, in the form required by
Canadian securities legislation, with the Securities and Exchange Commission on
Form 6-K. We anticipate that we will prepare our financial statements in
accordance with IFRS subsequent to the change of our corporate jurisdiction.
43
In addition, as a foreign private issuer, our directors,
officers and stockholders owning more than 10% of our outstanding common stock
will no longer be subject to the insider reporting requirements of Section 16(b)
of the Securities Exchange Act of 1934 and we will no longer be subject to the
proxy rules of Section 14 of the Securities Exchange Act of 1934. Furthermore,
Regulation FD does not apply to non-United States companies and will not apply
to us upon completion of the continuation.
Whether or not we change our corporate jurisdiction to the
Province of British Columbia, Canada, we will remain subject to Canadian
disclosure requirements including those requiring that we publish news releases,
file reports about material changes to or for our company, send you information
circulars with respect to meetings of our stockholders, file annual and
quarterly financial statements and related managements discussion and analysis
and those that require that our officers, directors and major shareholders file
reports about trading in our shares.
Quotation on the OTCQX and Listing on the Canadian
Securities Exchange
Our common stock is quoted on the OTCQX under the symbol LXRP
and our shares are listed for trading on the Canadian Securities Exchange under
the symbol LXX. We expect that immediately following the continuation, the
common shares of Lexaria BC will requalify to be quoted on the OTCQX under the
new symbol LXRPF, and continue to be listed on the Canadian Securities
Exchange however under the symbol LXX.
Our board of directors recommends that you vote FOR the
continuation.
PROPOSAL 2 ELECTION OF DIRECTORS
Our board of directors has nominated the persons named below as
candidates for directors to be elected at the annual and special meeting. These
nominees are all of our current directors. Unless otherwise directed, the proxy
holders will vote the proxies received by them for the four nominees named
below.
Each director who is elected will hold office until the next
annual meeting of stockholders and until his or her successor is elected and
qualified. Any director may resign his or her office at any time and may be
removed at any time by the holders of a majority of the shares then entitled to
vote at an election of directors. If elected at the annual and special meeting,
these nominees will continue to serve as directors of Lexaria BC subsequent to
the change of our corporate jurisdiction.
Nominees
Name
|
Position Held with
Our Company
|
Age
|
Date First Elected
or Appointed
|
Chris Bunka
|
Director, Chief Executive Officer, Chairman
of
the Board of Directors
|
56
|
October 26, 2006
|
John Docherty
|
Director, President
|
47
|
April 15, 2015
|
Nicholas Baxter
|
Director
|
64
|
July 8, 2011
|
Ted McKechnie
|
Director
|
70
|
September 16, 2015
|
Our board of directors recommends that you vote FOR the
nominees.
PROPOSAL 3 RATIFICATION OF THE CONTINUED APPOINTMENT OF THE
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Our board of directors is asking our stockholders to ratify the
continued appointment of Davidson & Company LLP, Chartered Accountants, as
our independent registered public accounting firm for the fiscal year ending
August 31, 2018.
Stockholder ratification of the continued appointment of
Davidson & Company LLP is not required under the Nevada corporate law, our bylaws or otherwise. However, our board of
directors is submitting the continued appointment of Davidson & Company LLP
as our independent registered public accounting firm to our stockholders for
ratification as a matter of good corporate governance practices. If our
stockholders fail to ratify the continued appointment, our board of directors
will reconsider whether or not to retain the firm. Even if the appointment is
ratified, our board of directors in its discretion may direct the appointment of
a different independent registered public accounting firm at any time during the
year if our board of directors determines that such a change would be in the
best interest of our company and our stockholders.
44
Representatives of Davidson & Company LLP are not expected
to be present at the annual and special meeting. However, we will provide
contact information for Davidson & Company LLP to any stockholders who would
like to contact the firm with questions.
Unless otherwise directed, the proxy holders will vote the
proxies received by them for the ratification of the continued appointment of
Davidson & Company LLP as our independent registered public accounting firm
for the fiscal year ending August 31, 2018.
Our board of directors recommends that you vote FOR the
ratification.
EXPERTS AND COUNSEL
The financial statements of our company included in this proxy
statement/prospectus have been audited by Davidson & Company LLP, Chartered
Accountants, to the extent and for the period set forth in their report (which
contains an explanatory paragraph regarding our ability to continue as a going
concern) appearing elsewhere in the proxy statement/prospectus, and are included
in reliance upon such report given upon the authority of said firm as experts in
auditing and accounting.
Macdonald Tuskey, of Suite 409 221 West Esplanade, North
Vancouver, British Columbia V7M 3J3, Canada has advised us in connection with
certain U.S. and Canadian non-tax legal matters with respect to the
continuation.
Dale Matheson Carr-Hilton Labonte LLP of Vancouver, British
Columbia has advised us in connection with certain U.S. and Canadian federal
income tax consequences with respect to the continuation.
INTEREST OF NAMED EXPERTS AND COUNSEL
No expert named in the registration statement of which this
proxy statement/prospectus forms a part as having prepared or certified any part
thereof (or is named as having prepared or certified a report or valuation for
use in connection with such registration statement) or counsel named in this
proxy statement/prospectus as having given an opinion upon the validity of the
securities being offered pursuant to this proxy statement/prospectus or upon
other legal matters in connection with the registration or offering such
securities was employed for such purpose on a contingency basis. Also at the
time of such preparation, certification or opinion or at any time thereafter,
through the date of effectiveness of such registration statement or that part of
such registration statement to which such preparation, certification or opinion
relates, no such person had, or is to receive, in connection with the offering,
a substantial interest, direct or indirect, in our company or any of its parents
or subsidiaries. Nor was any such person connected with our company or any of
its parents or subsidiaries as a promoter, managing or principal underwriter,
voting trustee, director, officer or employee.
DESCRIPTION OF BUSINESS
Corporate History
We were incorporated in the State of Nevada on December 9,
2004. We were an exploration and development oil and gas company engaged in the
exploration for and development of petroleum and natural gas in North America
from the date of incorporation until 2014. During 2014 we submitted an
application to enter the legal medical marijuana business in Canada (since
retracted), acquired certain biotechnology-related intellectual property and
also launched a hemp oil-based food supplement company in the USA. We maintain
our registered agent's office and our U.S. business office at Nevada Agency and
Transfer Company, 50 West Liberty, Suite 880, Reno, Nevada 89501. Our U.S.
telephone number is (755) 322-0626. The address of our principal executive
office is 156 Valleyview Rd., Kelowna, BC, Canada, V1X 3M4.
45
Our common stock is quoted on the OTCQX under the symbol "LXRP"
and on the Canadian Securities Exchange under the symbol LXX.
Subsidiaries
We have two wholly-owned subsidiaries.The first, Lexaria
Canpharm Corp., is a Canadian federal company incorporated on April 4, 2014,
which we formed for the purpose of entering into Canadian business activities.
The second, PoViva Tea, LLC (PoViva", formerly known as Poppy`s Tea LLC), is an
entity converted into the state of Nevada on December 12, 2014. We acquired a
51% membership interest in PoViva on November 12, 2014, and acquired the
remaining 49% interest on October 25, 2017. In addition, we have a 50%-owned
subsidiary, Ambarii Trade Corporation, that was incorporated on April 24, 2017
under the laws of the Province of British Columbia.
Our Business
Our company currently pursues business opportunities in diverse
industries including the food sciences, technology licensing, and ready-to-eat
food sectors. Our food sciences activities include the development of our
proprietary nutrient infusion technologies for the production of superfoods, and
the production of enhanced food products under our two consumer product brands,
ViPova
TM
and Lexaria Energy. Our patented and patent-pending lipid
nutrient infusion technology is believed to enable higher bioavailability rates
for CBD; THC; NSAIDs; vitamins, nicotine and other molecules than is possible
without lipophilic enhancement technology. This can allow for lower overall
dosing requirements and/or higher effectiveness in active molecule delivery.
Lexaria has caused to be filed several patent pending applications with the US
Patent and Trademark Office (USPTO), and also internationally under the Patent
Cooperation Treaty (PCT). On October 26, 2016, the USPTO issued U.S. Patent No.
9,474,725 (granted June 15 , 2017 in Australia No. 2015274698), Cannabinoid
Infused Food and Beverage Compositions and Methods of Use Thereof, pertaining to
Lexarias method of improving bioavailability and taste of certain cannabinoid
lipophilic active agents in food products. On October 31, 2017, we announced
that the USPTO has issued a notice of allowance for our patent application no.
15/225,799, Food and Beverage Compositions Infused With Lipophilic Active
Agents and Methods of Use Thereof. That application pertains to the use of
Lexarias DehydraTECHTM technology as a delivery platform for all cannabinoids
including THC, for fat soluble vitamins, non-steroidal anti-inflammatory pain
medications (NSAIDs), and for nicotine. The US patent was subsequently awarded
on December 13, 2017. On November 9, 2017, we announced our filing of a new
patent application with the USPTO for the use of our DehydraTECHTM technology
for delivery of phosphodiesterase type 5 (PDE5) inhibitors such as sildenafil
and tadalafil, which are commonly sold under the trade names Viagra
TM
and Cialis
TM
, respectively. Lexaria hopes to reduce other
common but less healthy ingestion methods such as smoking as it embraces the
benefits of public health.
Our company was an oil and gas company engaged in the
exploration for oil and natural gas in Canada and the United States. We were
generating revenues from our business operations in Mississippi. On November 26,
2014, we executed an agreement for the sale of all or our working interests in
Belmont Lake oil field for total consideration of $1,400,000. The transaction
was completed on December 5, 2014. A total net amount of $721,806 was paid to
the Company after all short-term debts were paid out from the sale.
In March of 2014, we began our entry into the medicinal
marijuana business through an application to become a Licensed Producer under
the MMPR in Canada. No such license has been granted and we subsequently sold
our interest in that application. In November of 2014, the Company acquired a
51% membership interest in PoViva Tea LLC for alternative health products, in
the food supplement sector. We acquired the remaining 49% in PoViva in October,
2017.
Lexaria is now primarily a biosciences company focused on
the delivery of lipophilic active molecules based upon its proprietary infusion
technologies. Secondarily and more generally, we continue to investigate
opportunities to license our technology within the US state-legal regulated
medical marijuana sector where possible; and to review additional opportunities
in alternative health sectors. This includes the acquisition or development of
intellectual property if and when we believe it advisable to do so. We have
filed for and received issuance or allowance of patent protection of what we
believe to be a unique manner in which to more efficiently deliver certain
molecules such as THC, CBD, Nicotine, NSAIDs, and Vitamins, all through everyday
food products. Lexaria has multiple patents pending in over 40 countries around
the world and was granted its first patents in the USA and in Australia related
to edible forms of cannabinoids. To achieve sustainable and profitable growth,
our company intends to control the timing and costs of our projects wherever
possible.
46
Enertopia Joint Venture
On May 28, 2014, our company and Enertopia Corp. entered into a
definitive agreement to develop a joint business for the production,
manufacture, propagation, import/export, testing, research and development of
marijuana in the Province of Ontario under the MMPR. Pursuant to the Agreement,
ownership, revenues, and liability related to the Joint Venture were to be
divided 51% to Enertopia and 49% to Lexaria. Expenses incurred by the joint
venture would be allocated 45% to Enertopia and 55% to Lexaria. Enertopia was
responsible for management of the joint venture for as long as it maintained
majority ownership. Lexaria and Enertopia contributed $55,000 and $45,000 to the
joint venture, respectively. The joint venture identified a production location
in Burlington, Ontario and received municipal approval for the site in July,
2014. We intended to engage an architect to design the production facility upon
acceptance of our application. Construction was anticipated to cost
approximately $3,000,000 and Lexaria would have been responsible for $1,650,000
of this cost. Unable to estimate when a production license might be granted by
Health Canada, the joint venture sought assurances from Health Canada prior to
commencement of construction. In the event that Health Canada did not grant a
production license by May 27, 2015, the joint venture was to terminate. On
August 1, 2014, through our wholly owned subsidiary Lexaria Canpharm Corp., we
signed an extension to the letter of intent with 1475714 ONTARIO INC. and Thor
Pharma Corp. (a subsidiary of Enertopia Corp.) to secure a 5-year lease on the
Burlington, Ontario facility for our Burlington joint venture. The proposed
Burlington, Ontario facility comprised of 30,000 ft², with Lexaria and Enertopia
having acquired a right of first refusal for another 45,000 square feet totaling
75,000 ft² to accommodate future growth. Planned production areas have 22 foot
ceilings which could allow for the possibility of a 2nd mezzanine level in many
areas for further expansion. The production target for the facility based on
30,000 ft² (with approximately 50% devoted to production space) was
approximately 10,000 kilograms per year.
By November 30, 2014, our Burlington joint venture had
announced that its application to Health Canadas for the Burlington facility
had advanced from preliminary to enhanced screening. By December 12, 2014, the
joint venture was extended to June 12, 2015.
On June 11, 2015, we entered into a Letter of Intent dated June
10, 2015 with Shaxon Enterprises Ltd. to sell our 49% interest in the Burlington
joint venture, including our interest in MMPR application number 10QMM0610 for
the proposed Burlington, Ontario production facility. Subsequent to the LOI with
Shaxon Enterprises Ltd., our joint venture agreement with Enertopia which was
entered into on May 28, 2014 was terminated due to the pending sale of the
project. As a result of the termination, 500,000 restricted and escrowed common
shares of Lexaria issued to Enertopia at a deemed price of $0.40 were returned
to treasury and cancelled. The Enertopia and Lexaria Master Joint Venture
Agreement entered into on March 5, 2014 is still effective and governs the
relationship between our company and Enertopia.
On June 26, 2015, we signed share purchase agreement dated June
24, 2015 with Enertopia Corp. and Shaxon Enterprises Ltd. to sell our interest
in the Burlington joint venture along with the MMPR application number
10MMPR0610. The Burlington MMPR license application will continue in the
application process under new ownership. Pursuant to the agreement, the joint
venture received a non-refundable $10,000 deposit and is entitled to receive up
to $1,500,000 in milestone payments upon the Burlington facility becoming
licensed under the MMPR. These monies would be split 51% to Enertopia and 49% to
Lexaria. Notwithstanding the foregoing, we can neither guarantee nor provide a
meaningful time estimate regarding the grant of a production license for the
Burlington facility. There is no assurance that any monies will in fact ever be
received from our sale of the license application.
Food Science and Technology
Lexaria has developed and out-licenses its disruptive
technology that promotes healthier ingestion methods, lower overall dosing and
higher effectiveness of lipophilic active molecules. Lexaria is focusing its
capital and management time on its pursuit of intellectual property, technology
licensing opportunities, and an expanding portfolio of patent pending
applications. The company introduced an expanding variety of hemp oil-fortified
consumer food products throughout 2015. From January 2015 to December 2015, we
introduced seven (7) flavors of teas; hot chocolate; coffee, and two (2) flavors
of protein energy bars all utilizing our patent pending technology for the
more efficient delivery of hemp oil infused within those food products.
On November 11, 2014, our Company acquired 51% of PoViva Tea
LLC and executed an operating agreement to develop a business of legally
producing, manufacturing, importing/exporting, testing, researching and
developing, a line of hemp oil with cannabidiol-infused teas. Lexaria oversees
all aspects of the business including, but not limited to, production, product
quality, licensing, testing, product legality, accounting, marketing, capital
investment, capital raising, sales, branding, advertising and fulfillment.
Pursuant to the agreement, PoViva Tea LLC was overseen by a Management Committee
composed of two representatives from Lexaria and one of the founding members of
PoViva.
47
Subsequently, we acquired the remaining 49% interest of PoViva
from the founding members on October 25, 2017. We paid US$70,000 for the 49%
interest, granted a waiver on certain debts, and a 5%, 20-year royalty on net
profits of ViPova Tea tea, coffee, and hot chocolate sales. No Lexaria stock or
options were issued.
In the production of the products, for each batch of hemp oil
purchased as a raw material to be used in ViPova-branded products, we assess if
the product inputs and the completed products comply with all applicable food
and drug laws, and that the inputs and the finished products meet all applicable
legal and quality standards including and as it relates to hemp oil content; THC
content; molds and mildews; heavy metals; and may measure additional components.
The US Federal government, through the US Department of Health and Human
Services, owns US Patent #6630507, which among other things, claims that:
Cannabinoids have been found to have antioxidant
properties, unrelated to NMDA receptor
antagonism. This new found
property makes cannabinoids useful in the treatment and prophylaxis of
wide variety of oxidation associated diseases, such as ischemic,
age-related, inflammatory and
autoimmune diseases. The cannabinoids
are found to have particular application as neuroprotectants,
for
example in limiting neurological damage following ischemic insults, such
as stroke and trauma, or in
the treatment of neurodegenerative
diseases, such as Alzheimer's disease, Parkinson's disease and HIV
dementia.
|
For reference, cannabinoids are compounds that affect
cannabinoid receptors located on many human cells. CB1 receptors are widely
found within the human brain; and CB2 receptors are found with the human immune
system and have been linked to anti-inflammatory and other responses.
Despite independent scientific findings in many locations
around the world, some regulatory agencies do not officially recognize that a
human endocannabinoid system exists.
Over one hundred different cannabinoids have been isolated from
the cannabis plant, most of which do not have psychoactive properties. One that
does have psychoactive properties is tetrahydrocannabinol (THC).
Endocannabinoids are produced naturally in the human body while
phytocannabinoids are produced in several plant species, most abundantly in the
Cannabis plant.
Cannabidiol is one of the major phytocannabinoid forms of
cannabinoids, contributing more than 35% of the extracts from the cannabis plant
resin. Cannabidiol occurs naturally in other plant species beyond cannabis. For
example, the most widely acknowledged alternative source of phytocannabinoid is
in the better understood Echinacea species, in widespread use as a dietary
supplement. Most phytocannabinoids are virtually insoluble in water but are
soluble in lipids and alcohol.
Status of Operations
Part of our corporate strategy is to build national brands
through products that large groups of potential customers are already familiar
and comfortable with. PoViva Tea LLC has filed patents pending to bind active
hemp oil ingredients with a lipid, potentially allowing for more efficient and
comforting delivery of the CBD.
We began producing cash flows from our products in January
2015; focused on the immediate opportunities in the hemp oil-sector derived from
hemp that is federally legal in the US. Cannabinoids have been found by many
researchers to have antioxidant properties and Lexaria has explored and will
continue to evaluate opportunities to use the patented and patent pending
process it has acquired with ViPova teas, to infuse hemp oil ingredients into a
number of popular food and beverages.
Lexaria has launched a line of products, always relying on our
patented and patent pending hemp oil-infusion process, to bring hemp oil into
the mainstream. Because hemp oil does not have psychoactive properties we expect
our products to appeal to the widest possible customer base. Initially we have
and will continue to focus our sales efforts across the continental USA. Some
studies have found that 3% of the Canadian population regularly consumes hemp
food products, while 1% of the American population regularly consumes hemp food
products. We believe the consumption of hemp based food products offers
exceptional growth possibilities.
Lexaria commissioned three new websites in 2015 one for
ViPova-branded food products, another for a new Lexaria corporate website, and a
third for Lexaria Energy branded consumer products - which were completed
throughout 2015 and which have been and/or are expected to be significantly updated
during 2017 and 2018. All the sites are in operation and the two consumer products websites allow customers to place orders and
interact with normal e-commerce capabilities. The majority of our product have
taken place through these websites. A contracted national distribution center
ensures rapid and accurate fulfillment of all orders. A 1-800 ordering center
has also been placed into operation.
48
Lexaria continues to explore opportunities to expand the
Lexaria Energy brand that is 100% owned by the company. Under this brand, the
company has developed and sells hemp oil-infused consumer products for people
with active lifestyles, such as protein bars, protein shakes and other similar
products. A protein bar was in production and was available for sale under two
different recipes and flavors, but is currently unavailable. The Lexaria Energy
brand utilizes the same patented and patent-pending infusion process across its
product line.
On August 11, 2015, Lexaria signed a license agreement with
PoViva Tea LLC for $10,000, granting Lexaria a 35-year non exclusive worldwide
license to unencumbered use of PoViva Tea LLCs IP Rights, including rights of
resale. This license agreement ensured that Lexaria had full access to the
underlying patent pending infusion technology. Subsequently, Lexaria acquired a
100% interest in PoViva Tea LLC and corresponding control of the IP Rights.
On August 24, 2015, the company announced achievements in
enhanced gastrointestinal absorption of cannabidiol (CBD) utilizing Lexarias
patent pending technology. The third-party testing was conducted in two phases
of
in vitro
tests beginning in June and completed in August, 2015.
The independent laboratory results delivered average CBD
permeability of 499% of baseline permeability, compared to CBD permeability
without Lexarias technology. These results exceed Company expectations. This
was assessed in a strictly controlled,
in vitro
experiment using a human
intestinal tissue model. Samples of Lexarias commercially available
CBD-fortified ViPova black tea were administered in the model compared with
concentration-matched CBD control preparations that lacked Lexarias
patent-pending formulation and process enhancements. Lexaria believes that its
in vitro
findings provide compelling evidence of the intestinal
absorption enhancing capabilities of its technology, based on which it is
exploring opportunities to progress to more advanced, follow-on bioavailability
testing in animals.
The tests also showed 325% of baseline gastro-intestinal
permeability of CBD comparing Lexarias CBD-fortified ViPova black tea to a
second control of CBD and black tea combined,
without
Lexarias
patent-pending formulation enhancements. This confirmed that the specialized
processing undertaken by Lexaria during its manufacturing process together with
its formulation enhancements, does indeed significantly improve absorption
levels.
The bioavailability of CBD (or of THC) varies greatly by
delivery method. Smoking typically delivers cannabinoids at an average
bioavailability rate of 30% (Huestis (2007) Chem. Biodivers. 4:17701804;
McGilveray (2005) Pain Res. Manag. 10 Suppl. A:15A 22A). By comparison, orally
consumed cannabis edibles typically deliver cannabinoids at an average
bioavailability rate of only 5% (Karschner et al. (2011) Clin. Chem. 57:6675).
The companys above described findings suggest that its
technology may achieve a 5-fold improvement in cannabinoid absorption in edible
form over that which can be achieved without its proprietary process and
formulation enhancements. This conceptually supports that Lexarias technology
represents a significant breakthrough in cannabinoid delivery by approximating
the high absorption levels achieved as though through administration by smoking,
but without the associated negative effects on human health caused by
smoking.
The tests were completed in two phases culminating with testing
using simulated intestinal fluid conditions that delivered these findings. These
results were stronger than earlier iterations of the tests that did not use a
simulated intestinal fluid environment and contributed to Lexarias
understanding of the mechanisms at work. For these and other reasons, Lexaria
believes that bioavailability testing in animals is likely to yield even
stronger absorption results in the presence of natural intestinal fluid
conditions.
CBD has been repeatedly found to provide beneficial pain
relieving, anti-inflammatory, anti-anxiety, neuroprotection, anti-psychotic, and
anti-convulsive effects among others. Lexarias patent-pending technology could
significantly reduce individual serving requirements for CBD to consumers. This
could lead to reduced costs of consumption for consumers and increased
profitability for Lexaria.
Lexaria believes that the same technology used to enhance the
absorption of CBD in the recent laboratory tests, is applicable to THC,
nicotine, NSAIDs and other lipophilic compounds that are widely used today, and
it has received allowance granted patent from the USPTO for the use of its
technology across all of these types of molecules during December, 2017.
49
On November 3, 2015, Lexaria Energy10 protein bars became
available for retail sales with 2 new flavors. The company sold a Cashew Berry
Date vegan bar , which is optimal for pre-workout or morning use, with 10 grams of
protein and a combination of dates, cherries and blueberries for energy from
natural sugar sources. The 70-gram bar delivers energy for a workout or for the
day to come. The Chocolate Berry Date bar is optimal for post-workout and for
afternoon or evening use, or anytime one has the munchies. This 82-gram bar has
21 grams of protein and 13 grams of fiber to provide ones body with comfort and
cleansing after strenuous activity. Since the initial production run, the original contract manufacturer of these protein bars was unable to fulfill additional orders and, as at the date of this Registration Statement, we have not secured an alternative manufacturer. As a a result the product has been temporarily discontinued until we identify and engage a suitable manufacturer.
During January 2015, Lexaria conducted a study of nitric oxide
levels in humans, as a biomarker for absorption of cannabidiol, with the
expectation that it would provide additional evidence of the efficient
absorption of cannabidiol from Lexaria food products enhanced with hemp oil, by
demonstrating the elevation of nitric oxide in the human body in response to
product ingestion.
The study data from human subjects demonstrated significant
elevation of systemic nitric oxide levels as a surrogate biomarker for
cannabidiol (CBD) bioabsorption in response to ingestion of Lexaria's products.
This provided clinical support for the CBD bioavailability enhancing properties
of Lexaria's patent-pending technology, on the premise that bioavailable CBD is
known to elevate levels of the endocannabinoid anandamide in the human body
which, in turn, stimulates release of nitric oxide in the vascular system.
In summary, consuming Lexaria and ViPova food products resulted
in elevated levels of nitric oxide within the body. The results of the study
indicated that all Lexaria and ViPova food products elicited significant
increases in salivary nitric oxide, achieving levels from 110 µM to as high as
220 µM in the test subjects. The beverage products generally had faster initial
responses in as little as 15 minutes after product ingestion, whereas the
initial responses from the protein-energy bars required 30 minutes. The faster
response time with the beverage products was to be expected, given the relative
ease of digesting liquids versus solids. All products sustained their maximum
levels of nitric oxide detection through to the 60-minute end-points used in the
study, indicating a need for additional study to determine the length of time
that nitric oxide levels remain elevated following production consumption.
The study assessed six flavors of ViPova tea (Yunan Black,
Herbal Cherry Black, Earl Grey, Herbal Bengal Chai, Herbal Masala Chai and Decaf
English Breakfast), ViPova Columbian Supremo Coffee, ViPova Hot Chocolate and
Lexaria Energy Foods Chocolate Berry Date and Cashew Berry Date protein-energy
bars.
Six healthy human subjects (3 male and 3 female) between the
ages of 22 and 65 years of age were recruited for the study. Subjects were
screened for cardiovascular and allergic response to hemp products, were
non-smokers and did not have any history of substance or alcohol abuse. One
product was studied per day across all six subjects, with each subject consuming
a full product serving size. Subjects were required to refrain from eating food
or using vape products for at least 12 hours before test article administration
on each day of the study. Nitric oxide levels in the test subjects were assessed
using a commercially available, colorimetric test kit designed to quantify
systemic nitric oxide via a detectable salivary marker. Immediately before test
article administration each day, all subjects were required to demonstrate a
negative baseline nitric oxide saliva test. Subjects were considered to have a
negative test strip reading at a level of 20 µM according to the test strip
scale, and positive readings anywhere above this. Subjects performed salivary
nitric oxide testing at 15, 30, 45 and 60 minutes post-consumption of each
product. All subjects remained sedentary from baseline through to the completion
of testing for each product.
On January 28, 2016, Lexaria signed a distribution agreement
with Telluride Coffee Roasters, LLC, which subsequently expired.
On May 14, 2016, the company entered into a Licensing Agreement
allowing the Licensee, for a two-year period, to utilize the companys
technology to create, test, manufacture, and sell marijuana-infused consumable
and/or topical products, in the state of Colorado, with an option of extending
the terms of the Licensing Agreement to Washington, Oregon, and California. In
addition to the granting of the license, the company will provide support
services to the Licensee in connection with the use of the companys technology
during the term of the Licensing Agreement. The Licensing Agreement is the first
contracted, predictable, and significant revenue stream to be achieved as a
direct result of Lexarias technological advantage in the marketplace. Under the
terms of the Licensing Agreement, the Licensee will pay a minimum of $122,000 in
pre-defined staged payments to Lexaria over the initial two-year term. As per
the Licensing Agreement, if the Licensee were to introduce certain
product lines utilizing Lexarias technology in each of the four states
contemplated, Lexaria could expect to receive a maximum of $1,064,000 over
approximately 3.5 years, and the Licensee would enjoy semi-exclusivity to
introduce its products in each of those states.
50
On September 8th, 2016, the company announced signing new
definitive technology licensing and private label agreements with Timeless
Herbal Care Limited. Lexaria will earn a pre-defined premium to costs on all raw
ingredient sourcing and manufacturing, and will further earn a pre-defined
royalty rate on all gross product sales revenues earned by Timeless Herbal Care
Limited. The agreement is for an initial term of 5 years. No business activity
has occurred as yet under this agreement.
On November 22, 2016, the company signed a Memorandum of
Understanding with NeutriSci International Inc. (NeutriSci) regarding the
formation of a 50/50 joint venture to develop, produce, and sell a line of
healthy edible cannabinoid products using Lexarias patented technology and
NeutriSci proprietary pterostilbene tablet formula and international
distribution network. The joint venture expects to commercialize any newly
created cannabinoid edible products through distribution programs and existing
strategic partners. Product development is underway and a joint venture
subsidiary has been formed.
On January 19, 2017, the Company and NeutriSci announced the
successful development and initial trial of the industrys first zero-sugar
cannabinoid / pterostilbene edible tablet utilizing both NeutriScis and
Lexarias proprietary and patented technologies. NeutriSci and Lexaria completed
a definitive joint venture agreement on April 6, 2017 pursuant to which the two
company intend to market and commercialize a line of edible products. Product
development is continuing.
On February 6, 2017, the Company through its wholly owned
Canadian subsidiary Lexaria CanPharm Corp., signed and entered a master
collaborative research agreement with the National Research Council of Canada
(NRC) to investigate technical aspects and new opportunities associated with
bioavailability enhancement of lipophilic active ingredient compositions. Under
the agreement, the Company and the NRC will both provide up to CAD$125,000 in
funding for this research, a total investment of up to CAD$250,000. The master
research agreement has an 18-month term, during which a number of shorter-term
studies will be undertaken. The collaboration will investigate and define the
chemical nature of the molecular association that Lexaria`s patented technology
is believed to effectuate between lipophilic active agents and fatty acids as
solubility and bioavailability enhancing agents. The first phase of research
under this agreement was underway as of August 31, 2017.
On March 14, 2017, the Company commenced the formal design
phase for studies to be conducted under the master collaborative research
agreement with the NRC. A number of studies have been proposed and are currently
being evaluated, with the intention to begin work and produce results over
multiple intervals in the coming months. As noted above, the first phase of
research under this agreement was underway as of August 31, 2017. In aggregate,
results from these studies will add to the understanding of the physical and
biochemical characteristics imparted on molecules that have been subjected to
Lexarias technology, with a view to further demonstrating the power of the
technology to prospective commercial partners across the various consumer
product sectors the Company is targeting.
On March 24, 2017, the Company engaged Dig Media Inc. Investing
News Network to conduct a twelve month marketing and lead generation campaign in
consideration for $48,000.
On January 25, 2018, Lexaria CanPharmCorp., a wholly owned subsidiary of the Company, entered into a definitive technology licensing agreement with Cannfections Group Inc. whereby Lexaria will provide its patented DehydraTECHTM technology to empower next-generation performance in cannabis infused chocolates and candies to be developed and sold in Canada and internationally.
Under the terms of the Agreement, Lexaria can offer other licensee partners the option of utilizing Cannfection's formulation and manufacturing expertise to produce cannabis infused, DehydraTECH™-powered chocolates and gummies where approved. The Agreement is expected to lead to new product entries for Canadian cannabis edibles, and exportation to the increasing number of other international markets where permitted around the world. The term of the Agreement is seven years.
The company does not know and cannot know whether the above
described strategies and arrangements will achieve success by yielding
marketable intellectual property or products. In the event that marketable
intellectual property or products are achieved, we cannot guarantee that we will
be able to successfully commercialize them. It can be a challenge to
economically introduce new technology or consumer products into a competitive
wholesale or retail marketplace, and we can offer no assurances that our
products will be a commercial success.
The continuation of our business interests in these sectors is
dependent upon obtaining further financing, a successful programs of
development, and, ultimately, achieving a profitable level of operations. The
issuance of additional equity securities by us could result in a significant
dilution in the equity interests of our current stockholders. Obtaining
commercial loans, assuming those loans would be available, will increase our
liabilities and future cash commitments.
51
There are no assurances that we will be able to obtain further
funds required for our continued operations. As noted herein, we are pursuing
various financing alternatives to meet our immediate and long-term financial
requirements. There can be no assurance that additional financing will be
available to us when needed or, if available, that it can be obtained on
commercially reasonable terms. If we are not able to obtain the additional
financing on a timely basis, we will be unable to conduct our operations as
planned, and we will not be able to meet our other obligations as they become
due. In such event, we will be forced to scale down or perhaps even cease our
operations. There is significant uncertainty as to whether we can obtain
additional financing.
Our business plan does not anticipate that we will hire a large
number of employees or that we will require extensive office space. We expect to
be able to utilize contracted third parties for most of our production and
distribution needs, instead focusing on our capital on higher value added
aspects of the business such as research and development, and scientific
testing. We have no current plans to build our own production facility.
Our company relies on the business experience of our existing
management, on the technical abilities of consulting experts, and on the
technical and operational abilities of its operating partner companies to
evaluate business opportunities.
Competition
The biotech and biosciences industries are mature business
sectors with hundreds or thousands of corporate participants. We experience
competitive threats from existing and new companies, some of which are
multi-billion biotech firms against which our competitive position is easily
threatened.
The legal marijuana industry is comprised of several
sub-sectors, and is legal under different guidelines in many states though it
remains illegal under most federal laws. Notwithstanding, the overall sector is
generally recognized to be one of the fastest growing in the USA, with
state-legal revenue of over $4 billion in 2015. Independent projections and
publicized reports expect revenue of $20 billion or more in 2020, both as the
sector gains in credibility and acceptance, and as more and more states legalize
either medical use or adult recreational use; or both. In any fast growing
industry, competition is expected to be both strong and also difficult to
evaluate as to the most effective competitive threats. While we are an early
adopter within the cannabinoid delivery sector, there are already reports of
more than 300 public companies that have claimed to be involved in the sector in
some fashion; and an unknown number of private companies. Our current strategies
may prove to be ineffective as the sector grows and matures, and if so, we will
have to adapt quickly to changing sectoral circumstances.
Competition in alternative health sectors and in consumer
products in the USA is fierce. We expect to encounter competitive threats from
existing participants in the sector and new entrants. Although PoViva Tea LLC
has filed patent pending applications and obtained certain patents to protect
intellectual property, there is no assurance that patents will be granted nor
that other firms may not file superior patents pending. Food supplements,
organic foods, and health food markets are all well established and our Company
will face many challenges trying to enter these markets.
Compliance with Government Regulations
At least 26 States in the USA have passed some form of
legislation related to that states permission to grow, cultivate, sell or use
marijuana either for medical purposes or for recreational or adult use
purposes; or both. The legislation that exists in one state is not necessarily
harmonious with that in another, leading to potential conflicts between state
laws. It is most often not legal to transport cannabis-related products across
state lines.
Lexaria does not touch the plant in any location within or
outside of the USA. We comply with federal law that provides for certain
exemptions for agricultural (industrial) hemp and certain byproducts to be
manufactured and sold in the US. Our technology may have applications within the
legal marijuana sector and we may seek to license that technology to companies
that have met and comply with state regulations for the sale or distribution of
cannabis related products in any particular jurisdiction.
Lexarias patented and patent-pending technologies may also
have application in completely separate sectors such as vitamins, non-steroidal
anti-inflammatories, and nicotine. We have no products nor operations in any of
these sectors today. If we enter any of these sectors at any time, we will be
exposed to and will have to comply with, all local, state and federal
regulations in each of those sectors. As a result of the possibility of Lexaria
being involved in a number of disparate business sectors, compliance with government
regulations could require significant resources and expertise from our company.
52
Significant Acquisitions and Dispositions
We do not intend to purchase any significant equipment over the
twelve months other than office computers, furnishings, and communication
equipment as required, although that strategy could change if food manufacturing
considerations demand it.
Research and Development
Lexaria incurred $54,185 (2016 $9,024) in research and
development expenditures over the last fiscal year. Following our successful
financing efforts during fiscal 2017, the Company announced a $1 million budget
to conduct research and development and additional scientific testing. Specific
research & development programs are currently in the planning stage, and
will be refined, implemented or delayed according to our financial ability.
Because the Companys patent portfolio coverage is significantly expanded by the
notice of patent allowance issued by the USPTO in October 2017, Lexaria is
examining accelerated timetable options for testing, research and development of
nutritional & health products falling within the scope of the notice of
allowance, namely those which employ our DehydraTECH
TM
technology as
a delivery platform for THC, fat soluble vitamins, non-steroidal
anti-inflammatory pain medications (NSAIDs), and for nicotine. For example,
the Company plans to conduct in vitro absorption tests of our patented
technology on molecules such as Vitamin E, Ibuprofen, and Nicotine. We also plan
to conduct our first ever in vivo absorption tests on CBD and on nicotine, all
during the upcoming fiscal year.
Depending on how many of these tests are undertaken, it could
require budgets of as much as $1,000,000, or as little as $65,000, to do so. It
is in our best interests to remain flexible at this early stage of our R&D
efforts in order to capitalize on potential novel findings from early-stage
tests and thus re-direct research into specific avenues that offer the most
reward.
Contractors
We primarily use sub-contractors and consultants in the
intellectual property development and licensing, and alternative health product
sectors. We also primarily engage with consultants to serve our executive needs.
On December 1, 2016 we entered into a Management Services
Agreement with CAB Financial Services Ltd (CAB) for the services of
Christopher Bunka for a fee of $12,000 per month. The term of the agreement is
two years but can be terminated by either party by providing two months notice.
The company may pay Mr. Bunka a bonus from time to time, at its sole discretion.
Mr. Bunka will be entitled to receive common stock-based and stock option based
bonuses upon achieving certain milestones during the time of his consultancy
with the company. These milestones are:
|
|
During the first 12 months after the date of the
agreement with CAB, upon the company achieving non- refundable revenues of
$200,000 to any single customer in any consecutive 60-day period, CAB
would be entitled to an award of 100,000 restricted common shares of the
company and after the first 12-month period, expiring after 24 months of
the amended agreement, upon the company achieving non-refundable revenues
of $200,000 to any single customer in any consecutive 60-day period, CAB
would be entitled to an award of 50,000 restricted common shares of the
company. These awards are limited to one payment per customer during the
24-month period but payable for each customer that meets the revenue
thresholds.
|
|
|
|
|
|
During the first 12 months after the agreement, the
company achieving non-refundable revenues of $500,000 in any fiscal
quarter would result in an award to CAB of 200,000 common shares of the
company and after the first 12 months, expiring 24 months after the
amended agreement, the company achieving non- refundable revenues of
$500,000 in any fiscal quarter would result in an award to CAB of 100,000
common shares of the company. These awards are limited to one payment per
fiscal quarter.
|
|
|
|
|
|
During the term of the agreement, for each provisional
patent application substantively devised by CAB and successfully created,
written and filed with the US Patent Office for the companys Technology,
CAB will be entitled to an award of 250,000 restricted common shares of
the company.
|
On September 1, 2014, we entered into a contract with M&E
Services Ltd., (M&E) for the services of Allan Spissinger as Controller of
our Company in consideration of CAD$2,500 per month plus GST. This contract was
amended on December 1, 2014 to CAD$3,400 a month plus GST.
Additional work performed is billed on an hourly basis.
53
On June 1 2017, we entered a new contract with M&E Services
Ltd. following Allan Spissinger appointment as our Chief Financial Officer and
Corporate Secretary. That agreement is for a term of one year, and provides for
payment of CAD$8,000 per month plus good and services tax. Additional milestone
payments may be paid as follows:
|
|
During the first twelve (12) months after signing; for
combined Lexaria Energy and ViPova products and including all combined
sales efforts and/or technology licensing revenues, achieving
non-refundable revenues of US$200,000 to any single customer in any
consecutive 60-day period would result in a restricted common share award
of 100,000 Company shares; and, after the first twelve (12) months after
signing and expiring twenty-four (24) months after signing; for combined
Lexaria Energy and ViPova products and including all sales efforts,
achieving non-refundable revenues of US$200,000 to any single customer in
any consecutive 60-day period would result in a restricted common share
award of 50,000 Company shares; this clause limited to one payment per
customer during the 24-month period, but payable on each customer that
meets these sales/licensing thresholds;
|
|
|
|
|
|
During the first twelve (12) months after signing; for
combined Lexaria Energy and ViPova products and including all combined
sales efforts and/or technology licensing revenues, achieving
non-refundable revenues of US$500,000 in any fiscal quarter would result
in a restricted common share award of 200,000 Company shares; and, after
the first twelve (12) months after signing and expiring twenty-four (24)
months after signing; for combined Lexaria Energy and ViPova products and
including all sales efforts, achieving non-refundable revenues of
US$500,000 in any fiscal quarter would result in a restricted common share
award of 100,000 Company shares; this clause limited to one payment per
fiscal quarter;
|
We appointed Mr. John Docherty as President of Lexaria
effective April 15, 2015. On March 1, 2017 we entered into an agreement
withDocherty Management Limited for the services of Mr.Docherty which provides
for monthly compensation of CAD$15,000, plus additional milestone payments as
follows:
|
|
During the first twelve months after signing; for
combined Lexaria Energy and ViPova products and including all combined
sales efforts and/or technology licensing revenues, achieving
non-refundable revenues of $200,000 to any single customer in any
consecutive 60-day period would result in a restricted common share award
of 100,000 Company shares; and, after the first twelve months after
signing and expiring twenty four months after signing; for combined
Lexaria Energy and ViPova products and including all sales efforts,
achieving non-refundable revenues of $200,000 to any single customer in
any consecutive 60-day period would result in a restricted common share
award of 50,000 Company shares; this clause limited to one payment per
customer during the 24-month period, but payable on each customer that
meets these sales/licensing
|
|
|
|
|
|
During the first twelve months after signing; for
combined Lexaria Energy and ViPova products and including all combined
sales efforts and/or technology licensing revenues, achieving
non-refundable revenues of $500,000 in any fiscal quarter would result in
a restricted common share award of 200,000 Company shares; and, after the
first twelve months after signing and expiring twenty-four months after
signing; for combined Lexaria Energy and ViPova products and including all
sales efforts, achieving nonrefundable revenues of $500,000 in any fiscal
quarter would result in a restricted common share award of 100,000 Company
shares; this clause limited to one payment per fiscal quarter;
|
|
|
|
|
|
During the time this Agreement remains in effect, for
each new provisional patent application substantially devised by
Consultant and successfully created, written and filed with the US Patent
Office for Company- owned intellectual property, a restricted common share
award of 250,000 Company shares, this clause not limited to frequency of
payment but each patent application to be approved by the Board of
Directors of the company, in advance;
|
On June 19, 2017, we entered into an agreement with Phil
Ainslie, PhD, Professor and Canada Research Chair in Cerebrovascular Physiology
at the University of British Columbia Okanagan. Pursuant to the agreement Dr,
Ainslie shall design and manage r&d programs on our behalf in consideration
of CAD$3,854 per month for a period of twelve months. The agreement shall
continue month to month following the term unless terminated with sixty days
notice.
54
On June 19, 2017, the entered into a Management Services
Agreement with Alex Blanchard Capital for the services of Mr. Blanchard as
manager of our investor relations & communications. The agreement is for six
months continuing month to month and may be terminated thereafter with one
months notice for CAD$7,500 per month. Mr. Blanchard was granted 200,000
warrants exercisable at $0.29 and 300,000 stock options exercisable at $0.295
vesting 100,000 options at each of the 1st, 2nd and 3rd anniversaries of the
contract provided that the contract is not terminated. As at August 31st, 2017,
$37,878 was recognized in consulting for the grant of the warrants.
On August 15, 2017, we entered into a corporate development
services agreement with Mr. Adam Mogil for a term of one year. Pursuant to the
agreement we issued 500,000 warrants to Mr. Mogil in consideration of his
services. Each warrant entitles the consultant to purchase one common share of
the Company at a price of $0.44 per share with a term expiring on August 14,
2018. The Company recognized $34,344, representing the fair value of such
warrants.
On January 17, 2018 the Company engaged JGRNT Capital Corp to provide strategic business development services for a one-year term with base compensation set at CAD$1,000 (approximately USD$804) monthly. The Company also awarded 500,000 warrants to JGRNT Capital Corp with each warrant exercisable for two years to purchase one common shares of the Company at the price of US$1.83.
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 widespread consumer acceptance of
our new products that requires more significant operations, we may retain
additional employees.
Patents and Trademarks
Through the November 2014 acquisition of 51% of Poviva Teas LLC
(and the subsequent acquisition of 100% of PoViva Teas in October, 2017) Lexaria
acquired control of certain patents issued and pending with the United States
Patent Office and internationally. Lexaria has worked to broaden the patents and
extend their utility to molecules other than those originally named.
On June 11, 2015, Lexaria initiated the simultaneous filing of
a U.S. utility patent application and an International patent application under
the Patent Cooperation Treaty (PCT) procedure, both at the U.S. Patent and
Trademark Office (USPTO). These applications follow the companys 2014 and
2015 family of provisional patent application filings in the U.S. and serve two
additional broad purposes:
|
1)
|
Lexaria is seeking protection of its intellectual
property under international treaties. To this end Lexaria has filed for
PCT patent application protection. There are 148 countries that are
signatories to the Patent Cooperation Treaty, including such major markets
as Canada, China, India, much of Europe and the Middle East, the United
Kingdom and Japan among others.
|
|
|
|
|
2)
|
Lexaria believes its lipid infusion technology has
applications beyond the delivery of just cannabinoids. Based on further
formulation testing, Lexaria has included additional lipophilic molecules
that may be delivered via food and beverage formats utilizing its
technology, widely encompassing three major new market opportunities for
the company: Nicotine; Nonsteroidal Anti-Inflammatories (NSAIDs); and
Vitamins.
|
In December 2015, the Company filed two further provisional
patent applications in the U.S. These new applications served to further broaden
the variety and applicability of base compounds that can be used when
formulating the Companys lipid based technology. The first of these
applications identify compounds like edible starches (e.g., tapioca starch) that
are commonly used in food products today and could, therefore, serve as a base
for formulating and incorporating the Companys Technology into a wide variety
of every day food products. The second of these applications identify emulsifier
compounds like gum Arabic that are commonly used in beverage products today in
order to facilitate similar flexibility for formulating the Companys Technology
in every day, shelf-stable beverages.
On October 26, 2016, the USPTO issued U.S Patent No. 9474725,
Cannabinoid Infused Food and Beverage Compositions and Methods of Use Thereof,
pertaining to our method of improving bioavailability and taste of certain
cannabinoid lipophilic active agents in food products. This is the Companys
first patent granted and has a publish date of October 27, 2016 (June 10 2017 in
Australia No. 2015274698) and protects our technology for twenty years. The
technology consists of: the following patent applications, patents granted, and
PCT International Patent Applications; all technical know-how and trade secrets
in regard to such named patents, including the use, manufacture or formulation
thereof, that is owned or controlled by Lexaria as well as any future
continuations, continuations in part or divisional applications filed pursuant
to the patent applications:
U.S. Patent Granted No. 9,474,725 awarded October 27, 2016 and
scheduled to expire no sooner than June 10, 2035.
55
U.S. Patent Granted No. 9,839,612 B2 awarded December 12, 2017.
U.S. Provisional Patent Application No. 62/010,601.
U.S. Provisional Patent Application No. 62/037,706.
U.S. Provisional Patent Application No. 62/153,835.
U.S. Provisional Patent Application No. 62/161,324.
U.S. Provisional Patent Application No. 15/225,802.
U.S. Provisional Patent Application No. 62/264,959.
U.S. Provisional Patent Application No. 62/264,967.
U.S. Utility Patent Application No. 14/735,844.
PCT International Patent Application No. PCT/US15/35128.
PCT International Patent Application No. PCT/US16/64295.
PCT International Patent Application No. PCT/US16/64296.
National filings thereunder:
2949369,
201580031524.X,
15806768.6,
201647041745.00
516371405
Australian Patent Granted No. 2015274698 awarded June 15, 2017.
On November 9, 2017, we announced our filing of a new patent
application with the US Patent and Trademark Office (USPTO) utilizing the
Lexaria DehydraTECH
TM
technology for delivery of phosphodiesterase
type 5 (PDE5) inhibitors such as sildenafil and tadalafil, which are commonly
sold under the trade names Viagra
TM
and Cialis
TM
,
respectively..
DESCRIPTION OF PROPERTY
Principal Offices
The address of our principal executive office is 156 Valleyview
Rd., Kelowna, BC, Canada, V1X 3M4. We have 1,500 square feet of office space,
which includes four executive offices for a monthly rate of CAD$826. Our current
locations provide adequate office space for our purposes at this stage of our
development. Additional space may be required if/as the company decides it
requires additional personnel.
LEGAL PROCEEDINGS
We know of no material pending legal proceedings to which our
company or our subsidiary is a party or of which any of our properties, or the
properties of our subsidiary, is the subject. In addition, we do not know of any
such proceedings contemplated by any governmental authorities.
We know of no material proceedings in which any of our
directors, officers or affiliates, or any registered or beneficial stockholder
is a party adverse to our company or our subsidiary or has a material interest
adverse to our company or our subsidiary.
56
MARKET PRICE OF AND DIVIDENDS ON OUR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Market for Securities
Our common stock is quoted on the OTCQX under the name Lexaria
Bioscience Corp. and the symbol LXRP.
On October 28, 2009 our shares were listed for trading on the
Canadian Securities Exchange under the Symbol LXX.
The following table reflects the high and low bid information for our common stock for each fiscal quarter during the fiscal years ended August 31, 2017 and 2016, and during the three month period ended November 30, 2017. The bid information for our common stock on the OTCQX was obtained from the OTC Markets and the sales price information for our common stock on the Canadian Securities Exchange was obtained from TMXMoney.com. These prices reflect inter-dealer prices, without retail mark-up, markdown or commission, and may not necessarily represent actual transactions.
|
OTC QB
(US Dollars)
|
Canadian
Securities
Exchange
(1)
(Canadian
Dollars)
|
Quarter Ended
|
High
|
Low
|
High
|
Low
|
November 30, 2017
|
1.01
|
0.33
|
1.25
|
0.42
|
August 31, 2017
|
0.42
|
0.28
|
0.49
|
0.38
|
May 31, 2017
|
0.63
|
0.30
|
0.70
|
0.40
|
February 28, 2017
|
0.64
|
0.20
|
0.74
|
0.29
|
November 30, 2016
|
0.32
|
0.11
|
0.41
|
0.15
|
August 31, 2016
|
0.15
|
0.09
|
0.23
|
0.10
|
May 31, 2016
|
0.11
|
0.08
|
0.19
|
0.10
|
February 28, 2016
|
0.28
|
0.08
|
0.19
|
0.11
|
November 30, 2015
|
0.23
|
0.11
|
0.31
|
0.18
|
(1)
|
On October 28, 2009 our shares were listed for trading on
the Canadian Securities Exchange under the Symbol
LXX.
|
Our common stock is issued in registered form. Computershare
Investor Services Inc., 3rd Floor, 510 Burrard Street, Vancouver, British
Columbia V6C 3B9, Canada (Telephone: (604) 661-9400; Facsimile: (604) 661-9401).
We have no other exchangeable securities.
Holders of Our Common Stock
As of February 5, 2018, there were 35 registered holders of record of our common stock. As of such date, 71,001,039 of our common stock were issued and outstanding.
The continuation will not affect the amount and percentage of
present holdings of our common stock beneficially owned by any person who is the
beneficial owner of more than 5% of our common stock and each director and
nominee and all directors and officers as a group, and our present commitments
to such persons with respect to the issuance of shares of our common stock.
Dividends
We have not declared any dividends since incorporation and do
not anticipate that we will do so in the foreseeable future. Although there are
no restrictions that limit the ability to pay dividends on our common shares,
our intention is to retain future earnings for use in our operations and the
expansion of our business.
57
FINANCIAL STATEMENTS
Financial Statements for the Three Month Period Ended November 30, 2017
Consolidated Balance Sheets (unaudited)
Consolidated Statements of Operations and Comprehensive Loss (unaudited)
Consolidated Statement of Stockholders’ Equity (Deficit) and Comprehensive Income (Loss) (unaudited)
Consolidated Statements of Cash Flows (unaudited)
Notes to the Consolidated Financial Statements
58
LEXARIA BIOSCIENCE CORP.
CONSOLIDATED BALANCE
SHEETS
(Expressed in U.S. Dollars)
|
|
November 30
|
|
|
August 31
|
|
|
|
2017
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Cash
|
$
|
2,209,703
|
|
$
|
2,533,337
|
|
Accounts and other receivables (Note 7)
|
|
71,923
|
|
|
45,293
|
|
Inventory (Note 8)
|
|
77,436
|
|
|
67,174
|
|
Prepaid expenses and deposit
|
|
58,140
|
|
|
149,691
|
|
Total Current
Assets
|
|
2,417,202
|
|
|
2,795,495
|
|
Patents (Note 9)
|
|
78,321
|
|
|
62,827
|
|
Equipment
|
|
1,702
|
|
|
1,856
|
|
|
|
80,023
|
|
|
64,683
|
|
TOTAL ASSETS
|
$
|
2,497,225
|
|
$
|
2,860,178
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
$
|
59,854
|
|
$
|
32,574
|
|
Unearned revenue (Note 10)
|
|
10,833
|
|
|
17,083
|
|
Due to related parties
(Note 14)
|
|
25,018
|
|
|
42,690
|
|
Total Current Liabilities
|
|
95,705
|
|
|
92,347
|
|
TOTAL LIABILITIES
|
|
95,705
|
|
|
92,347
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
Share Capital
|
|
|
|
|
|
|
Authorized:
220,000,000
common voting shares with a par value of $0.001 per
share
Issued and outstanding:
69,435,198 common shares at November 30,
2017
and 67,975,761 common shares
at August 31, 2017
|
|
69,435
|
|
|
67,976
|
|
Additional paid-in capital
|
|
16,080,737
|
|
|
16,108,270
|
|
Deficit
|
|
(13,748,652
|
)
|
|
(13,169,939
|
)
|
Equity attributable to shareholders of the Company
|
|
2,401,520
|
|
|
3,006,307
|
|
Non-Controlling Interest
|
|
-
|
|
|
(238,476
|
)
|
Total Stockholders' Equity
|
|
2,401,520
|
|
|
2,767,831
|
|
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY
|
$
|
2,497,225
|
|
$
|
2,860,178
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
59
LEXARIA BIOSCIENCE CORP.
CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE LOSS (unaudited)
(Expressed in U.S.
Dollars, except number of shares)
|
|
THREE MONTHS ENDED
|
|
|
|
November 30
|
|
|
November 30
|
|
|
|
2017
|
|
|
2016
|
|
Revenue (Note 13)
|
|
24,635
|
|
|
9,225
|
|
Cost of Goods Sold
|
|
(6,099
|
)
|
|
(888
|
)
|
Gross profit
|
|
18,536
|
|
|
8,337
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
Accounting and
audit
|
|
17,691
|
|
|
6,099
|
|
Depreciation and Amortization (Note 9)
|
|
375
|
|
|
372
|
|
Insurance
|
|
4,645
|
|
|
5,180
|
|
Advertising and promotions
|
|
188,999
|
|
|
11,928
|
|
Bank charges and
exchange loss
|
|
5,691
|
|
|
75
|
|
Consulting (Note 16)
|
|
142,166
|
|
|
296,267
|
|
Interest expense
|
|
-
|
|
|
1,355
|
|
Investor relations
|
|
188
|
|
|
23,717
|
|
Legal and
professional
|
|
59,903
|
|
|
9,996
|
|
Office and miscellaneous
|
|
35,820
|
|
|
23,376
|
|
Research and
development
|
|
110,392
|
|
|
7,261
|
|
Travel
|
|
27,833
|
|
|
19,840
|
|
Inventory
write-off (Note 8)
|
|
3,546
|
|
|
3,424
|
|
|
|
597,249
|
|
|
408,890
|
|
Net loss and comprehensive loss for the period
|
|
(578,713
|
)
|
|
(400,553
|
)
|
Net loss and comprehensive loss
attributable to:
|
|
|
|
|
|
|
Common
shareholders
|
|
(578,713
|
)
|
|
(395,445
|
)
|
Non-controlling interest
(Note 9)
|
|
-
|
|
|
(5,108
|
)
|
Basic and diluted loss per share
|
|
(0.01
|
)
|
|
(0.01
|
)
|
Weighted average number of common
shares
outstanding
|
|
|
|
|
|
|
- Basic and diluted
|
|
68,635,596
|
|
|
51,690,855
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
60
LEXARIA BIOSCIENCE CORP.
CONSOLIDATED STATEMENTS OF
CASH FLOWS (unaudited)
(Expressed in U.S. Dollars)
|
|
THREE MONTHS ENDED
|
|
|
|
November 30
|
|
|
November 30
|
|
|
|
2017
|
|
|
2016
|
|
Cash flows used in operating activities
|
|
|
|
|
|
|
Net loss for the period
|
|
(578,713
|
)
|
|
(400,553
|
)
|
Adjustments to reconcile net
loss to net cash used in operating activities:
|
|
|
|
|
|
|
Stock based compensation
|
|
-
|
|
|
27,104
|
|
Depreciation and
amortization
|
|
375
|
|
|
372
|
|
Inventory write-off
|
|
3,546
|
|
|
3,424
|
|
Shares issued for
services
|
|
-
|
|
|
43,760
|
|
Warrants issued for services
|
|
-
|
|
|
107,803
|
|
Change in working capital:
|
|
|
|
|
|
|
Accounts and other receivables
|
|
(26,630
|
)
|
|
82,028
|
|
Inventory
|
|
(13,808
|
)
|
|
(19,062
|
)
|
Prepaid expenses and deposit
|
|
91,551
|
|
|
(2,032
|
)
|
Accounts payable
and accrued liabilities
|
|
27,280
|
|
|
898
|
|
Due to related parties
|
|
(17,672
|
)
|
|
46,621
|
|
Unearned revenue
|
|
(6,250
|
)
|
|
8,650
|
|
Net cash used in operating
activities
|
|
(520,321
|
)
|
|
(100,987
|
)
|
|
|
|
|
|
|
|
Cash flows used in investing
activities
|
|
|
|
|
|
|
Investment in Poviva
|
|
(70,000
|
)
|
|
-
|
|
Patent
|
|
(15,715
|
)
|
|
(13,684
|
)
|
Net cash used in investing activities
|
|
(85,715
|
)
|
|
(13,684
|
)
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
Repayment of loan to a
related party
|
|
-
|
|
|
(4,500
|
)
|
Proceeds from issuance of equity
|
|
282,402
|
|
|
150,008
|
|
Net cash from financing activities
|
|
282,402
|
|
|
145,508
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
|
|
(323,634
|
)
|
|
30,837
|
|
Cash, beginning of period
|
|
2,533,337
|
|
|
93,409
|
|
Cash, end of period
|
|
2,209,703
|
|
|
124,246
|
|
Supplemental information of cash flows:
|
|
|
|
|
|
|
Interest paid in cash
|
|
-
|
|
|
1,355
|
|
Subscription funds receivable
|
|
-
|
|
|
600,000
|
|
Common shares issued to
settle accounts payable
|
|
-
|
|
|
17,000
|
|
Stock based compensation recognized in
prepaid expenses
|
|
-
|
|
|
9,537
|
|
Reclassification of NCI
to additional paid in capital on acquisition
|
|
238,476
|
|
|
-
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
61
LEXARIA
BIOSCIENCE
CORP.
CONSOLIDATED
STATEMENTS
OF
STOCKHOLDERS'
EQUITY
(Expressed
in U.S.
Dollars)
|
|
COMMON STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADDITIONAL
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
PAID-IN
|
|
|
|
|
|
|
|
|
STOCKHOLDERS
|
|
|
|
SHARES
|
|
|
AMOUNT
|
|
|
CAPITAL
|
|
|
DEFICIT
|
|
|
NCI
|
|
|
EQUITY
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Balance, August 31, 2016
|
|
51,288,477
|
|
|
51,288
|
|
|
11,515,419
|
|
|
(11,300,662
|
)
|
|
(178,288
|
)
|
|
87,757
|
|
Shares issued for services
|
|
939,354
|
|
|
938
|
|
|
223,722
|
|
|
-
|
|
|
-
|
|
|
224,660
|
|
Non-controlling Interest
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(60,188
|
)
|
|
(60,188
|
)
|
Stock based compensation (Note 12)
|
|
-
|
|
|
-
|
|
|
93,968
|
|
|
-
|
|
|
-
|
|
|
93,968
|
|
Private placement of shares, net of
issuance cost
|
|
4,104,280
|
|
|
4,105
|
|
|
1,537,637
|
|
|
-
|
|
|
-
|
|
|
1,541,742
|
|
Warrants issued for services
|
|
-
|
|
|
-
|
|
|
292,750
|
|
|
-
|
|
|
-
|
|
|
292,750
|
|
Exercise of stock options
|
|
1,014,125
|
|
|
1,015
|
|
|
176,247
|
|
|
-
|
|
|
-
|
|
|
177,262
|
|
Exercise of warrants
|
|
10,322,025
|
|
|
10,322
|
|
|
2,222,710
|
|
|
-
|
|
|
-
|
|
|
2,233,032
|
|
Conversion of debt
|
|
307,500
|
|
|
308
|
|
|
45,817
|
|
|
-
|
|
|
-
|
|
|
46,125
|
|
Net loss and comprehensive loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,869,277
|
)
|
|
-
|
|
|
(1,869,277
|
)
|
Balance August 31, 2017
|
|
67,975,761
|
|
|
67,976
|
|
|
16,108,270
|
|
|
(13,169,939
|
)
|
|
(238,476
|
)
|
|
2,767,831
|
|
Non-controlling Interest (Note 9)
|
|
-
|
|
|
-
|
|
|
(308,476
|
)
|
|
-
|
|
|
238,476
|
|
|
(70,000
|
)
|
Exercise of stock options
|
|
55,000
|
|
|
55
|
|
|
12,446
|
|
|
-
|
|
|
-
|
|
|
12,501
|
|
Exercise of warrants
|
|
1,404,437
|
|
|
1,404
|
|
|
268,497
|
|
|
-
|
|
|
-
|
|
|
269,901
|
|
Net loss and comprehensive loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(578,713
|
)
|
|
-
|
|
|
(578,713
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, November 30, 2017
(Unaudited)
|
|
69,435,198
|
|
|
69,435
|
|
|
16,080,737
|
|
|
(13,748,652
|
)
|
|
-
|
|
|
2,401,520
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
62
LEXARIA BIOSCIENCE CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
November 30, 2017
|
(Expressed in U.S. Dollars)
|
|
(Unaudited)
|
|
1.
|
Basis of Presentation
|
|
|
|
The unaudited interim consolidated financial statements
for the three months ended November 30, 2017 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 considered necessary for a fair presentation
have been included.
|
|
|
|
These unaudited interim consolidated financial statements
should be read in conjunction with the August 31, 2017 audited annual
financial statements and notes thereto.
|
|
|
2.
|
Organization, Business and Going Concern
|
|
|
|
Lexaria Biosciences Corp. (Lexaria, or the Company)
Company was formed on December 9, 2004 under the laws of the State of
Nevada as an independent oil and gas company engaged in the exploration,
development and acquisition of oil and gas properties in the United States
and Canada. In March of 2014, the Company began its entry into the
bioscience and alternative health and wellness business and discontinued
its involvement in the oil and gas business in November 2014. In May 2016,
the Company also commenced out- licensing its patented technology for
improved delivery of bioactive compounds that promotes healthy ingestion
methods, lower overall dosing and higher effectiveness in active molecule
delivery. The Company has its office in Kelowna, BC, Canada.
|
|
|
|
On November 2, 2017, the Company announced it acquired
100% ownership interest in its majority owned subsidiary PoViva Tea, LLC.
The Company previously owned a 51% interest in PoViva Tea, LLC and
acquired the remaining 49% interest. Compensation was $70,000, a waiver on
certain debts, and a 5%, 20-year royalty on net profits of ViPova
Tea
TM
tea, coffee, and hot chocolate sales. No Lexaria stock or
options were issued. The 20-year royalty was determined to have a $Nil
fair value as PoViva operates at a loss and future profitability is
uncertain.
|
|
|
|
The Companys unaudited interim consolidated financial
statements have been prepared in accordance with accounting principles
generally accepted in the United States 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 a net loss of $578,713 for the three months ended November 30, 2017
(2016: $400,553) and had a deficit accumulated since its inception of
$13,748,652 (August 31, 2017: $13,169,939). The Company had a working
capital balance of $2,321,497 as at November 30, 2017 with net cash used
in operating activities of $520,321 during the three months ended November
30, 2017.
|
|
|
|
The Company requires additional funds to maintain its
operations and developments. Managements plans in this regard are to
raise equity and debt financing as required, but there is no certainty
that such financing will be available or that it will be available at
acceptable terms. The outcome of these matters cannot be predicted at this
time.
|
63
3.
|
Business Risk and Liquidity
|
|
|
|
The Company is subject to several categories of risk associated with its operating activities. The production and sale of alternative health products is an emerging industry in which business practices are not yet standardized and
are subject to frequent scrutiny and evaluation by federal, state, provincial, and municipal authorities, academics, and media outlets, among others. Although we intend to develop our businesses in accordance with best ethical practices, we may
suffer negative publicity if we, our partners, contractors, or customers are found to have engaged in any environmentally insensitive practices or other business practices that are viewed as unethical.
|
|
|
|
Our operations may require licenses and permits from various governmental authorities. We believe that we will be able to obtain all necessary licenses and permits under applicable laws and regulations for our operations and
believe we will be able to comply in all material respects with the terms of such licenses and permits. However, such licenses and permits are subject to change in various circumstances. There can be no guarantee that we will be able to obtain or
maintain all necessary licenses and permits, and failing to obtain or retain required licenses could have a materially adverse effect on the Company.
|
|
|
|
Lexaria and its subsidiaries are not involved directly or indirectly in the cultivation, processing, distribution, or utilization of Cannabis or Cannabis derived components. All of Lexaria’s consumer products utilize legally
sourced Hemp and Hemp components in their production. Lexaria does have an ancillary involvement risk via out-licensing of its patented technology to licensees that choose to utilize its technology to manufacture products that contain locally or
state approved but federally regulated and controlled contents. There can be no guarantee that changes in the regulatory framework and environment will not occur and such changes could have a materially adverse effect on the Company. It is possible
some jurisdictions may even interpret Lexaria’s ancillary involvement as in contravention with regulations.
|
|
|
4.
|
Basis of Consolidation
|
|
|
|
The unaudited interim consolidated financial statements include the financial statements of the Company, its wholly-owned subsidiary, Lexaria CanPharm Corp. which was incorporated on April 4, 2014 under the laws of Canada, and
wholly-owned subsidiary PoViva Tea, LLC (2017 - 51% owned) which was incorporated on December 12, 2014, under the laws of the State of Nevada, and the 50%-owned subsidiary Ambarii Trade Corporation, which has no assets or liabilities, that was
incorporated on April 24, 2017 under the laws of the Province of British Columbia. All significant inter-company balances and transactions have been eliminated.
|
|
|
5.
|
Estimates and Judgments
|
|
|
|
The preparation of financial statements in conformity with U.S GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses. The estimates and the
associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
|
|
|
|
In preparing these unaudited interim consolidated financial statements, the significant judgments made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same
as those applied to the consolidated financial statements for the year ended August 31, 2017.
|
64
6.
|
Recent Accounting Guidance Not Yet
Adopted
|
|
|
|
In May 2014, the Financial Accounting Standards Board
(the FASB) issued a new standard related to the revenue recognition.
Under the new standard, recognition of revenue occurs when a customer
obtains control of promised goods or services in an amount that reflects
the consideration which the entity expects to receive in exchange for
those goods or services. In addition, the standard requires disclosure of
the nature, amount, timing, and uncertainty of revenue and cash flows
arising from contracts with customers. The FASB has recently issued
several amendments to the standards, including clarification on the
accounting for licenses of intellectual property and identifying
performance obligations.
|
|
|
|
The guidance permits two methods of adoption:
retrospectively to each prior reporting period presented (full
retrospective method), or retrospectively with the cumulative effect of
initially applying the guidance recognized at the date of initial
application (the cumulative catch-up transition method). The Company will
apply the full retrospective approach to adopt the standard but does not
anticipate that this standard will have a material impact on its
consolidated financial statements.
|
|
|
|
In January 2016, FASB issued a new standard to amend
certain aspects of recognition, measurement, presentation, and disclosure
of financial instruments. Most prominent among the amendments is the
requirement for changes in fair value of equity investments, with certain
exceptions, to be recognized through profit or loss rather than other
comprehensive income. The new standard will be effective for the Company
beginning September 1, 2018. The standard is not expected to have any
impact on the Companys financial statements.
|
|
|
|
In February 2016 FASB issued ASU No. 2016-02, Leases
(Topic 842) which supersedes FASB ASC Topic 840, Leases (Topic 840) and
provides principles for the recognition, measurement, presentation, and
disclosure of leases for both lessees and the lessors. The new standard
requires the lessees to apply a dual approach, classifying leases as
either finance or operating leases based on the principle of whether or
not the lease is effectively a financed purchase by the lessee. The
classification will determine whether lease expense is recognized based on
an effective interest method or on a straight-line basis over the term of
the lease, respectively. A lessee is also required to record a
right-of-use asset and a lease liability for all leases with a term of
greater than twelve months regardless of classification. Leases with a
term of twelve months or less will be accounted for similar to existing
guidance for operating leases. The standard is effective for annual and
interim periods beginning after December 15, 2018, with early adoption
permitted upon issuance. When adopted, the Company does not expect this
guidance to have a material impact on its consolidated financial
statements.
|
|
|
|
In June 2016, the FASB issued a new standard to replace
the incurred loss impairment methodology in current U.S. GAAP with a
methodology that reflects expected credit losses and requires
consideration of a broarder range of reasonable and supportable
information to inform credit loss credit loss estimates. For trade and
other receivables, loans and other financial instruments, the Company will
be required to use a forward-looking expected loss model rather than the
incurred loss model for recognizing credit losses which reflects losses
that are probable. Credit losses relating to available for sale debt
securities will also be recorded through an allowance for credit losses
rather than as a reduction in the amortized cost basis of the securities.
The new standard will be effective for Lexaria beginning September 1,
2020, with early adoption permitted. Application of the amendments is
through a cumulative-effect adjustment to deficit as of the effective
date. The Company is currently assessing the impact of the standard on its
consolidated financial statements.
|
|
|
7.
|
Accounts and Other
Receivables
|
|
|
|
November
30
|
|
|
August
31
|
|
|
|
|
2017
|
|
|
2017
|
|
|
|
|
$
|
|
|
$
|
|
|
Trade and deposits receivable
|
|
1,553
|
|
|
1,778
|
|
|
Territory License Fee receivable (Note 10)
|
|
10,000
|
|
|
-
|
|
|
Sales tax receivable
|
|
60,370
|
|
|
43,515
|
|
|
|
|
71,923
|
|
|
45,293
|
|
65
|
|
|
November
30
|
|
|
August
31
|
|
|
|
|
2017
|
|
|
2017
|
|
|
|
|
$
|
|
|
$
|
|
|
Raw materials
|
|
36,040
|
|
|
14,220
|
|
|
Finished goods
|
|
30,708
|
|
|
42,266
|
|
|
Work in progress
|
|
10,688
|
|
|
10,688
|
|
|
|
|
77,436
|
|
|
67,174
|
|
|
During the three months ended November 30 2017, the
Company wrote down $3,546 (2016 - $3,424) of inventory to reflect its net
realizable value.
|
|
|
9.
|
Alternative Health Products
|
|
|
|
On November 12, 2014, the Company signed an agreement
with Poppys Teas LLC (PoViva) and acquired 51% of ViPova. On November
2, 2017, Lexaria announced that it acquired a 100% ownership interest in
PoViva Tea, LLC, via cash compensation of $70,000, a waiver on certain
debts owed to Lexaria, and a 5%, 20- year royalty on net profits of ViPova
Tea
TM
tea, coffee, and hot chocolate sales. No Lexaria stock or
options were issued. The 20-year royalty was determined to have a $Nil
fair value as PoViva operates at a loss and future profitability is
uncertain.
|
|
|
|
On August 11, 2015, Lexaria signed a license agreement
with PoViva Tea LLC for $10,000, granting Lexaria a 35-year non exclusive
worldwide license to unencumbered use of PoViva Tea LLCs IP Rights,
including rights of resale. This license agreement ensures Lexaria has
full access to the underlying patent pending infusion
Technology.
|
Issued Patent #
|
Patent
Issuance Date
|
Patent Family
|
9474725
|
10/25/2016
|
Food and Beverage
Compositions Infused With
Lipophilic Active Agents and Methods of Use
Thereof
|
US 9839612 B2
|
12/12/2017
|
The patents are amortized over their
legal life of 20 years.
Patents
|
|
|
November
30
|
|
|
August
31
|
|
|
|
|
2017
|
|
|
2017
|
|
|
|
|
$
|
|
|
$
|
|
|
Balance Beginning
|
|
62,827
|
|
|
53,997
|
|
|
Additions
|
|
15,715
|
|
|
9,699
|
|
|
Amortization
|
|
(221
|
)
|
|
(869
|
)
|
|
Balance Ending
|
|
78,321
|
|
|
62,827
|
|
October 19, 2017, the Company received a new Notice of Allowance from the United States Patent and Trademark Office (“USPTO”) for the use of its technology as a delivery platform for all cannabinoids including THC; fat soluble vitamins; non steroidal anti-inflammatory pain medications (“NSAIDs”); and nicotine. Lexaria expects formal patent issuance within three to four months which is expected to provide protection until at least 2035. The patent application number is 15/225,799, “Food and Beverage Compositions Infused With Lipophilic Active Agents and Methods of Use Thereof” and on December 12, 2017, Lexaria received patent US 9839612 B2 for this application.
66
10.
|
Unearned Revenue
|
|
|
|
On May 14, 2016, the Company entered into a licensing
agreement (the Licensing Agreement) with an arms length party (the
Licensee) allowing the Licensee, for a two-year period, to utilize the
Companys Technology to create, test, manufacture, and sell
marijuana-infused consumable and/or topical products, in the state of
Colorado, with an option of extending the terms of the Licensing Agreement
to Washington, Oregon, and California (the Territorial License). In
addition to the granting of the license, the Company is required to
provide support services to the Licensee in connection with the use of the
Companys Technology during the term of the Licensing Agreement.
|
|
|
|
The Company determined that the provision of the support
services is a separate deliverable under the licensing agreement. As the
support services will not be sold on a stand-alone basis, the Company is
unable to establish a vendor-specific objective evidence of fair value of
such services to be able to objectively allocate the Territory License fee
receipts between the license and the support services. Accordingly, the
Company recognizes revenue pro-rated basis over the term of the Licensing
agreement. During the three months ended November 30, 2017, the Company
recognized $16,250 (Note 13), $6,250 of pro-rated income and $10,000 of
additional Licensing Fees. As at November 30, 2017, a total of $10,000 in
License Fees are receivable from the Licensee (August 31, 2017 -
$Nil).
|
|
|
|
November
30
|
|
|
August
31
|
|
|
|
|
2017
|
|
|
2017
|
|
|
|
|
$
|
|
|
$
|
|
|
Balance Beginning
|
|
17,083
|
|
|
12,500
|
|
|
Territorial License fees received
|
|
-
|
|
|
30,000
|
|
|
Advance payments on product sales
|
|
-
|
|
|
4,900
|
|
|
Earned revenue
|
|
(6,250
|
)
|
|
(30,317
|
)
|
|
Balance - Ending
|
|
10,833
|
|
|
17,083
|
|
11.
|
Common Shares and Warrants
|
|
|
|
Fiscal 2018 Activity
|
|
|
|
On September 22, 2017, the Company received $93,750 from
the exercise of warrants previously granted. The warrants were exercised
at the price of $0.15, for a total of 625,000 common shares being
issued.
|
|
|
|
On October 27, 2017 the Company extended the expiration
date of warrants originally issued on January 9, 2017, with a one-year
expiration date. The warrant quantity and exercise price remain unchanged,
500,000 warrants exercisable at $0.44, will now expire on January 9,
2019.
|
|
|
|
On November 9, 2017, the Company received $69,736 from
the exercise of 364,250 warrants at prices of $0.14, $0.42, and $0.60; and
55,000 options were exercised at the price of $0.2273 for proceeds of
$12,501; for a total of 419,250 common shares being issued. The Company
also issued 875 compensation warrants with an exercise price of $0.60
expiring April 3, 2019. These compensation warrants were valued at $347
and recorded as a share issue cost and within additional paid in capital
for a net effect of $Nil.
|
|
|
|
On November 22, 2017, the Company received $118,915 from
the exercise of warrants and compensation warrants previously granted. The
compensation warrant was exercised at the price of $0.42. The warrants
were exercised at prices of $0.14, $0.273, and $0.60, for a total of
415,187 common shares being issued. The Company also issued 20,156
compensation warrants with an exercise price of $0.60 expiring April 3,
2019. These compensation warrants were valued at $7,990 and recorded as a
share issue cost and within additional paid in capital for a net effect of
$Nil.
|
|
|
|
A continuity schedule for warrants is presented
below:
|
67
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
Number of
|
|
|
Exercise Price
|
|
|
|
|
Warrants
|
|
|
$
|
|
|
Balance, August 31, 2016
|
|
12,136,241
|
|
|
0.18
|
|
|
Cancelled/Expired
|
|
(1,004,150
|
)
|
|
0.22
|
|
|
Exercised
|
|
(10,322,025
|
)
|
|
0.23
|
|
|
Issued
|
|
8,034,440
|
|
|
0.36
|
|
|
Balance, August 31, 2017
|
|
8,844,506
|
|
|
0.29
|
|
|
Exercised
|
|
(1,404,437
|
)
|
|
0.19
|
|
|
Issued
|
|
21,031
|
|
|
0.60
|
|
|
Balance, November
30, 2017
|
|
7,461,100
|
|
|
0.30
|
|
The fair value of warrants granted as
compensation warrants was estimated as of the date of the grant by using the
Black-Scholes option pricing model with the following assumptions:
|
November 30
|
|
2017
|
Expected volatility
|
100% 101%
|
Risk-free interest rate
|
1.21%
|
Expected life
|
1.36 2.00
years
|
Dividend yield
|
0.00%
|
Estimated fair value per warrant
|
$0.40
|
A summary of warrants outstanding as of
November 30, 2017 is presented below:
# of Warrants
|
Weighted
|
Weighted
|
|
Average
|
Average
|
|
Remaining
|
Exercise Price
|
|
Contractual Life
|
$
|
180,400
|
0.03 years
|
0.27
|
450,000
|
0.70 years
|
0.14
|
500,000
|
0.70 years
|
0.44
|
2,650,666
|
0.75 years
|
0.14
|
500,000
|
1.11 years
|
0.23
|
1,984,796
|
1.34 years
|
0.60
|
245,238
|
1.34 years
|
0.42
|
200,000
|
1.55 years
|
0.29
|
750,000
|
3.86 years
|
0.14
|
7,461,100
|
1.26 years
|
0.30
|
12.
|
Stock Options
|
|
|
|
The Company has established its 2014 Stock Option Plan
whereby the board of directors may, from time to time, grant up to
3,850,000 stock options to directors, officers, employees, and
consultants. Stock options granted must be exercised no later than five
years from the date of grant or such lesser period as determined by the
Companys board of directors. The exercise price of an option is equal to
or greater than the closing market price of the Companys common shares on
the day preceding the date of grant. The vesting terms of each grant are
set by the board of directors.
|
|
|
|
Fiscal 2018 Activity
|
|
|
|
No stock options were granted during the period ended
November 30, 2017.
|
68
A continuity schedule for stock options
is presented below:
|
|
|
|
|
Weighted
|
|
|
|
Options
|
|
|
Average Exercise
|
|
|
|
Outstanding
|
|
|
Price
|
|
|
|
|
|
|
$
|
|
Balance, August 31, 2016
|
|
3,485,000
|
|
|
0.15
|
|
Exercised
|
|
(1,014,125
|
)
|
|
0.17
|
|
Granted
|
|
850,000
|
|
|
0.14
|
|
Balance, August 31, 2017
|
|
3,320,875
|
|
|
0.15
|
|
Exercised
|
|
(55,000
|
)
|
|
0.23
|
|
Balance, November
30, 2017
|
|
3,265,875
|
|
|
0.15
|
|
A summary of the stock options as at
November 30 2017, is presented below:
Number of Stock
|
Number of Stock
|
Weighted
|
Weighted
|
Aggregate
|
Options
|
Options
|
Average
|
Average
|
Intrinsic Value
|
|
Exercisable
|
Remaining
|
Exercise Price
|
|
|
|
Contractual Life
|
$
|
$
|
247,500
|
247,500
|
0.55 years
|
0.09
|
231,188
|
193,375
|
193,375
|
1.65 years
|
0.23
|
154,261
|
990,000
|
990,000
|
2.06 years
|
0.10
|
915,750
|
275,000
|
275,000
|
2.18 years
|
0.09
|
256,875
|
550,000
|
550,000
|
2.32 years
|
0.09
|
513,750
|
110,000
|
110,000
|
2.80 years
|
0.17
|
93,750
|
300,000
|
300,000
|
3.38 years
|
0.11
|
274,500
|
200,000
|
200,000
|
4.51 years
|
0.37
|
131,000
|
400,000
|
100,000
|
4.56 years
|
0.29
|
292,000
|
3,265,875
|
2,965,875
|
2.58 years
|
0.15
|
2,863,073
|
|
|
|
Three Months Ended
|
|
|
|
|
November 30
|
|
|
November 30
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
$
|
|
|
$
|
|
|
Product sales
|
|
8,008
|
|
|
864
|
|
|
Licensing revenue (Note 10)
|
|
16,250
|
|
|
8,250
|
|
|
Freight revenue
|
|
377
|
|
|
111
|
|
|
|
|
24,635
|
|
|
9,225
|
|
The Company recognizes licensing
revenue on a pro-rated basis over the term of the Licensing Agreement (Note 10)
and additional licensing fees as they are earned. During the period ended
November 30, 2017, the Company recognized $6,250 of the pre-defined $50,000
Licensing fees previously received and $10,000 of additional Licensing fees. As
of November 30, 2017, a total of $39,167 of the $50,000 previously received
payments has been recognized as licensing revenue over the life of the contract.
69
14.
|
Related Party Transactions
|
|
|
|
For the period ended November 30, 2017, the Company
paid/accrued the following:
|
|
|
|
November
30
|
|
|
November
30
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
$
|
|
|
$
|
|
|
Management, consulting and accounting
services:
|
|
|
|
|
|
|
|
C.A.B Financial Services
(CAB)
(1)
|
|
36,000
|
|
|
30,230
|
|
|
M&E Services Ltd.
(M&E)
(1)
|
|
18,822
|
|
|
11,089
|
|
|
Docherty Management Limited (Docherty
Management)
(1)
|
|
35,292
|
|
|
70,166
|
|
|
Company controlled by a director
consulting
|
|
12,000
|
|
|
12,000
|
|
|
|
|
102,114
|
|
|
123,485
|
|
|
(1)
CAB is owned by the CEO of the Company,
M&E is owned by the CFO of the Company June 1, 2017, and Docherty
Management Limited (Docherty Management) is owned by the President of
the Company.
|
|
|
|
Due to related parties:
|
|
|
|
As at November 30, 2017, $25,018 (August 31, 2017 -
$42,690) was payable to related parties included in due to related
parties.
|
|
|
|
The related party transactions are recorded at the
exchange amount established and agreed to between the related
parties.
|
|
|
15.
|
Segment Information
|
|
|
|
The Companys operations involve the development and
usage, including licensing, of its proprietary nutrient infusion
Technology. Lexaria is centrally managed and its chief operating decision
makers, being the president and the CEO, use the consolidated and other
financial information supplemented by revenue information by category of
alternative health consumer products and technology licensing to make
operational decisions and to assess the performance of the Company. The
Company has identified two reportable segments: Intellectual Property
Licensing and Consumer Products. Licensing revenues are significantly
concentrated on a single licensee.
|
|
IP Licensing
|
Consumer Products
|
Corporate
|
Consolidated Total
|
External Revenue
|
16,250
|
8,385
|
-
|
24,635
|
CoGS
|
-
|
(6,099)
|
-
|
(6,099)
|
Operating Expenses
|
(59,581)
|
(45,556)
|
(492,112)
|
(597,249)
|
Segment Loss
|
(43,331)
|
(43,270)
|
(492,112)
|
(578,713)
|
Total Assets
|
78,321
|
79,138
|
2,339,766
|
2,497,225
|
16.
|
Commitments, Significant Contracts and
Contingencies
|
|
|
|
Management Agreements
|
|
|
|
As at November 30, 2017, the Company is party to the
following contractual commitments:
|
70
Party
|
Monthly Commitment
|
Expiry Date
|
C.A.B Financial Services (1) (2)
|
$12,000
|
November 30,
2018
|
Docherty Management Ltd. (1) (2)
|
CAD $15,000
|
March 1, 2019
|
M&E Services Ltd. (1)
|
CAD
$8,000
|
June 1, 2018
|
Corporate Development(3) (4)
|
CAD $4,000
|
Month to Month
|
Advisory Agreement
|
CAD
$4,000
|
March 24, 2018
|
Investor relations and communications Alex Blanchard
Capital(1)
|
CAD $7,500
|
December 19, 2017
|
Research & Development
|
CAD $3,854
|
June 19, 2018
|
|
Revenue Incentive Milestones
|
|
|
|
(1)
100,000 common shares issuable upon the
Company achieving non-refundable revenues of $200,000 to any single
customer in any consecutive 60-day period for the first 12 months of the
contract, plus a further 50,000 common shares issuable upon achieving
non-refundable revenues of $200,000 to any single customer in any
consecutive 60-day period, during the 13th - 24th months of the contract.
If the Company achieves non- refundable revenues of $500,000 in any fiscal
quarter, a further 200,000 common shares may be issuable during the first
12 months of the contract and 100,000 common shares during the 13th - 24th
months of the contract.
|
|
|
|
Intellectual Property Milestones
|
|
|
|
(2)
During the term of the agreement, for each
provisional patent application substantively devised and successfully
created, written, and filed with the U.S. Patent Office for the Companys
Technology, 250,000 restricted common shares of the Company will be
issuable.
|
|
|
|
Corporate Development Milestones
|
|
|
|
(3)
For new customers sourced by the
Consultant until July 10, 2017; for combined Lexaria Energy and ViPova
products and including all combined sales efforts and/or technology
licensing revenues, achieving non- refundable revenues of $200,000 to any
single customer in any consecutive 60-day period would result in a
restricted common share award of 100,000 Company shares (not achieved);
and, from July 11, 2017, until July 10, 2018; a restricted common share
award of 50,000 Company shares may be achieved; this clause is limited to
one payment per customer during the 12-month period, but payable on each
customer that meets these sales/licensing thresholds.
|
|
|
|
(4)
For new customers sourced by the
Consultant until July 10, 2017; for combined Lexaria Energy and ViPova
products and including all combined sales efforts and/or technology
licensing revenues, achieving non- refundable revenues of $500,000 in any
fiscal quarter would result in a restricted common share award of 200,000
Company shares (not achieved); and, from July 11, 2017, until July 10,
2018; for combined Lexaria Energy and ViPova products and including all
sales efforts, achieving non-refundable revenues of $500,000 in any fiscal
quarter would result in a restricted common share award of 100,000 Company
shares; this clause is limited to one payment per fiscal
quarter.
|
|
|
17.
|
Subsequent Events
|
|
a)
|
On December 1, 2017, the company received $6,733 from the
exercise of a compensation warrant previously granted. The compensation
warrant was exercised at $0.42 and a total of 16,031 common shares were
issued. The Company also issued 8,016 warrants with an exercise price of
$0.60 and an expiration date of April 3, 2019, related to the compensation
warrant. Lexaria also issued 14,634 restricted common shares at an
issuance price of $0.82 per shares to settle $12,000 of debt to a director
of the Company.
|
|
|
|
|
b)
|
On December 1, 2017, Lexaria granted 200,000 stock
options with an exercise price of $0.83 and an expiration date of December
1, 2022 to an officer of the Company, pursuant to an
existing management contract. Lexaria awarded 250,000 stock
warrants with an exercise price of $0.83 and an expiration date of
December 1, 2019 to a manager of the Company, pursuant to a management
contract.
|
71
|
c)
|
On December 1, 2017, Lexaria awarded a total of 209,056
restricted common shares at an issuance price of $0.82 as required by
intellectual property performance thresholds within an existing management
consulting contract with the Company divided between three officers and
three managers.
|
|
|
|
|
d)
|
On December 22, 2017, the Company announced it received
$95,857.20 from the exercise of stock warrants and a compensation option
certificate previously granted. The compensation option certificate was
exercised at $0.42 and a total of 7,200 common shares were issued. This
exercise is by a third party who is neither an officer nor a director of
the Company. The Company also received for exercise a total of 230,062
warrants previously granted; being 9,000 at $0.14; 125,400 at $0.273; and
95,662 at $0.60.
|
|
|
|
|
e)
|
On January 10, 2018, the Company announced it received
$216,851 from the exercise of warrants and stock options previously
granted. 33,375 stock options were exercised at $0.2273 and 50,000 were
exercised at $0.295 and 324,191 warrants at
$0.60.
|
72
FINANCIAL STATEMENTS
Financial Statements for the Years Ended August 31, 2017 and
2016
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statement of Stockholders Equity (Deficit) and
Comprehensive Income (Loss)
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
73
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Directors of
Lexaria Bioscience
Corp.
We have audited the accompanying consolidated financial
statements of Lexaria Bioscience Corp. (the Company), which comprise the
consolidated balance sheets as of August 31, 2017 and 2016, and the related
consolidated statements of operations and comprehensive loss, changes in cash
flows, and stockholders equity for the years ended August 31, 2017 and 2016.
These consolidated financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated
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 the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Lexaria Bioscience Corp. as of August 31, 2017 and 2016, and the results of its
operations and its cash flows for the years ended August 31, 2017 and 2016 in
conformity with accounting principles generally accepted in the United States of
America.
|
|
|
DAVIDSON & COMPANY LLP
|
|
|
|
|
Vancouver, Canada
|
Chartered Professional Accountants
|
|
|
November 22, 2017
|
|
74
LEXARIA BIOSCIENCE CORP.
CONSOLIDATED BALANCE
SHEETS
(Expressed in U.S. Dollars)
|
|
August 31
|
|
|
August 31
|
|
|
|
2017
|
|
|
2016
|
|
ASSETS
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Cash
|
$
|
2,533,337
|
|
$
|
93,409
|
|
Accounts and other
receivable (Note 6)
|
|
45,293
|
|
|
131,083
|
|
Inventory
(Note 7)
|
|
67,174
|
|
|
134,724
|
|
Prepaid expenses and
deposit
|
|
149,691
|
|
|
150,950
|
|
|
|
2,795,495
|
|
|
510,166
|
|
Patent (Note 8)
|
|
62,827
|
|
|
53,997
|
|
Equipment
|
|
1,856
|
|
|
2,475
|
|
|
|
64,683
|
|
|
56,472
|
|
TOTAL ASSETS
|
$
|
2,860,178
|
|
$
|
566,638
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
$
|
32,574
|
|
$
|
90,010
|
|
Unearned revenue (Note 9)
|
|
17,083
|
|
|
12,500
|
|
Due to
related parties (Note 14)
|
|
42,690
|
|
|
331,371
|
|
Total Current Liabilities
|
|
92,347
|
|
|
433,881
|
|
|
|
|
|
|
|
|
Convertible debenture (Note 10)
|
|
-
|
|
|
45,000
|
|
TOTAL LIABILITIES
|
|
92,347
|
|
|
478,881
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
Share Capital (Note 11)
|
|
|
|
|
|
|
Authorized:
220,000,000
common voting shares with a par value of $0.001 per
share
Issued and outstanding:
67,975,761 common shares at August 31,
2017
and 51,288,477 common shares
at August 31, 2016
|
|
67,976
|
|
|
51,288
|
|
Additional paid-in capital (Note 11)
|
|
16,108,270
|
|
|
11,515,419
|
|
Deficit
|
|
(13,169,939
|
)
|
|
(11,300,662
|
)
|
Equity attributable to shareholders of the
Company
|
|
3,006,307
|
|
|
266,045
|
|
Non-Controlling Interest
(Note 8)
|
|
(238,476
|
)
|
|
(178,288
|
)
|
Total Stockholders' Equity
|
|
2,767,831
|
|
|
87,757
|
|
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
|
$
|
2,860,178
|
|
$
|
566,638
|
|
The accompanying notes are an integral party of these
consolidated financial statements.
75
LEXARIA BIOSCIENCE CORP.
CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE LOSS
(Expressed in U.S. Dollars, except
number of shares)
|
|
YEAR
ENDED
|
|
|
|
August 31
|
|
|
August 31
|
|
|
|
2017
|
|
|
2016
|
|
Revenue
|
|
|
|
|
|
|
Sales (Note
13)
|
$
|
63,639
|
|
$
|
40,718
|
|
Cost of Goods Sold
|
|
|
|
|
|
|
Cost of
goods sold
|
|
29,750
|
|
|
45,615
|
|
Gross Profit / (Loss)
|
|
33,889
|
|
|
(4,897
|
)
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
Accounting
and audit
|
|
74,087
|
|
|
95,921
|
|
Depreciation and Amortization (Note 8)
|
|
1,488
|
|
|
619
|
|
Insurance
|
|
19,652
|
|
|
17,237
|
|
Advertising and promotions
|
|
209,034
|
|
|
185,459
|
|
Bank
charges and exchange loss
|
|
(6,415
|
)
|
|
15,382
|
|
Consulting (Note 12, 16)
|
|
1,130,916
|
|
|
657,813
|
|
Interest
expense (Note 10)
|
|
6,015
|
|
|
2,250
|
|
Investor relations (Note 12)
|
|
91,681
|
|
|
61,574
|
|
Legal and
professional
|
|
136,210
|
|
|
37,939
|
|
Office and miscellaneous
|
|
118,863
|
|
|
97,077
|
|
Research
and development
|
|
54,185
|
|
|
9,024
|
|
Taxes
|
|
(2,374
|
)
|
|
3,983
|
|
Travel
|
|
61,401
|
|
|
44,034
|
|
Inventory write-off (Note 7)
|
|
68,611
|
|
|
44,040
|
|
|
|
1,963,354
|
|
|
1,272,352
|
|
Net loss and comprehensive
loss for the year
|
$
|
(1,929,465
|
)
|
$
|
(1,277,249
|
)
|
Net loss and comprehensive loss
attributable to:
|
|
|
|
|
|
|
Common shareholders
|
$
|
(1,869,277
|
)
|
$
|
(1,214,773
|
)
|
Non-controlling interest (Note 8)
|
$
|
(60,188
|
)
|
$
|
(62,476
|
)
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
$
|
(0.03
|
)
|
$
|
(0.03
|
)
|
Weighted average number of
common shares outstanding
- Basic and diluted
|
|
58,765,806
|
|
|
43,840,378
|
|
The accompanying notes are an integral party of these
consolidated financial statements.
76
LEXARIA BIOSCIENCE CORP.
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Expressed in U.S. Dollars)
|
|
YEAR
ENDED
|
|
|
|
August 31
|
|
|
August 31
|
|
|
|
2017
|
|
|
2016
|
|
Cash flows used in
operating activities
|
|
|
|
|
|
|
Net loss and
comprehensive loss for the year
|
$
|
(1,929,465
|
)
|
$
|
(1,277,249
|
)
|
Adjustments to reconcile net
loss and comprehensive loss to net
cash
used
in operating activities:
|
|
|
|
|
|
|
Stock based compensation
|
|
113,044
|
|
|
122,015
|
|
Depreciation and amortization
|
|
1,488
|
|
|
619
|
|
Inventory write-off
|
|
68,611
|
|
|
44,040
|
|
Common shares issued for interest (Note 10)
|
|
1,125
|
|
|
-
|
|
Common shares issued for services
|
|
207,660
|
|
|
79,500
|
|
Warrants issued for services
|
|
292,750
|
|
|
32,252
|
|
Change in working
capital:
|
|
|
|
|
|
|
Accounts and other receivable
|
|
(7,710
|
)
|
|
(6,201
|
)
|
Inventory
|
|
(1,061
|
)
|
|
(10,778
|
)
|
Prepaid expenses and deposit
|
|
(17,817
|
)
|
|
26,190
|
|
Accounts payable and accrued liabilities
|
|
(40,436
|
)
|
|
56,937
|
|
Due to related parties
|
|
(238,681
|
)
|
|
259,319
|
|
Unearned revenue
|
|
4,583
|
|
|
12,500
|
|
Net cash used in operating
activities
|
|
(1,545,909
|
)
|
|
(660,856
|
)
|
|
|
|
|
|
|
|
Cash flows used in
investing activities
|
|
|
|
|
|
|
Patent
|
|
(9,699
|
)
|
|
(17,008
|
)
|
Acquisition of equipment
|
|
-
|
|
|
(3,094
|
)
|
Net cash used in investing activities
|
|
(9,699
|
)
|
|
(20,102
|
)
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
Proceeds
from (Payments of) loans/convertible debentures
|
|
(50,000
|
)
|
|
95,000
|
|
Proceeds from issuance of
equity
|
|
4,045,536
|
|
|
419,292
|
|
Net cash from financing
activities
|
|
3,995,536
|
|
|
514,292
|
|
|
|
|
|
|
|
|
Change in cash
|
|
2,439,928
|
|
|
(166,666
|
)
|
Cash, beginning of year
|
|
93,409
|
|
|
260,075
|
|
Cash, end of year
|
$
|
2,533,337
|
|
$
|
93,409
|
|
Supplemental information of cash
flows:
|
|
|
|
|
|
|
Interest
paid in cash
|
$
|
4,890
|
|
$
|
2,250
|
|
Income taxes paid in cash
|
$
|
-
|
|
$
|
-
|
|
Shares
issued to convert convertible debt
|
$
|
45,000
|
|
$
|
-
|
|
Subscription funds
receivable
|
$
|
-
|
|
$
|
93,500
|
|
Stock
based compensation recognized from prepaid expense
|
$
|
19,076
|
|
$
|
38,150
|
|
Shares issued for
services in accounts payable and accrued liabilities
|
$
|
17,000
|
|
$
|
-
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
77
LEXARIA
BIOSCIENCE
CORP.
CONSOLIDATED
STATEMENTS
OF
STOCKHOLDERS'
EQUITY
(Expressed
in U.S.
Dollars)
|
|
COMMON STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADDITIONAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PAID-IN
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
SHARES
|
|
|
AMOUNT
|
|
|
CAPITAL
|
|
|
DEFICIT
|
|
|
NCI
|
|
|
EQUITY
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31,
2015
|
|
43,838,286
|
|
|
43,838
|
|
|
10,814,460
|
|
|
(10,085,889
|
)
|
|
(115,812
|
)
|
|
656,597
|
|
Shares issued for services
|
|
625,000
|
|
|
625
|
|
|
78,875
|
|
|
-
|
|
|
-
|
|
|
79,500
|
|
Non-controlling Interest
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(62,476
|
)
|
|
(62,476
|
)
|
Stock based compensation (Note 12)
|
|
-
|
|
|
-
|
|
|
83,865
|
|
|
-
|
|
|
-
|
|
|
83,865
|
|
Private placement of shares,
net of issuance cost
|
|
5,266,858
|
|
|
5,267
|
|
|
414,025
|
|
|
-
|
|
|
-
|
|
|
419,292
|
|
Private placement subscription receivable
|
|
1,558,333
|
|
|
1,558
|
|
|
91,942
|
|
|
-
|
|
|
-
|
|
|
93,500
|
|
Warrants to be issued for
services
|
|
-
|
|
|
-
|
|
|
32,252
|
|
|
-
|
|
|
-
|
|
|
32,252
|
|
Net loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,214,773
|
)
|
|
-
|
|
|
(1,214,773
|
)
|
Balance, August 31,
2016
|
|
51,288,477
|
|
|
51,288
|
|
|
11,515,419
|
|
|
(11,300,662
|
)
|
|
(178,288
|
)
|
|
87,757
|
|
Shares issued for services
|
|
939,354
|
|
|
938
|
|
|
223,722
|
|
|
-
|
|
|
-
|
|
|
224,660
|
|
Non-controlling Interest
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(60,188
|
)
|
|
(60,188
|
)
|
Stock based compensation (Note 12)
|
|
-
|
|
|
-
|
|
|
93,968
|
|
|
-
|
|
|
-
|
|
|
93,968
|
|
Private placement of shares,
net of issuance cost
|
|
4,104,280
|
|
|
4,105
|
|
|
1,537,637
|
|
|
-
|
|
|
-
|
|
|
1,541,742
|
|
Warrants issued for services
|
|
-
|
|
|
-
|
|
|
292,750
|
|
|
-
|
|
|
-
|
|
|
292,750
|
|
Exercise of stock options
|
|
1,014,125
|
|
|
1,015
|
|
|
176,247
|
|
|
-
|
|
|
-
|
|
|
177,262
|
|
Exercise of warrants
|
|
10,322,025
|
|
|
10,322
|
|
|
2,222,710
|
|
|
-
|
|
|
-
|
|
|
2,233,032
|
|
Conversion of debt
|
|
307,500
|
|
|
308
|
|
|
45,817
|
|
|
-
|
|
|
-
|
|
|
46,125
|
|
Net loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,869,277
|
)
|
|
-
|
|
|
(1,869,277
|
)
|
Balance, August 31,
2017
|
|
67,975,761
|
|
|
67,976
|
|
|
16,108,270
|
|
|
(13,169,939
|
)
|
|
(238,476
|
)
|
|
2,767,831
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
78
LEXARIA BIOSCIENCE CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
August 31, 2017
|
(Expressed in U.S. Dollars)
|
|
1.
|
Organization, Business and Going
Concern
|
Lexaria Biosciences Corp. (Lexaria,
or the Company) Company was formed on December 9, 2004 under the laws of the
State of Nevada as an independent oil and gas company engaged in the
exploration, development and acquisition of oil and gas properties in the United
States and Canada. In March of 2014, the Company began its entry into the
bioscience and alternative health and wellness business and discontinued its
involvement in the oil and gas business in November 2014. In May 2016, the
Company also commenced out-licensing its patented technology for improved
delivery of bioactive compounds that promotes healthy ingestion methods, lower
overall dosing and higher effectiveness in active molecule delivery. The Company
has its office in Kelowna, BC, Canada.
The Companys consolidated financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States (U.S. GAAP) applicable to a going concern, which
contemplates the realization of assets and the satisfaction of liabilities and
commitments in the normal course of business. The Company has a net loss
attributable to its common shareholders of $1,869,277 for the year ended August
31, 2017 (2016: $1,214,773) and at August 31, 2017 had a deficit accumulated
since its inception of $13,169,939 (2016: $11,300,662).
The Company has a working capital
balance of $2,703,148 as at August 31, 2017 (2016: $76,285). The Company
requires additional funds to maintain its operations and developments.
Managements plans in this regard are to raise equity and debt financing as
required, but there is no certainty that such financing will be available or
that it will be available at acceptable terms. The outcome of these matters
cannot be predicted at this time.
2.
|
Business Risk and
Liquidity
|
The Company is subject to several
categories of risk associated with its operating activities. The production and
sale of alternative health products is an emerging industry in which business
practices are not yet standardized and are subject to frequent scrutiny and
evaluation by federal, state, provincial, and municipal authorities, academics,
and media outlets, among others. Although we intend to develop our businesses in
accordance with best ethical practices, we may suffer negative publicity if we,
our partners, contractors, or customers are found to have engaged in any
environmentally insensitive practices or other business practices that are
viewed as unethical.
Our operations may require licenses and
permits from various governmental authorities. We believe that we will be able
to obtain all necessary licenses and permits under applicable laws and
regulations for our operations and believe we will be able to comply in all
material respects with the terms of such licenses and permits. However, such
licenses and permits are subject to change in various circumstances. There can
be no guarantee that we will be able to obtain or maintain all necessary
licenses and permits, and failing to obtain or retain required licenses could
have a materially adverse effect on the Company.
Lexaria and its subsidiaries are not
involved directly or indirectly in the cultivation, processing, distribution, or
utilization of Cannabis or Cannabis derived components. All of Lexarias
consumer products utilize legally sourced Hemp and Hemp components in their
production. Lexaria does have an ancillary involvement risk via out-licensing of
its patented technology to licensees that choose to utilize its technology to
manufacture products that contain locally or state approved but federally
regulated and controlled contents. There can be no guarantee that changes in the
regulatory framework and environment will not occur and such changes could have
a materially adverse effect on the Company. It is possible some jurisdictions
may even interpret Lexarias ancillary involvement as in contravention with
regulations.
79
3.
|
Significant Accounting
Policies
|
These consolidated financial statements have been prepared
in conformity with generally accepted accounting principles of the United
States of America. All amounts, unless otherwise stated, are in United
States dollars.
On December 16, 2015, the Company
completed a forward stock split of our authorized and issued and outstanding
shares of common stock on a basis of 1 old share of common stock for 1.1 new
shares of common stock. The forward stock split affected all the issued and
outstanding common shares, stock options, and warrants at the effective date and
increased authorized capital to 220,000,000, par value of $0.001. All common
shares numbers, numbers of stock options, and warrants and related per share
amounts disclosed in these consolidated financial statements have been
retroactively adjusted to reflect the forward stock split.
|
c)
|
Basis of Consolidation
|
These consolidated financial
statements include the financial statements of the Company, its wholly-owned
subsidiary, Lexaria CanPharm Corp. which was incorporated on April 4, 2014,
under the laws of Canada, 51%-owned subsidiary PoViva Tea, LLC which was
incorporated on December 12, 2014, under the laws of the State of Nevada, and
the 50%-owned subsidiary Ambarii Trade Corporation, which has no assets or
liabilities, that was incorporated on April 24, 2017 under the laws of the
Province of British Columbia. All significant inter-company balances and
transactions have been eliminated.
Revenue from the sale of health
products is generally recognized when persuasive evidence of an arrangement
exists, delivery has occurred, the sales price is fixed or determinable, and
collectability is reasonably assured. In most cases, these conditions are met
when the product is shipped to the customer. The Company reports its sales net
of the amount of actual sales returns and the amount of reserves established for
anticipated sales returns based upon historical return rates. Sales tax
collected from customers is excluded from net sales.
Lexaria also enters into agreements to
license out its patented technology that can include various combinations of
services. Where elements are delivered over different periods of time, and when
allowed under U.S. GAAP, revenue is allocated to the respective elements based
on their relative selling prices at the inception of the arrangement, and
revenue is recognized as each element is delivered. The Company uses a hierarchy
to determine the fair value to be used for allocating revenue to elements: (i)
vendor-specific objective evidence of fair value (VSOE), (ii) third-party
evidence and (iii) best estimate of selling price (ESP). Generally VSOE is the
price charged when the deliverable is sold separately or the price established
by management for a product that is not yet sold if it is probable that the
price will not change before introduction into the marketplace. ESPs are
established as best estimates of what the selling prices would be if the
deliverables were sold regularly on a stand-alone basis. Given Lexarias early
stage of such line of revenue, the Companys process for determining the VSOE
and ESP requires judgment and considers multiple factors that may vary overtime
depending upon the unique facts and circumstances related to each
deliverable.
|
e)
|
Inventory and Cost of
Sales
|
The Companys inventory consists of
finished goods, work in progress, and raw materials. In all classes, inventory
is valued at the lower of cost or market. Cost is determined on a first-in,
first-out basis.
Cost of sales includes all
expenditures incurred in bringing the goods to the point of sale. Inventory
costs and costs of sales include direct costs of the raw material, inbound
freight charges, warehousing costs, handling costs (receiving and purchasing)
and utilities and overhead expenses related to the Companys manufacturing and
processing facilities.
|
f)
|
Cash and Cash Equivalents
|
Cash equivalents comprise certain
highly liquid instruments with a maturity of three months or less when
purchased. As of August 31, 2017, and August 31, 2016, The Company held cash
only.
80
Equipment is stated at cost less
accumulated depreciation, and depreciated using the straight-line method over
its useful life of five years.
Capitalized patent costs represent
legal costs incurred to establish patents. When patents reach a mature stage,
any associated legal costs are comprised mostly of maintenance fees and are
expensed as incurred. Capitalized patent costs are amortized on a straight-line
basis over the remaining life of the patent. The Company was granted its first
patent on October 25, 2016 (Note 8), with a legal life of 20 years.
|
i)
|
Stock-Based Compensation
|
Company accounts for its stock-based
compensation awards in accordance with ASC Topic 718, CompensationStock
Compensation (ASC 718). ASC 718 requires all stock-based payments to
employees, including grants of employee stock options, to be recognized as
expense in the statements of operations based on their grant date fair values.
For stock options granted to employees and to members of the Board of Directors
for their services on the Board of Directors, the Company estimates the grant
date fair value of each option award using the Black-Scholes option-pricing
model. The use of the Black-Scholes option-pricing model requires management to
make assumptions with respect to the expected term of the option, the expected
volatility of the common stock consistent with the expected life of the option,
risk-free interest rates and expected dividend yields of the common stock.
Stock-based payments issued to
non-employees are recorded at their fair values, and are periodically revalued
as the equity instruments vest and are recognized as expense over the related
service period in accordance with the provisions of ASC 718 and ASC Topic 505,
Equity. For equity instruments granted to non-employees, the Company recognizes
stock-based compensation expense on vesting.
The Company applies the guidance in
ASC 260 Earnings Per Share. Loss per share is computed using the weighted
average number of shares outstanding during the period. Diluted loss per share
is equivalent to basic loss per share because the potential exercise of the
equity-based financial instruments was anti-dilutive.
|
k)
|
Foreign Currency
Translation
|
The Company's 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 profit or loss.
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
81
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, accounts and other receivable, accounts payable and
accrued liabilities, due to related parties, and convertible debenture. The
carrying amounts of cash, accounts and other receivable, accounts payable and
accrued liabilities, and due to related parties approximate their fair values
due to their short maturities. The carrying value of the Companys convertible
debenture approximates its fair value based on 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 foreign currency exchange risk is the financial 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 as the Company does
not hold a significant position in foreign currencies, such as the Canadian
dollar, and the impact of a change in a few basis points for USD/CAD is not
expected to be material.
The Company applies the guidance in
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.
|
n)
|
Impairment of Long-Lived
Assets
|
Long-lived assets, including
equipment, and intangible assets, such as the Companys patents, are assessed
for potential impairment when there is evidence that events or changes in
circumstances indicate that the carrying amount of an asset may not be
recovered. An impairment loss is recognized when the carrying amount of the
long-lived asset is not recoverable and exceeds its fair value. The carrying
amount of a long-lived asset is not recoverable if it exceeds the sum of the
undiscounted cash flows expected to result from the use and eventual disposition
of the asset. Any required impairment loss is measured as the amount by which
the carrying amount of the long-lived asset exceeds its fair value and is
recorded as a reduction in the carrying value of the related asset and a charge
to the profit or loss. Intangible assets with indefinite lives are tested for
impairment annually and in interim periods if certain events occur indicating
that the carrying value of the intangible assets may be impaired.
The Company applies ASC 220,
Comprehensive Income, which establishes standards for reporting and presentation
of comprehensive income, its components and accumulated balances. The Company
discloses 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.
|
p)
|
Credit Risk and Receivable
Concentration
|
The Company places its cash with a
high credit quality financial institution. As of August 31, 2017, the Company
had approximately $2,533,000 in the bank (August 31, 2016: $93,000).
As at August 31, 2017, the Company had
$43,515 (2016 - $27,583) in sales tax receivable (Note 6). The Company considers
its credit risk to be low for such receivable.
82
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.
|
r)
|
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.
|
s)
|
Research and Development
|
Research and development costs are
expensed as incurred.
The Company expenses advertising costs
as they are incurred. The advertising expenses were $209,034 and $185,459 for
the years ended August 31, 2017 and 2016, respectively.
4.
|
Estimates and Judgments
|
The preparation of financial statements
in conformity with U.S GAAP requires us to make certain estimates, judgments and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Some
of the Companys accounting policies require us to make subjective judgments,
often as a result of the need to make estimates of matters that are inherently
uncertain. These accounting policies involve critical accounting estimates
because they are particularly dependent on estimates and assumptions made by
management about matters that are highly uncertain at the time the accounting
estimates are made. Although we have used our best estimates based on facts and
circumstances available to us at the time, different estimates reasonably could
have been used. Changes in the accounting estimates used by the Company are
reasonably likely to occur from time to time, which may have a material effect
on the presentation of financial condition and results of operations.
The Company reviews these estimates,
judgments and assumptions periodically and reflect the effects of revisions in
the period in which they are deemed to be necessary. We believe that these
estimates are reasonable; however, actual results could differ from these
estimates
Significant accounting estimates and assumptions are used for, but not
limited to:
|
a)
|
The Valuation of Deferred Tax
Assets
|
Judgement is required in determining
whether deferred tax assets are recognized on the balance sheet. The recognition
of deferred tax assets requires management to assess the likelihood that the
Company will generate taxable income in future periods to utilize the deferred
tax assets. Due to the Companys history of losses, deferred tax assets have not
be recognized by Lexaria.
The Company entered into a convertible
debenture agreement on March 8, 2016 (Note 10) and evaluated the terms of the
various conversion options to assess if separate accounting is required for such
embedded features, which are adjusted to fair value through earnings at each
reporting period. The Company determined that the embedded features within the debenture do not meet the net
settlement provision characteristic of a derivative and as a result, did not
apply the bifurcation requirements for such conversion options.
83
|
c)
|
Revenue Recognition of
Licenses
|
Pursuant to the license agreement for
the Companys lipid infusion technology (the Technology) (Note 9), the
licensee acquired territorial licenses for an upfront fee. The Company is also
required to provide support services in connection with the licensees use of
the Technology over the term of the license. As the support services will not be
sold on a stand-alone basis, the Company is unable to establish VSOE of their
fair value to be able to allocate the proceeds objectively to such services and
the license. Accordingly, the up-front fee is being recognized ratably over the
term of the license, which is initially for two years.
|
d)
|
Value of Stock Options
|
The Company provides compensation
benefits to its employees, directors, officers, and consultants, through a stock
option plan. The fair value of each option award is estimated on the date of
grant using the Black-Scholes option pricing model. Expected volatility
assumptions used in the model is based on the historical volatility of the
Companys share price. The Company uses historical data to estimate the period
of option exercises for use in the valuation model. The risk-free interest rate
for the expected term of the option is based on the yields of government bonds.
Changes in these assumptions, especially the share price volatility and the
expected life determination could have a material impact on the Companys profit
and loss for the periods presented. All estimates used in the model are based on
historical data which may not be representative of future results.
5.
|
New Accounting
Pronouncements
|
In May 2014, the Financial Accounting
Standards Board (the FASB) issued a new standard related to the revenue
recognition. Under the new standard, recognition of revenue occurs when a
customer obtains control of promised goods or services in an amount that
reflects the consideration which the entity expects to receive in exchange for
those goods or services. In addition, the standard requires disclosure of the
nature, amount, timing, and uncertainty of revenue and cash flows arising from
contracts with customers. The FASB has recently issued several amendments to the
standards, including clarification on the accounting for licenses of
intellectual property and identifying performance obligations.
The guidance permits two methods of
adoption: retrospectively to each prior reporting period presented (full
retrospective method), or retrospectively with the cumulative effect of
initially applying the guidance recognized at the date of initial application
(the cumulative catch-up transition method). The Company will apply the full
retrospective approach to adopt the standard but does not anticipate that this
standard will have a material impact on its consolidated financial
statements.
In July 2015, FASB issued ASU 2015-11,
Simplifying the Measurement of Inventory (ASU 2015-11). ASU 2015-11 requires
that an entity measure inventory at the lower of cost and net realizable value.
This ASU does not apply to inventory measured using last-in, first-out
methodology. ASU 2015-11 is effective for annual reporting periods beginning
after December 15, 2016, including interim periods within that reporting period.
The Company does not expect the new standard to have a significant impact on its
consolidated financial position, results of operations or cash flows.
In November 2015, the FASB issued
guidance that requires companies to classify all deferred tax assets or
liabilities as noncurrent on the balance sheet rather than separately disclosing
deferred taxes as current and noncurrent. This standard is effective for the
Company beginning on September 1, 2017 and can be applied either prospectively
or retrospectively to all periods presented upon adoption. The standard is not
expected to have any impact on the Companys financial statements.
In January 2016, FASB issued a new
standard to amend certain aspects of recognition, measurement, presentation, and
disclosure of financial instruments. Most prominent among the amendments is the
requirement for changes in fair value of equity investments, with certain
exceptions, to be recognized through profit or loss rather than other
comprehensive income. The new standard will be effective for the Company
beginning September 1, 2018. The standard is not expected to have any
impact on the Companys financial statements.
84
In February 2016 FASB issued ASU No.
2016-02, Leases
(Topic 842)
which supersedes FASB ASC Topic 840, Leases
(Topic 840) and provides principles for the recognition, measurement,
presentation, and disclosure of leases for both lessees and the lessors. The new
standard requires the lessees to apply a dual approach, classifying leases as
either finance or operating leases based on the principle of whether or not the
lease is effectively a financed purchase by the lessee. The classification will
determine whether lease expense is recognized based on an effective interest
method or on a straight-line basis over the term of the lease, respectively. A
lessee is also required to record a right-of-use asset and a lease liability for
all leases with a term of greater than twelve months regardless of
classification. Leases with a term of twelve months or less will be accounted
for similar to existing guidance for operating leases. The standard is effective
for annual and interim periods beginning after December 15, 2018, with early
adoption permitted upon issuance. When adopted, the Company does not expect this
guidance to have a material impact on its consolidated financial statements.
In March 2016, the FASB issued ASU
2016-09, Compensation-Stock Compensation (Topic 718), Improvements to Employee
Share-Based Payment Accounting. Under ASU 2016-09, companies will no longer
record excess tax benefits and certain tax deficiencies in additional paid in
capital (APIC). Instead, they will record all excess tax benefits and tax
deficiencies as income tax expense or benefit in the income statement and the
APIC pools will be eliminated. In addition, ASU 2016-09 eliminates the
requirement that excess tax benefits be realized before companies can recognize
them. ASU 2016-09 also requires companies to present excess tax benefits as an
operating activity on the statement of cash flows rather than as a financing
activity. Furthermore, ASU 2016-09 will increase the amount an employer can
withhold to cover income taxes on awards and still qualify for the exception to
liability classification for shares used to satisfy the employers statutory
income tax withholding obligation. An employer with a statutory income tax
withholding obligation will now be allowed to withhold shares with the fair
value up to the amount of taxes owed using the maximum statutory rate in the
employees applicable jurisdiction(s). ASU 2016-09 requires a company to
classify the cash paid to a tax authority when shares are withheld to satisfy
its statutory income tax withholding obligation as a financing activity on the
statement of cash flows. Under current U.S. GAAP, it is not specified how these
cash flows should be classified. In addition, companies will now have to elect
whether to account for forfeitures on share-based payments by (1) recognizing
forfeiture awards as they occur or (2) estimating the number of awards expected
to be forfeited and adjusting the estimate when it is likely to change, as is
currently required. The amendments of this ASU are effective for reporting
periods beginning after December 15, 2016, with early adoption permitted but all
of the guidance must be adopted in the same period. The Company does not expect
this guidance to have a material impact on its consolidated financial
statements.
In June 2016, the FASB issued a new
standard to replace the incurred loss impairment methodology in current U.S.
GAAP with a methodology that reflects expected credit losses and requires
consideration of a broader range of reasonable and supportable information to
inform credit loss credit loss estimates. For trade and other receivables, loans
and other financial instruments, the Company will be required to use a
forward-looking expected loss model rather than the incurred loss model for
recognizing credit losses which reflects losses that are probable. Credit losses
relating to available for sale debt securities will also be recorded through an
allowance for credit losses rather than as a reduction in the amortized cost
basis of the securities. The new standard will be effective for Lexaria
beginning September 1, 2020, with early adoption permitted. Application of the
amendments is through a cumulative-effect adjustment to deficit as of the
effective date. The Company is currently assessing the impact of the standard on
its consolidated financial statements.
6.
|
Accounts and Other
Receivable
|
|
|
|
August 31
|
|
|
August 31
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
$
|
|
|
$
|
|
|
Trade and deposits receivable
|
|
1,778
|
|
|
-
|
|
|
Territory License Fee receivable (Note 9)
|
|
-
|
|
|
10,000
|
|
|
Sales tax receivable
|
|
43,515
|
|
|
27,583
|
|
|
Private placement receivable (Note 11)
|
|
-
|
|
|
93,500
|
|
|
|
|
45,293
|
|
|
131,083
|
|
85
|
|
|
August 31
|
|
|
August 31
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
$
|
|
|
$
|
|
|
Raw materials
|
|
14,220
|
|
|
27,358
|
|
|
Finished goods
|
|
42,266
|
|
|
94,349
|
|
|
Work in progress
|
|
10,688
|
|
|
13,017
|
|
|
|
|
67,174
|
|
|
134,724
|
|
During the year ended August 31, 2017,
the Company wrote down $68,611 (2016 - $44,040) of inventory to reflect its net
realisable value.
8.
|
Alternative Health
Products
|
On November 12, 2014, the Company
signed an agreement with Poppys Teas LLC. (PoViva) acquired 51% of ViPova.
The Company had the option to acquire an additional 24% interest in PoViva.
Lexaria acquired 100% ownership interest in PoViva Tea, LLC subsequent to August
31, 2017 via compensation of $70,000, a waiver on certain debts owed to Lexaria,
and a 5%, 20-year royalty on net profits of ViPova Tea
TM
tea, coffee,
and hot chocolate sales. No Lexaria stock or options were issued.
As at August 31, 2017, the Companys
granted patent has a priority date of June 10, 2014, a publish date of October
25, 2016, and protects the Companys technology for twenty years.
On August 11, 2015, Lexaria signed a
license agreement with PoViva Tea LLC for $10,000, granting Lexaria a 35-year
non exclusive worldwide license to unencumbered use of PoViva Tea LLCs IP
Rights, including rights of resale. This license agreement ensures Lexaria has
full access to the underlying patent pending infusion Technology.
|
Patents
|
|
|
|
|
|
|
|
|
|
August 31
|
|
|
August 31
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
$
|
|
|
$
|
|
|
Balance Beginning
|
|
53,997
|
|
|
36,989
|
|
|
Additions
|
|
9,699
|
|
|
17,008
|
|
|
Amortization
|
|
(869
|
)
|
|
-
|
|
|
Balance Ending
|
|
62,827
|
|
|
53,997
|
|
October 19, 2017, the Company received
a new Notice of Allowance from the United States Patent and Trademark Office
(USPTO) for the use of its technology as a delivery platform for all
cannabinoids including THC; fat soluble vitamins; non steroidal
anti-inflammatory pain medications (NSAIDs); and nicotine. Lexaria expects
formal patent issuance within three to four months which is expected to provide
protection until at least 2035. The patent application number is 15/225,799,
Food and Beverage Compositions Infused With Lipophilic Active Agents and
Methods of Use Thereof.
On May 14, 2016, the Company entered
into a licensing agreement (the Licensing Agreement) with an arms length
party (the Licensee) allowing the Licensee, for a two-year period, to utilize
the Companys Technology to create, test, manufacture, and sell
marijuana-infused consumable and/or topical products, in the state of Colorado,
with an option of extending the terms
of the Licensing Agreement to Washington, Oregon, and California (the
Territorial License). In addition to the granting of the license, the Company
is required to provide support services to the Licensee in connection with the
use of the Companys Technology during the term of the Licensing Agreement.
86
The Company determined that the
provision of the support services is a separate deliverable under the Licensing
Agreement. As the support services will not be sold on a stand-alone basis, the
Company is unable to establish a vendor-specific objective evidence of fair
value of such services to be able to objectively allocate the Territorial
License fee receipts between the license and the support services. Accordingly,
the Company recognizes revenue ratably over the term of the Licensing Agreement.
As of August 31, 2017, the Company had received the full $50,000 of the
Territory License Fee. During the year ended August 31, 2017, $25,417 was
recognized as revenue (Note 13) with the remaining $17,083 deferred for
recognition in future periods.
|
|
|
August 31
|
|
|
August 31
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
$
|
|
|
$
|
|
|
Balance Beginning
|
|
12,500
|
|
|
-
|
|
|
Territorial License fees received/receivable
(Note 6)
|
|
30,000
|
|
|
20,000
|
|
|
Advance payments on product
sales
|
|
4,900
|
|
|
-
|
|
|
Earned revenue (Note 13)
|
|
(30,317
|
)
|
|
(7,500
|
)
|
|
Balance Ending
|
|
17,083
|
|
|
12,500
|
|
10.
|
Convertible Debenture
|
On March 8, 2016, the Company closed a
private placement offering of a convertible debenture in the aggregate amount of
$45,000. The convertible debenture was to mature on August 31, 2020, with an
interest rate of 10% per annum (on a simple basis) and was convertible at
varying prices over time.
The Company determined that the
conversion options did not qualify as derivatives as they did not meet the net
settlement provision characteristics. The proceeds from the convertible
debenture therefore were not bifurcated on the balance sheet.
During the year ended August 31, 2017,
the Company paid interest of $4,500 (2016 - $2,250) in connection with the
convertible debenture.
As at August 31, 2017, the convertible
debenture was converted into common shares for the amount of $45,000 at $0.15
per share for 300,000 common shares plus the accrued interest of $1,125 for
7,500 shares for a total of 307,500 common shares issued on conversion.
11.
|
Common Shares and Warrants
|
Fiscal 2017 Activity
During September and October 2017 the
Company received $93,500 of private placement receivable (Note 6) as at August
31, 2016.
On October 11, 2016, pursuant to its
agreement with Docherty Management Ltd. (Note 16), the Company issued 252,000
common shares with a value of $35,760.
On October 11, 2016, pursuant to the
Advisory Agreement, the Company issued 750,000 warrants with an exercise price
of $0.14 per share and term of five years, in return for consulting services.
The Company recognized the fair value of $32,252 from 250,000 of such warrants
for services received during the year ended August 31, 2016, and further
recognized $59,490 for the remaining 500,000 warrants issued in return for
consulting services received during the year ended August 31, 2017.
87
The Company reached an agreement with a
director to settle the outstanding amount pursuant to an advisory agreement
(Note 14), through issuance of common shares of the Company.
Part 1 Date
|
Part
2 Amount
(2)
|
Part 3 Shares
|
Part 4 Price
|
Part 5 October 31, 2016
(1)
|
Part 6 $16,000
|
Part 7 114,286
|
Part 8 $0.14
|
Part 9 February 27, 2017
|
Part 10 $16,000
|
Part 11 29,091
|
Part 12 $0.55
|
Part 13 May 31, 2017
|
Part 14 $12,000
|
Part 15 35,294
|
Part 16 $0.34
|
Part 17 August 25, 2017
|
Part 18 $12,000
|
Part 19 32,433
|
Part 20 $0.37
|
(1) A Total of $8,000 of the $16,000
was recognized as consulting fees during the year ended August 31, 2016.
(2)
There was a $NIL difference between the fair value of the shares issued and the
carrying value of the debt.
On November 1, 2016, the Company issued
56,250 shares of its common stock for services amounting to $9,000, recognized
within accounts payable and accrued liabilities as at August 31, 2016.
On November 1, 2016, the Company issued
500,000 warrants to a consultant. Each warrant entitles the consultant to
purchase one common share of the Company at a price of $0.31 per share with a
term expiring on May 31, 2017. The Company recognized $48,313, representing the
fair value of such warrants.
During November, 2016, the Company
provided to its warrant holders, an incentive for early exercise of their
previously held warrants. Upon exercise of each warrant, in addition to the
common shares of the Company, the warrant holders received a second warrant with
identical terms to purchase one additional common share of the Company. The
Company raised $737,508 from this early exercise warrant incentive program. A
total of 3,245,000 warrants were exercised at a weighted average exercise price
of $0.23 and the Company issued 3,245,000 common shares as well as 3,245,000
additional warrants to purchase common shares with an exercise price of $0.23
per share, expiring on May 14, 2017. The fair value of these additional warrants
was determined to be $298,777, and is recorded within additional paid-in capital
with a net effect of $nil.
On January 10, 2017, the Company issued
500,000 warrants to a consultant. Each warrant entitles the consultant to
purchase one common share of the Company at a price of $0.44 per share with a
term expiring on January 9, 2018. The Company recognized $112,725, representing
the fair value of such warrants.
On April 3, 2017, the Company closed
its brokered private placement of 4,104,280 units at a price per Unit of $0.42
for total gross proceeds of $1,723,798. Each Unit consists of one common share
and one-half of one Share purchase warrant (2,052,140). Each whole Warrant
entitles the holder to acquire one common share of the Company at a price of
$0.60 per Share for a period of 24 months. The Agents received a cash commission
of seven percent ($120,666) of the gross proceeds and 287,300 compensation units
exercisable for a period of 24 months at an exercise price of $0.42 consisting
of one common share and one half share purchase warrant. Each whole compensation
warrant is exercisable for one common share at an exercise price of $0.60 for a
period of 24 months following closing. The fair value of these compensation
units was determined to be $64,162. There was $61,390 of other share issuance
costs.
On June 19, 2017, pursuant to the
agreement with Alex Blanchard Capital (Note 16) the Company issued 200,000
warrants exercisable at $0.29 for two years. The Company recognized $37,878,
representing the fair value of such warrants.
On June 22, 2017, pursuant to the
agreement with Mr. Chris Bunka (Note 16), the Company issued 210,000 common
shares at $0.295 per share for $61,950, for services rendered as the Chief
Executive Officer of the Company.
On June 22, 2017, pursuant to the
agreement with Mr. John Docherty (Note 16), the Company issued 210,000 common
shares at $0.295 per share for $61,950, for services rendered as the President
of the Company.
88
On August 15, 2017, the Company issued
500,000 warrants to a consultant. Each warrant entitles the consultant to
purchase one common share of the Company at a price of $0.44 per share with a
term expiring on August 14, 2018. The Company recognized $34,344, representing
the fair value of such warrants.
On August 25, 2017, the Company issued
307,500 shares at $0.15 per share of its common stock for the conversion of the
convertible debt of $45,000 plus accrued interest of $1,125 (Note 10).
During the year ended August 31, 2017,
a total of 1,014,125 incentive stock options were exercised for proceeds of
$177,262. A total of 10,322,025 warrants were exercised for proceeds of
$2,233,032, of which 3,245,000 warrants related to the early exercise warrant
incentive program.
Fiscal 2016 Activity
On September 16, 2015, the Companys
Board appointed Ted McKechnie as a Director of the Company. Mr. McKechnie was
issued 110,000 common shares of the Company valued at $19,000.
On December 10, 2015, Lexaria closed a
private placement by issuing 550,000 units for gross proceeds of $90,000. Each
unit consisted of one common share of the Company and one half transferable
share purchase warrant. Each full warrant is exercisable into one further share
at a price of $0.27 per share for a period of 24 months. A cash finders fee for
$2,520 was paid to Leede Financial Markets Ltd.; and 15,400 broker warrants with
an exercise price of $0.27 for a period of twenty-four months were also issued
to Leede Financial Markets Ltd. The fair value of these broker warrants was
determined to be $2,903.
On December 14, 2015, Lexaria signed an
investor relations contract with Radius Consulting Inc. for a fee of $2,500 and
55,000 common shares of Company valued at $9,500.
On April 15, 2016, pursuant to the
agreement with Mr. John Docherty (Note 16), the Company issued 210,000 common
shares valued at $21,000, for services rendered as the President of the Company.
On April 15, 2016, the Company closed a
private placement of 750,000 units at a price of $0.08 per unit for gross
proceeds of $60,000. Each unit consisted of one common share of the Company and
one non-transferrable share purchase warrant, entitling the holder to purchase
one additional common share in the capital of the Company for a period of 18
months at an exercise price of $0.15 per share. The Company also issued 8,750
broker warrants to Haywood Securities Ltd. The broker warrants have a term of 18
months and are each exercisable into one common share of the Company at a price
of $0.15. The fair value of these broker warrants was determined to be $805.
On June 6, 2016, the Company closed a
private placement of 700,000 units priced at $0.11 per unit for gross proceeds
of $77,000. Each unit consisted of one common share of the Company and one-half
of a non-transferrable share purchase warrant with each warrant entitling the
holder to purchase one additional common share of the Company for a period of
three years at an exercise price of $0.14 per share.
On July 28, 2016, pursuant to an
agreement, in return for marketing, branding, and investor relations advisory
services, the Company issued 250,000 common shares of the Company valued at
$0.12 per share (Note 16).
On August 10, 2016, the Company closed
a private placement by issuing 1,558,525 units at a price of $0.06 per unit for
gross proceeds of $93,512. Each unit consisted of one common share of the
Company and one non-transferable share purchase warrant entitling the holder to
purchase one additional common share in the capital of the Company for a period
of 24 months at an exercise price of $0.14 per share.
On August 31, 2016, the Company
completed a private placement by issuing 3,266,666 units at a price of $0.06 per
unit for gross proceeds of $196,000, of which $93,500 was collected during
September and October 2016. Each unit consisted of one common share of the
Company and one transferable share purchase warrant. Each full warrant is
exercisable into one further share at a price of $0.14 per share for a period of
24 months. A cash finders fee for $1,200 was paid and 50,000 broker warrants
with an exercise price of $0.14 for a period of twenty-four months were also
issued. The fair value of these broker warrants was determined to be $5,397.
A continuity schedule for warrants is
presented below:
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
Number of
|
|
|
Exercise Price
|
|
|
|
|
Warrants
|
|
|
$
|
|
|
Balance, August 31, 2015
|
|
19,840,186
|
|
|
0.23
|
|
|
Expired
|
|
(13,978,286
|
)
|
|
0.22
|
|
|
Issued
|
|
6,274,341
|
|
|
0.15
|
|
|
Balance, August 31, 2016
|
|
12,136,241
|
|
|
0.18
|
|
|
Cancelled/Expired
|
|
(1,004,150
|
)
|
|
0.22
|
|
|
Exercised
|
|
(10,322,025
|
)
|
|
0.23
|
|
|
Issued
|
|
8,034,440
|
|
|
0.36
|
|
|
Balance, August 31, 2017
|
|
8,844,506
|
|
|
0.29
|
|
89
The fair value of share purchase
warrants granted as broker warrants, compensation units, and compensatory
warrants, was estimated as of the date of the grant by using the Black-Scholes
option pricing model with the following assumptions:
|
|
|
August 31
|
|
|
August 31
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Expected volatility
|
|
102% - 138%
|
|
|
237% - 240%
|
|
|
Risk-free interest rate
|
|
0.65% - 1.27%
|
|
|
0.74% - 0.95%
|
|
|
Expected life
|
|
0.46 - 2 years
|
|
|
1.5 2 years
|
|
|
Dividend yield
|
|
0.00%
|
|
|
0.00%
|
|
|
Estimated fair value per option
|
|
$0.09 - $0.20
|
|
|
$0.09 - $0.19
|
|
A summary of warrants outstanding as of
August 31, 2017 is presented below:
|
# of Warrants
|
Weighted
|
Weighted
|
|
|
Average
|
Average
|
|
|
Remaining
|
Exercise Price
|
|
|
Contractual Life
|
$
|
|
625,000
|
0.04 years
|
0.15
|
|
290,400
|
0.28 years
|
0.27
|
|
500,000
|
0.36 years
|
0.23
|
|
450,000
|
0.95 years
|
0.14
|
|
2,839,666
|
1.00 years
|
0.14
|
|
2,052,140
|
1.59 years
|
0.60
|
|
287,300
|
1.59 years
|
0.42
|
|
350,000
|
1.76 years
|
0.14
|
|
750,000
|
4.11 years
|
0.14
|
|
200,000
|
1.80 years
|
0.29
|
|
500,000
|
0.95 years
|
0.44
|
|
8,844,506
|
1.34 years
|
0.29
|
The Company has established its 2014
Stock Option Plan whereby the board of directors may, from time to time, grant
up to 3,850,000 (post forward stock split) stock options to directors, officers,
employees, and consultants. Stock options granted must be exercised no later
than five years from the date of grant or such lesser period as determined by
the Companys board of directors. The exercise price of an option is equal to or
greater than the closing market price of the Companys common shares on the day
preceding the date of grant. The vesting terms of each grant are set by the
board of directors.
90
Fiscal 2017 Activity
On October 10, 2016, the Company
granted 250,000 stock options to a consultant for business advisory services.
The exercise price of the stock options is $0.14 per share, vesting immediately
and expiring on October 10, 2018. On June 2, 2017, the Company granted 200,000
stock options to an officer of the Company. The exercise price of the stock
options is $0.37 per share, vesting immediately and expiring five years from the
date of grant.
On June 21, 2017, the Company granted
300,000 stock options to a consultant, 100,000 vesting annually for 3 years,
with an exercise price of $0.295 and expiring five years from the date of grant.
The company also granted 100,000 options to consultants vesting immediately with
an exercise price of $0.295 and expiring five years from the date of grant.
During the year ended August 31, 2017,
the Company also recorded $113,044 of stock based compensation in Consulting on
the Income Statement of which $93,969 pertained to the stock options granted
during the period and $19,075 being the recognition of expense from previous
grants amortized from prepaid expenses. In 2016 the Company recorded $92,270 of
stock based compensation in Consulting and $29,745 in Investor Relations on the
Income Statement.
Fiscal 2016 Activity
On September 16, 2015, the Company
granted 110,000 stock options to a director of the Company. The exercise price
of the stock options is $0.17, vesting immediately and expiring on September 16,
2020.
On April 15, 2016, the Company granted
300,000 to an officer of the Company. The exercise price of the stock options is
$0.11 per share, vesting immediately and expiring on April 15, 2021.
On June 3, 2016, the Company granted
325,000 stock options to a consultant, vesting immediately, with an exercise
price of $0.14 and expiring five years from the date of grant.
A continuity schedule for stock options
is presented below:
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
Number of Options
|
|
|
Exercise Price
|
|
|
|
|
|
|
|
$
|
|
|
Balance, August 31, 2015
(vested and outstanding)
|
|
4,070,000
|
|
|
0.15
|
|
|
Expired
|
|
(385,000
|
)
|
|
0.32
|
|
|
Cancelled
|
|
(935,000
|
)
|
|
0.16
|
|
|
Granted
|
|
735,000
|
|
|
0.13
|
|
|
Balance, August 31, 2016
(vested and outstanding)
|
|
3,485,000
|
|
|
0.15
|
|
|
Exercised
|
|
(1,014,125
|
)
|
|
0.17
|
|
|
Granted
|
|
850,000
|
|
|
0.14
|
|
|
Balance, August 31, 2017 (outstanding)
|
|
3,320,875
|
|
|
0.15
|
|
|
Balance, August 31, 2017 (exercisable)
|
|
3,020,875
|
|
|
0.14
|
|
The fair value of options granted was
estimated as of the date of the grant by using the Black-Scholes option pricing
model with the following assumptions:
|
|
|
August 31
|
|
|
August 31
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Expected volatility
|
|
98% - 108%
|
|
|
240% - 241%
|
|
|
Risk-free interest rate
|
|
0.83% - 1.78%
|
|
|
1.22% - 1.62%
|
|
|
Expected life
|
|
2 - 5 years
|
|
|
5 years
|
|
|
Dividend yield
|
|
0.00%
|
|
|
0.00%
|
|
|
Estimated fair value per option
|
|
$0.07 - $0.27
|
|
|
$0.11 - $0.19
|
|
A summary of the Companys vested and outstanding
stock options as at August 31, 2017 is presented below:
|
Number of
|
Number of Stock
|
Weighted
|
Weighted
|
Aggregate
|
|
Stock
Options
|
Options
|
Average
|
Average
|
Intrinsic Value
|
|
|
Exercisable
|
Remaining
|
Exercise Price
|
|
|
|
|
Contractual Life
|
$
|
$
|
|
247,500
|
247,500
|
0.80 years
|
0.09
|
64,125
|
|
248,375
|
248,375
|
1.90 years
|
0.23
|
30,482
|
|
990,000
|
990,000
|
2.31 years
|
0.10
|
247,500
|
|
275,000
|
275,000
|
2.43 years
|
0.09
|
71,250
|
|
550,000
|
550,000
|
2.57 years
|
0.09
|
142,500
|
|
110,000
|
110,000
|
3.05 years
|
0.17
|
19,500
|
|
300,000
|
300,000
|
3.62 years
|
0.11
|
72,000
|
|
200,000
|
200,000
|
4.76 years
|
0.37
|
(4,000)
|
|
400,000
|
100,000
|
4.81
years
|
0.30
|
22,000
|
|
3,320,875
|
3,020,875
|
2.81 years
|
0.15
|
665,357
|
91
|
|
|
August 31
|
|
|
August 31
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
$
|
|
|
$
|
|
|
Product sales
|
|
16,866
|
|
|
31,743
|
|
|
Licensing revenue (Note 9)
|
|
45,809
|
|
|
7,500
|
|
|
Freight revenue
|
|
964
|
|
|
1,149
|
|
|
Other revenue
|
|
-
|
|
|
326
|
|
|
|
|
63,639
|
|
|
40,718
|
|
The Company recognizes licensing
revenue on a pro-rated basis over the term of the Licensing Agreement (Note 9)
and additional licensing fees as they are earned. As of August 31 2017 the
company had received all of the predefined Licensing payments to August 31 2017
for cash receipts of $50,000 of Licensing fees and $20,392 of additional fees.
During the year ended August 31, 2017, $25,417 of the $50,000 was included (2016
$7,500) on a pro-rated basis and $20,392 (2016 $NIL) of additional fees as
licensing revenue.
14.
|
Related Party Transactions
|
For the year ended August 31, 2017, the
Company paid/accrued the following:
|
|
|
August 31
|
|
|
August 31
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
$
|
|
|
$
|
|
|
Management, consulting and accounting
services:
|
|
|
|
|
|
|
|
C.A.B
Financial Services (CAB)
(1)
|
|
136,000
|
|
|
120,000
|
|
|
M&E Services Ltd.
(M&E)
(1)
|
|
54,963
|
|
|
30,794
|
|
|
Docherty
Management Limited (Docherty Management)
(1)
|
|
125,394
|
|
|
117,213
|
|
|
Company controlled by a
director consulting
|
|
48,000
|
|
|
8,000
|
|
|
BKB
Management Ltd. (former CFO)
|
|
-
|
|
|
44,767
|
|
|
Senior Vice President Executive
management consulting
|
|
-
|
|
|
18,000
|
|
|
|
|
364,357
|
|
|
338,431
|
|
(1)
CAB is owned by the CEO
of the Company, M&E is owned by the CFO of the Company, appointed June
1
st
2017, and Docherty Management Limited (Docherty Management) is
owned by the President of the Company.
92
|
|
|
Common shares
|
|
|
Fair value
|
|
|
Cash
|
|
|
Docherty Management (Note 11,16)
(1)
|
|
252,000
|
|
$
|
35,760
|
|
$
|
6,240
|
|
|
Docherty Management
(Note 11,16)
(2)
|
|
210,000
|
|
$
|
61,950
|
|
$
|
11,800
|
|
|
CAB (Note 11,16)
(2)
|
|
210,000
|
|
$
|
61,950
|
|
$
|
11,800
|
|
(1)
Issued in lieu of
issuance of 300,000 common shares, as mutually agreed to between the
parties.
(2)
Issued in lieu of issuance of 250,000
common shares, as mutually agreed to between the parties.
Other transactions with related
parties:
a) On July 25, 2016, the Company
entered into a loan agreement with CAB for a principal amount of $50,000. During
the year ended August 31, 2017, the Company repaid the full $50,000 principal to
CAB and also paid $1,515 in interest.
b) During the year ended August 31,
2017, the Company sold $5,058 (2016 $NIL) of products to a director and an
officer of the company and paid $1,341 in rent to an officer of the company.
Due to related parties:
As at August 31, 2017, $42,690 (August
31, 2016 - $331,371) was payable to related parties included in due to related
parties.
The related party transactions are
recorded at the exchange amount established and agreed to between the related
parties.
The Companys operations involve the
development and usage, including licensing, of its proprietary nutrient infusion
Technology. Lexaria is centrally managed and its chief operating decision
makers, being the president and the CEO, use the consolidated and other
financial information supplemented by revenue information by category of
alternative health consumer products and technology licensing to make
operational decisions and to assess the performance of the Company. The company
has identified two reportable segments: Intellectual Property Licensing and
Consumer Products. Licensing revenues are significantly concentrated on a single
licensee.
|
|
|
IP Licensing
|
|
|
Consumer Products
|
|
|
Corporate
|
|
|
Consolidated Total
|
|
|
External Revenue
|
|
45,809
|
|
|
17,830
|
|
|
-
|
|
|
63,639
|
|
|
CoGS
|
|
-
|
|
|
29,750
|
|
|
-
|
|
|
29,750
|
|
|
Operating Expenses
|
|
360,256
|
|
|
120,935
|
|
|
1,482,162
|
|
|
1,963,354
|
|
|
Segment Loss
|
|
(314,447)
|
|
|
(132,856)
|
|
|
(1,482,162)
|
|
|
(1,929,465)
|
|
|
Total Assets
|
|
62,827
|
|
|
69,030
|
|
|
2,728,321
|
|
|
2,860,178
|
|
16.
|
Commitments, Significant Contracts and
Contingencies
|
Management and Service
Agreements
As at August 31, 2017, the Company is
party to the following contractual commitments:
|
Party
|
|
Monthly Commitment
|
|
|
Expiry Date
|
|
|
C.A.B Financial Services
(1)
(2)
|
|
$12,000
|
|
|
November 30,
2018
|
|
|
Docherty Management Ltd.
(1)
(2)
|
|
CAD $15,000
|
|
|
March 1, 2018
|
|
|
M&E Services Ltd.
(1)
|
|
CAD $8,000
|
|
|
June 1, 2018
|
|
|
Corporate Development
(3)
(4)
|
|
CAD $4,000
|
|
|
Month to Month
|
|
|
|
|
|
|
|
|
|
|
Advisory Agreement
|
|
CAD $4,000
|
|
|
March 24, 2018
|
|
|
Investor relations and
communications Alex Blanchard Capital
(1)
|
|
CAD $7,500
|
|
|
December 19,
2017
|
|
|
Research & Development
|
|
CAD $3,854
|
|
|
June 19, 2018
|
|
93
Revenue Incentive Milestones
(1)
100,000 common shares
issuable upon the Company achieving non-refundable revenues of $200,000 to any
single customer in any consecutive 60-day period for the first 12 months of the
contract, plus a further 50,000 common shares issuable upon achieving
non-refundable revenues of $200,000 to any single customer in any consecutive
60-day period, during the 13th - 24th months of the contract. If the Company
achieves non-refundable revenues of $500,000 in any fiscal quarter, a further
200,000 common shares may be issuable during the first 12 months of the contract
and 100,000 common shares during the 13th - 24th months of the contract.
Intellectual Property Milestones
(2)
During the term of the
agreement, for each provisional patent application substantively devised and
successfully created, written, and filed with the U.S. Patent Office for the
Companys Technology, 250,000 restricted common shares of the Company will be
issuable.
Corporate Development
Milestones
(3)
For new customers
sourced by the Consultant until July 10, 2017; for combined Lexaria Energy and
ViPova products and including all combined sales efforts and/or technology
licensing revenues, achieving non-refundable revenues of $200,000 to any single
customer in any consecutive 60-day period would result in a restricted common
share award of 100,000 Company shares (not achieved); and, from July 11, 2017,
until July 10, 2018; a restricted common share award of 50,000 Company shares
may be achieved; this clause is limited to one payment per customer during the
12-month period, but payable on each customer that meets these sales/licensing
thresholds.
(4)
For new customers
sourced by the Consultant until July 10, 2017; for combined Lexaria Energy and
ViPova products and including all combined sales efforts and/or technology
licensing revenues, achieving non-refundable revenues of $500,000 in any fiscal
quarter would result in a restricted common share award of 200,000 Company
shares (not achieved); and, from July 11, 2017, until July 10, 2018; for
combined Lexaria Energy and ViPova products and including all sales efforts,
achieving non-refundable revenues of $500,000 in any fiscal quarter would result
in a restricted common share award of 100,000 Company shares; this clause is
limited to one payment per fiscal quarter.
The following table reconciles the
income tax benefit at the U.S. Federal statutory rate to income tax benefit at
the Companys effective tax rates as at August 31, 2017 and 2016:
|
|
|
August 31
|
|
|
August 31
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Loss before taxes
|
|
(1,933,473
|
)
|
|
(1,277,249
|
)
|
|
Expected income tax recovery
|
|
(676,716
|
)
|
|
(447,037
|
)
|
|
Non-deductible items
|
|
242,716
|
|
|
101,040
|
|
|
Change in estimates
|
|
(174,135
|
)
|
|
(897,713
|
)
|
|
Change in valuation allowance
|
|
608,216
|
|
|
1,243,710
|
|
|
Total income taxes
|
|
-
|
|
|
-
|
|
Deferred taxes reflect the tax effects
of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes. Deferred tax assets at August 31, 2017 and
2016 are comprised of the following:
94
|
|
|
August 31
|
|
|
August 31
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
$
|
|
|
$
|
|
|
Non-capital losses
|
|
4,567,920
|
|
|
3,959,704
|
|
|
Valuation allowance
|
|
(4, 567,920
|
)
|
|
(3,959,704
|
)
|
|
Net deferred tax assets recognized
|
|
-
|
|
|
-
|
|
The Company has net operating loss
carryforwards of approximately $13,051,000 which may be carried forward to apply
against future year income tax for U.S. tax purposes.
|
Year
|
|
Amount
|
|
|
2025
|
|
76,000
|
|
|
2026
|
|
508,000
|
|
|
2027
|
|
1,056,000
|
|
|
2028
|
|
720,000
|
|
|
2029
|
|
753,000
|
|
|
2030
|
|
552,000
|
|
|
2031
|
|
538,000
|
|
|
2032
|
|
252,000
|
|
|
2033
|
|
344,000
|
|
|
2034
|
|
3,257,000
|
|
|
2035
|
|
2,268,000
|
|
|
2036
|
|
989,000
|
|
|
2037
|
|
1,738,000
|
|
|
|
|
13,051,000
|
|
95
|
a)
|
On September 15th, 2017, the Company issued 625,000
shares of its common stock from the exercise of warrants previously
granted for proceeds of $93,750. All warrants were exercised by third
parties who are neither officers nor directors of the Company.
|
|
|
|
|
b)
|
On October 31st, 2017, the Company announced it received
a Notice of Allowance from the United States Patent and Trademark Office
(USPTO) for the use of its technology as a delivery platform for all
cannabinoids including THC; fat soluble vitamins; non steroidal
anti-inflammatory pain medications (NSAIDs); and nicotine. The patent
application number is 15/225,799, Food and Beverage Compositions Infused
With Lipophilic Active Agents and Methods of Use Thereof.
|
|
|
|
|
c)
|
On November 2nd, 2017, the Company announced it acquired
100% ownership interest in its majority owned subsidiary PoViva Tea, LLC.
The Company previously owned a 51% interest in PoViva Tea, LLC and
acquired the remaining 49% interest. Compensation was US$70,000, a waiver
on certain debts, and a 5%, 20- year royalty on net profits of ViPova
Tea
TM
tea, coffee, and hot chocolate sales. No Lexaria stock or
options were issued.
|
|
|
|
|
d)
|
On November 8th, 2017, the Company issued 419,250 shares
of its common stock from the exercise of options and warrants previously
granted for proceeds of $69,736. All options and warrants were exercised
by third parties who are neither officers nor directors of the
Company.
|
|
|
|
|
e)
|
On November 22nd, 2017, the Company issued 427,687 shares
of its common stock from the exercise of warrants previously granted for
proceeds of $129,416. All options and warrants were exercised by third
partieswho are neither officers nor directors of the Company.
|
96
FINANCIAL STATEMENTS
97
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Directors of
Lexaria Bioscience Corp.
We have audited the accompanying consolidated financial
statements of Lexaria Bioscience Corp. (the Company), which comprise the
consolidated balance sheet as of August 31, 2016, and the related consolidated
statements of operations and comprehensive loss, changes in stockholders equity
and cash flows for the year ended August 31, 2016. These consolidated financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
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 the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Lexaria Bioscience Corp. as of August 31, 2016, and the results of its
operations and its cash flows for the year ended August 31, 2016, in conformity
with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been
prepared assuming that Lexaria Bioscience Corp. will continue as a going
concern. As discussed in Note 1 to the consolidated financial statements, the
Lexaria Bioscience Corp. has suffered recurring losses from operations. This
matter, along with the other matters set forth in Note 1, indicate the existence
of material uncertainties that raises substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
|
DAVIDSON & COMPANY LLP
|
|
|
Vancouver, Canada
|
Chartered Professional Accountants
|
|
|
November 24, 2016
|
|
98
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 August 31, 2015 and October 31, 2014 and the related statements
of stockholders equity and comprehensive income, operations and cash flows for
the years then ended August 31, 2015 and the ten-month period ended August 31,
2014. 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. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits 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 audits 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 August 31, 2015 and August 31, 2014 and the result of its operations and
its cash flows for the year then ended August 31, 2015 and the ten- month period
ended August 31, 2014 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
|
|
November 24, 2015
|
Chartered Accountants
|
99
LEXARIA BIOSCIENCE CORP.
|
CONSOLIDATED BALANCE SHEETS
|
(Expressed in U.S. Dollars)
|
|
|
August 31
|
|
|
August 31
|
|
|
|
2016
|
|
|
2015
|
|
ASSETS
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Cash
|
$
|
93,409
|
|
$
|
260,075
|
|
Accounts and other
receivable (Note 6)
|
|
131,083
|
|
|
31,382
|
|
Inventory
(Note 7)
|
|
134,724
|
|
|
167,986
|
|
Prepaid expenses and
deposit
|
|
150,950
|
|
|
215,290
|
|
|
|
510,166
|
|
|
674,733
|
|
Patent (Note 8)
|
|
53,997
|
|
|
36,989
|
|
Equipment
|
|
2,475
|
|
|
-
|
|
|
|
56,472
|
|
|
36,989
|
|
TOTAL ASSETS
|
$
|
566,638
|
|
$
|
711,722
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
$
|
90,010
|
|
$
|
33,073
|
|
Unearned revenue (Note 9)
|
|
12,500
|
|
|
-
|
|
Due to
related parties (Note 15)
|
|
331,371
|
|
|
22,052
|
|
Total Current Liabilities
|
|
433,881
|
|
|
55,125
|
|
Convertible debenture
(Note 10)
|
|
45,000
|
|
|
-
|
|
TOTAL LIABILITIES
|
|
478,881
|
|
|
55,125
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
Share Capital
|
|
|
|
|
|
|
Authorized:
220,000,000
common voting shares with a par value of $0.001 per
share
Issued and outstanding:
51,288,477 common shares at August 31,
2016
and 43,838,282 common shares
at August 31, 2015
|
|
51,288
|
|
|
43,838
|
|
Additional paid-in
capital
|
|
11,515,419
|
|
|
10,814,460
|
|
Deficit
|
|
(11,300,662
|
)
|
|
(10,085,889
|
)
|
Equity attributable to
shareholders of the Company
|
|
266,045
|
|
|
772,409
|
|
Non-Controlling Interest
|
|
(178,288
|
)
|
|
(115,812
|
)
|
Total Stockholders'
Equity
|
|
87,757
|
|
|
656,597
|
|
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY
|
$
|
566,638
|
|
$
|
711,722
|
|
The accompanying notes are an integral party of these
consolidated financial statements.
100
LEXARIA BIOSCIENCE CORP.
|
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
|
(Expressed in U.S. Dollars, except number of
shares)
|
|
|
YEAR
ENDED
|
|
|
|
August 31
|
|
|
August 31
|
|
|
|
2016
|
|
|
2015
|
|
Revenue
|
|
|
|
|
|
|
Sales (Note
13)
|
$
|
40,718
|
|
$
|
14,702
|
|
Cost of Goods Sold
|
|
|
|
|
|
|
Cost of
goods sold
|
|
45,615
|
|
|
29,883
|
|
Gross loss
|
|
(4,897
|
)
|
|
(15,181
|
)
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
Accounting
and audit
|
|
95,921
|
|
|
52,823
|
|
Depreciation
|
|
619
|
|
|
-
|
|
Insurance
|
|
17,237
|
|
|
10,095
|
|
Advertising and promotions
|
|
185,459
|
|
|
276,560
|
|
Bank
charges and exchange loss
|
|
15,382
|
|
|
850
|
|
Stock based compensation (Note 12)
|
|
-
|
|
|
-
|
|
Consulting
(Note 15)
|
|
657,813
|
|
|
1,091,706
|
|
Fees and dues
|
|
-
|
|
|
-
|
|
Interest
expense from loan payable (Note 15)
|
|
2,250
|
|
|
31,544
|
|
Investor relation
|
|
61,574
|
|
|
18,000
|
|
Legal and
professional
|
|
37,939
|
|
|
45,928
|
|
Office and miscellaneous
|
|
97,077
|
|
|
166,692
|
|
Research
and development
|
|
9,024
|
|
|
146,466
|
|
Rent
|
|
-
|
|
|
-
|
|
Telephone
|
|
-
|
|
|
-
|
|
Taxes
|
|
3,983
|
|
|
3,578
|
|
Travel
|
|
44,034
|
|
|
101,183
|
|
MMJ expense
|
|
-
|
|
|
22,664
|
|
Inventory
write-off (Note 7)
|
|
44,040
|
|
|
-
|
|
|
|
1,272,352
|
|
|
1,968,089
|
|
Loss for the year before other income
|
|
(1,277,249
|
)
|
|
(1,983,270
|
)
|
Income from discontinued operations (Note 14)
|
|
-
|
|
|
48,918
|
|
Net loss and comprehensive loss for the
year
|
$
|
(1,277,249
|
)
|
$
|
(1,934,352
|
)
|
Net loss and comprehensive
loss attributable to:
|
|
|
|
|
|
|
Common
shareholders
|
$
|
(1,214,773
|
)
|
$
|
(1,770,500
|
)
|
Non-controlling interest
|
$
|
(62,476
|
)
|
$
|
(163,852
|
)
|
|
|
|
|
|
|
|
Basic and diluted loss per
share from continuing operations
|
$
|
(0.03
|
)
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
Basic and diluted earnings
per share from discontinued operations
|
$
|
0.00
|
|
$
|
0.00
|
|
Weighted average number of common shares
outstanding
|
|
|
|
|
|
|
- Basic and diluted
|
|
43,840,378
|
|
|
39,700,841
|
|
The accompanying notes are an integral party of these
consolidated financial statements.
101
LEXARIA BIOSCIENCE CORP.
|
CONSOLIDATED STATEMENT OF CASH FLOWS
|
(Expressed in U.S. Dollars)
|
|
|
YEAR
ENDED
|
|
|
|
August 31
|
|
|
August 31
|
|
|
|
2016
|
|
|
2015
|
|
Cash flows used in
operating activities
|
|
|
|
|
|
|
Net loss for the year
|
$
|
(1,277,249
|
)
|
$
|
(1,983,270
|
)
|
Income
loss from discontinued operations
|
|
-
|
|
|
48,918
|
|
Net loss from operations
|
|
(1,277,249
|
)
|
|
(1,934,352
|
)
|
Adjustments to reconcile net
loss to net cash used in operating activities:
|
|
|
|
|
|
|
Stock based compensation
|
|
122,015
|
|
|
256,051
|
|
Depreciation
|
|
619
|
|
|
-
|
|
Inventory write-off
|
|
44,040
|
|
|
-
|
|
Research and development
|
|
-
|
|
|
73,040
|
|
MMJ
Joint Venture
|
|
-
|
|
|
22,662
|
|
Common shares issued for services
|
|
79,500
|
|
|
127,300
|
|
Warrants to be issued for services
|
|
32,252
|
|
|
-
|
|
Change in
working capital:
|
|
|
|
|
|
|
Accounts and other receivable
|
|
(6,201
|
)
|
|
65,620
|
|
Inventory
|
|
(10,778
|
)
|
|
(167,985
|
)
|
Prepaid expenses and deposit
|
|
26,190
|
|
|
96,834
|
|
Accounts payable and accrued liabilities
|
|
56,937
|
|
|
(60,480
|
)
|
Due
to related parties
|
|
259,319
|
|
|
20,283
|
|
Unearned revenue
|
|
12,500
|
|
|
-
|
|
Net cash used in operating activities
|
|
(660,856
|
)
|
|
(1,501,027
|
)
|
|
|
|
|
|
|
|
Cash flows used in investing
activities
|
|
|
|
|
|
|
Proceeds
from sale of oil and gas property
|
|
-
|
|
|
721,806
|
|
Patent
|
|
(17,008
|
)
|
|
(36,989
|
)
|
Acquisition of equipment
|
|
(3,094
|
)
|
|
-
|
|
Net cash provided by (used in) investing
activities
|
|
(20,102
|
)
|
|
684,817
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
Proceeds
from (Payments of) loans/convertible debentures
|
|
95,000
|
|
|
(98,742
|
)
|
Proceeds from issuance of
equity
|
|
419,292
|
|
|
471,997
|
|
Net cash from financing
Activities
|
|
514,292
|
|
|
373,255
|
|
|
|
|
|
|
|
|
Decrease in cash
|
|
(166,666
|
)
|
|
(442,955
|
)
|
Cash, beginning of year
|
|
260,075
|
|
|
703,030
|
|
Cash, end of year
|
$
|
93,409
|
|
$
|
260,075
|
|
Supplemental information of cash
flows:
|
|
|
|
|
|
|
Interest
paid in cash
|
$
|
2,250
|
|
$
|
98,742
|
|
Income taxes paid in cash
|
$
|
-
|
|
$
|
-
|
|
Subscription funds receivable
|
$
|
93,500
|
|
$
|
-
|
|
Stock based compensation
recognized from prepaid expense
|
$
|
38,150
|
|
$
|
55,317
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
102
LEXARIA BIOSCIENCE CORP.
|
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
|
(Expressed in U.S. Dollars)
|
|
|
COMMON STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADDITIONAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PAID-IN
|
|
|
SHARES TO
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
SHARES
|
|
|
AMOUNT
|
|
|
CAPITAL
|
|
|
BE ret/issued
|
|
|
DEFICIT
|
|
|
NCI
|
|
|
EQUITY
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2014
|
|
37,674,659
|
|
|
37,674
|
|
|
10,030,013
|
|
|
(35,200
|
)
|
|
(8,315,389
|
)
|
|
-
|
|
|
1,717,098
|
|
Shares Cancelled
|
|
(671,000
|
)
|
|
(671
|
)
|
|
(79,529
|
)
|
|
35,200
|
|
|
-
|
|
|
-
|
|
|
(45,000
|
)
|
Shares issued for private
placement
|
|
5,835,720
|
|
|
5,836
|
|
|
507,044
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
512,880
|
|
Non-controlling Interest
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(115,812
|
)
|
|
(115,812
|
)
|
Shares issued for services
|
|
998,903
|
|
|
999
|
|
|
155,033
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
156,032
|
|
Stock based compensation
|
|
-
|
|
|
-
|
|
|
197,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
197,000
|
|
Return of commission from
previous private placement
|
|
-
|
|
|
-
|
|
|
4,899
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,899
|
|
Net loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,770,500
|
)
|
|
-
|
|
|
(1,770,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2015
|
|
43,838,286
|
|
|
43,838
|
|
|
10,814,460
|
|
|
-
|
|
|
(10,085,889
|
)
|
|
(115,812
|
)
|
|
656,597
|
|
Shares issued for services
|
|
625,000
|
|
|
625
|
|
|
78,875
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
79,500
|
|
Non-controlling Interest
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(62,476
|
)
|
|
(62,476
|
)
|
Stock based compensation
|
|
-
|
|
|
-
|
|
|
83,865
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
83,865
|
|
Private placement of shares, net of issuance
cost
|
|
5,266,858
|
|
|
5,267
|
|
|
414,025
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
419,292
|
|
Private placement
subscription receivable
|
|
1,558,333
|
|
|
1,558
|
|
|
91,942
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
93,500
|
|
Warrants to be issued for services
|
|
-
|
|
|
-
|
|
|
32,252
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
32,252
|
|
Net loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,214,773
|
)
|
|
-
|
|
|
(1,214,773
|
)
|
Balance, August 31, 2016
|
|
51,288,477
|
|
|
51,288
|
|
|
11,515,419
|
|
|
-
|
|
|
(11,300,662
|
)
|
|
(178,288
|
)
|
|
87,757
|
|
The accompanying notes are an integral part of these
consolidated financial statements
103
LEXARIA BIOSCIENCE CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
August 31, 2016
|
(Expressed in U.S. Dollars)
|
1.
|
Organization, Business and Going Concern
|
|
|
|
Lexaria Biosciences Corp. (Lexaria, or the Company)
Company was formed on December 9, 2004 under the laws of the State of
Nevada as an independent oil and gas company engaged in the exploration,
development and acquisition of oil and gas properties in the United States
and Canada. In March of 2014, the Company began its entry into the
medicinal marijuana and alternative health and wellness business and
discontinued its involvement in the oil and gas business in November 2014.
In May 2016, the Company also commenced out- licensing its patented
technology for the purpose of entering into the U.S. regulated medical and
adult use cannabis edibles marketplace. The Company has offices in
Vancouver and Kelowna, BC, Canada.
|
|
|
|
On November 24, 2015, our board of directors approved a
forward stock split of our authorized and issued and outstanding shares of
common stock on a basis of 1 old share of common stock for 1.1 new shares
of common stock. Upon effect of the forward stock split our authorized
capital increased to 220,000,000 shares of common stock, par value $0.001
and our issued and outstanding shares increased from 39,952,984 to
43,948,282 shares of common stock, with a par value of $0.001. The forward
stock split has been reviewed by the Financial Industry Regulatory
Authority ("FINRA") and the Canadian Securities Exchange ("CSE") and was
approved for filing with an effective date of December 16, 2015. The
forward split became effective with the OTC Markets at the opening of
trading on December 16, 2015. Our new CUSIP number is 52886N307.
|
|
|
|
The Companys consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in
the United States (U.S. GAAP) applicable to a going concern, which
contemplates the realization of assets and the satisfaction of liabilities
and commitments in the normal course of business. The Company has a net
loss attributable to its common shareholders of $1,214,773 for the year
ended August 31, 2016 (2015: $1,770,500) and at August 31, 2016 had a
deficit accumulated since its inception of $11,300,662 (2015:
$10,085,889). The Company has a working capital balance of $76,285 as at
August 31, 2016 (2015: $619,608). The Company requires additional funds to
maintain its operations and developments. These conditions raise
substantial doubt about the Companys ability to continue as a going
concern. Managements plans in this regard are to raise equity and debt
financing as required, but there is no certainty that such financing will
be available or that it will be available at acceptable terms. The outcome
of these matters cannot be predicted at this time and the financing
environment continues to be difficult.
|
|
|
|
These consolidated 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.
|
|
|
2.
|
Business Risk and Liquidity
|
|
|
|
The Company is subject to several categories of risk
associated with its operating activities. The production and sale of
alternative health products is an emerging industry in which business
practices are not yet standardized and are subject to frequent scrutiny
and evaluation by federal, state, provincial, and municipal authorities,
academics, and media outlets, among others. Although we intend to develop
our businesses in accordance with best ethical practices, we may suffer
negative publicity if we, our partners, contractors, or customers are
found to have engaged in any environmentally insensitive practices or
other business practices that are viewed as unethical.
|
|
|
|
Our operations may require licenses and permits from
various governmental authorities. We believe that we will be able to
obtain all necessary licenses and permits under applicable laws and
regulations for our operations and believe we will be able to comply in
all material respects with the terms of such licenses and permits.
However, such licenses and permits are subject to change in various
circumstances. There can be no guarantee that we will be able to obtain or
maintain all necessary licenses and permits, and failing to obtain or
retain required licenses could have a materially adverse effect on the
Company.
|
104
3.
|
Significant Accounting
Policies
|
These consolidated financial statements
have been prepared in conformity with generally accepted accounting principles
of the United States of America. All amounts, unless otherwise stated, are in
United States dollars.
On December 16, 2015, the Company
completed a forward stock split of our authorized and issued and outstanding
shares of common stock on a basis of 1 old share of common stock for 1.1 new
shares of common stock. The forward stock split affected all the issued and
outstanding common shares, stock options, and warrants at the effective date.
All common shares numbers, numbers of stock options, and warrants and related
per share amounts disclosed in these consolidated financial statements have been
retroactively adjusted to reflect the forward stock split.
|
w)
|
Basis of Consolidation
|
These consolidated financial statements
include the financial statements of the Company, its wholly-owned subsidiary,
Lexaria CanPharm Corp. which was incorporated on April 4, 2014 under the laws of
Canada, and 51%-owned subsidiary PoViva Tea, LLC which was incorporated on
December 12, 2014, under the laws of the State of Nevada. All significant
inter-company balances and transactions have been eliminated.
Revenue from the sale of health
products is generally recognized when persuasive evidence of an arrangement
exists, delivery has occurred, the sales price is fixed or determinable, and
collectability is reasonably assured. In most cases, these conditions are met
when the product is shipped to the customer. The Company reports its sales net
of the amount of actual sales returns and the amount of reserves established for
anticipated sales returns based upon historical return rates. Sales tax
collected from customers is excluded from net sales.
Lexaria also enters into agreements to
license out its patented technology that can include various combinations of
services. Where elements are delivered over different periods of time, and when
allowed under U.S. GAAP, revenue is allocated to the respective elements based
on their relative selling prices at the inception of the arrangement, and
revenue is recognized as each element is delivered. The Company uses a hierarchy
to determine the fair value to be used for allocating revenue to elements: (i)
vendor-specific objective evidence of fair value (VSOE), (ii) third-party
evidence and (iii) best estimate of selling price (ESP). Generally VSOE is the
price charged when the deliverable is sold separately or the price established
by management for a product that is not yet sold if it is probable that the
price will not change before introduction into the marketplace. ESPs are
established as best estimates of what the selling prices would be if the
deliverables were sold regularly on a stand-alone basis. Given Lexarias early
stage of such line of revenue, the Companys process for determining the VSOE
and ESP requires judgment and considers multiple factors that may vary overtime
depending upon the unique facts and circumstances related to each
deliverable.
|
y)
|
Inventory and Cost of
Sales
|
The Companys inventory consists of
finished goods, work in progress, and raw materials. In all classes, inventory
is valued at the lower of cost or market. Cost is determined on a first-in,
first-out basis.
Cost of sales includes all expenditures
incurred in bringing the goods to the point of sale. Inventory costs and costs
of sales include direct costs of the raw material, inbound freight charges,
warehousing costs, handling costs (receiving and purchasing) and utilities and
overhead expenses related to the Companys manufacturing and processing facilities.
105
|
z)
|
Cash and Cash Equivalents
|
Cash equivalents comprise certain
highly liquid instruments with a maturity of three months or less when
purchased. As of August 31, 2016, and August 31, 2015, cash and cash equivalents
consist of cash only.
Equipment is stated at cost less
accumulated depreciation, and depreciated using the straight-line method over
its useful life of five years.
Capitalized patent costs represent
legal costs incurred to establish patents. When patents reach a mature stage,
any associated legal costs are comprised mostly of maintenance fees and are
expensed as incurred. Capitalized patent costs are amortized on a straight-line
basis over the remaining life of the patent. The Company was granted its first
patent subsequent to the year ended August 31, 2016, with legal life of 20
years.
|
cc)
|
Stock-Based Compensation
|
Company accounts for its stock-based
compensation awards in accordance with ASC Topic 718, CompensationStock
Compensation (ASC 718). ASC 718 requires all stock-based payments to
employees, including grants of employee stock options, to be recognized as
expense in the statements of operations based on their grant date fair values.
For stock options granted to employees and to members of the Board of Directors
for their services on the Board of Directors, the Company estimates the grant
date fair value of each option award using the Black-Scholes option-pricing
model. The use of the Black-Scholes option-pricing model requires management to
make assumptions with respect to the expected term of the option, the expected
volatility of the common stock consistent with the expected life of the option,
risk-free interest rates and expected dividend yields of the common stock.
Stock-based payments issued to
non-employees are recorded at their fair values, and are periodically revalued
as the equity instruments vest and are recognized as expense over the related
service period in accordance with the provisions of ASC 718 and ASC Topic 505,
Equity. For equity instruments granted to non-employees, the Company recognizes
stock-based compensation expense on a straight-line basis.
The Company applies the guidance in ASC
220 Earnings Per Share. Loss per share is computed using the weighted average
number of shares outstanding during the period. Diluted loss per share is
equivalent to basic loss per share because the potential exercise of the
equity-based financial instruments was anti-dilutive.
|
ee)
|
Foreign Currency
Translation
|
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 profit or loss.
|
ff)
|
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:
106
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, accounts and other receivable, accounts payable and
accrued liabilities, due to related parties, and convertible debenture. The
carrying amounts of cash, accounts and other receivable, accounts payable and
accrued liabilities, and due to related parties approximate their fair values
due to their short maturities. The carrying value of the Companys convertible
debenture approximates its fair values (using Level 3 inputs) 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
foreign currency exchange risk is the financial 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 as the Company does
not hold a significant position in foreign currencies, such as the Canadian
dollars, and the impact of a change in a few basis points for USD/CAD is not
expected to be material.
The Company applies the guidance in 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.
|
hh)
|
Impairment of Long-Lived
Assets
|
Long-lived assets, including equipment,
and intangible assets, such as the Companys patents, are assessed for potential
impairment when there is evidence that events or changes in circumstances
indicate that the carrying amount of an asset may not be recovered. An
impairment loss is recognized when the carrying amount of the long-lived asset
is not recoverable and exceeds its fair value. The carrying amount of a
long-lived asset is not recoverable if it exceeds the sum of the undiscounted
cash flows expected to result from the use and eventual disposition of the
asset. Any required impairment loss is measured as the amount by which the
carrying amount of the long-lived asset exceeds its fair value and is recorded
as a reduction in the carrying value of the related asset and a charge to the
profit or loss. Intangible assets with indefinite lives are tested for
impairment annually and in interim periods if certain events occur indicating
that the carrying value of the intangible assets may be impaired.
The Company applies ASC 220,
Comprehensive Income, which establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. The Company
discloses 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.
|
jj)
|
Credit Risk and Receivable
Concentration
|
The Company places its cash with high
credit quality financial institution. As of August 31, 2016, the Company had approximately $93,000 in the bank (August 31, 2015:
$260,000).
107
As at August 31, 2016, the Company also
has $93,500 in private placement subscriptions receivable from five share
subscriptions from arms length parties (which were all received in September
2016), and a further $27,583 (2015 - $31,382) in sales tax receivable. An
additional $10,000 was receivable as at August 31, 2016 in relation to the
Companys licensing agreement (Note 9), which was also received subsequent to
the year-end. The Company considers its credit risk to be low for such
receivable.
|
kk)
|
Convertible Debenture
|
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.
|
ll)
|
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.
|
mm)
|
Research and Development
|
Research and development costs are
expensed as incurred.
The Company expenses advertising costs
as they are incurred. The advertising expenses were $185,459 and $276,560 for
the years ended August 31, 2016 and 2015, respectively.
|
oo)
|
Discontinued Operations
|
The results of discontinued operations
are presented separately, net of tax, from the results of ongoing operations for
all periods presented. The expenses included in the results of discontinued
operations are the direct operating expenses incurred by the disposed components
that may be reasonably segregated from the costs of the ongoing operations of
the Company. Lexaria disposed of its oil and gas interests during the year ended
August 31, 2015 (Note 14)
4.
|
Estimates and Judgments
|
|
|
|
The preparation of financial statements in conformity
with U.S GAAP requires us to make certain estimates, judgments and
assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Some of the Companys accounting policies require us to
make subjective judgments, often as a result of the need to make estimates
of matters that are inherently uncertain. These accounting policies
involve critical accounting estimates because they are particularly
dependent on estimates and assumptions made by management about matters
that are highly uncertain at the time the accounting estimates are made.
Although we have used our best estimates based on facts and circumstances
available to us at the time, different estimates reasonably could have
been used. Changes in the accounting estimates used by the Company are
reasonably likely to occur from time to time, which may have a material
effect on the presentation of financial condition and results of
operations.
|
|
|
|
The Company reviews these estimates, judgments and
assumptions periodically and reflect the effects
of revisions in the period in which they are deemed to be
necessary. We believe that these estimates are reasonable; however, actual
results could differ from these estimates Significant accounting estimates and
assumptions are used for, but not limited to:
|
108
|
e)
|
The Valuation of Deferred Tax Assets
|
|
|
|
|
|
Judgement is required in determining whether deferred tax
assets are recognized on the balance sheet. The recognition of deferred
tax assets requires management to assess the likelihood that the Company
will generate taxable income in future periods to utilize the deferred tax
assets. Due to the Companys history of losses, deferred tax assets have
not be recognized by Lexaria.
|
|
|
|
|
f)
|
Convertible Debenture
|
|
|
|
|
|
The Company entered into a convertible debenture
agreement on March 8, 2016 (Note 10) and evaluated the terms of the
various conversion options to assess if separate accounting is required
for such embedded features, which are adjusted to fair value through
earnings at each reporting period. The Company determined that the
embedded features within the debenture do not meet the net settlement
provision characteristic of a derivative and as a result, did not apply
the bifurcation requirements for such conversion options.
|
|
|
|
|
g)
|
Revenue Recognition of Licenses
|
|
|
|
|
|
Pursuant to the license agreement for the Companys lipid
infusion technology (the Technology) (Note 9), the licensee acquired
territorial licenses for an upfront fee. The Company is also required to
provide support services in connection with the licensees use of the
Technology over the term of the license. As the support services will not
be sold on a stand-alone basis, the Company is unable to establish VSOE of
their fair value to be able to allocate the proceeds objectively to such
services and the license. Accordingly, the up-front fee is being
recognized ratably over the term of the license, which is initially for
two years.
|
|
|
|
|
h)
|
Value of Stock Options
|
|
|
|
|
|
The Company provides compensation benefits to its
employees, directors, officers, and consultants, through a stock option
plan. The fair value of each option award is estimated on the date of
grant using the Black-Scholes option pricing model. Expected volatility
assumption used in the model is based on the historical volatility of the
Companys share price. The Company uses historical data to estimate the
period of option exercises for use in the valuation model. The risk-free
interest rate for the expected term of the option is based on the yields
of government bonds. Changes in these assumptions, especially the share
price volatility and the expected life determination could have a material
impact on the Companys profit and loss for the periods presented. All
estimates used in the model are based on historical data which may not be
representative of future results.
|
5.
|
New Accounting Pronouncements
|
|
|
|
In May 2014, the Financial Accounting Standards Board
(the FASB) issued a new standard related to the revenue recognition.
Under the new standard, recognition of revenue occurs when a customer
obtains control of promised goods or services in an amount that reflects
the consideration which the entity expects to receive in exchange for
those goods or services. In addition, the standard requires disclosure of
the nature, amount, timing, and uncertainty of revenue and cash flows
arising from contracts with customers. The FASB has recently issued
several amendments to the standards, including clarification on the
accounting for licenses of intellectual property and identifying
performance obligations.
|
|
|
|
The guidance permits two methods of adoption:
retrospectively to each prior reporting period presented (full
retrospective method), or retrospectively with the cumulative effect of
initially applying the guidance recognized at the date of initial
application (the cumulative catch-up transition method). The Company will
apply the full retrospective approach to adopt the standard but does not
anticipate that this standard will have a material impact on its
consolidated financial statements.
|
109
In August 2014, the FASB issued new
guidance on determining when and how to disclose going concern uncertainties in
the financial statements. The new guidance requires management to perform
interim and annual assessments of an entitys ability to continue as a going
concern within one year of the date the financial statements are issued. An
entity must provide certain disclosures if conditions or events raise
substantial doubt about its ability to continue as a going concern. The guidance
is effective for annual periods ending after December 15, 2016 and interim
periods thereafter. Early adoption is permitted. Upon adoption, the Company does
not believe this guidance will have a material impact on its consolidated
results of operations or financial position.
In January 2015, the FASB issued ASU
2015-01, Income Statement-Extraordinary and Unusual Items (Subtopic 225-20),
Simplifying Income Statement Presentation by Eliminating the Concept of
Extraordinary Items, which eliminates the concept of extraordinary items. Under
this new guidance, entities will no longer be required to separately classify,
present and disclose extraordinary events and transactions. The amendments in
this update are effective for annual and interim periods beginning after
December 15, 2015. The Company is evaluating the impact of ASU 2015-01 but does
not believe that it will have a material impact on its consolidated financial
statements.
In February 2015, the FASB issued ASU
No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis
("ASU 2015-02"). ASU 2015-02 makes several modifications to the consolidation
guidance for variable interest entities ("VIEs") and general partners'
investments in limited partnerships, as well as modifications to the evaluation
of whether limited partnerships are VIEs or voting interest entities. It is
effective for annual and interim periods beginning after December 15, 2015. The
Company is currently evaluating the impact of this standard but does not believe
that it will have a material impact on its consolidated financial statements.
In April 2015, FASB issued ASU 2015-03,
Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03). In August
2015, FASB issued ASU 2015-15, Presentation and Subsequent Measurement of Debt
Issuance Costs Associated with Line-of-Credit Arrangements (ASU 2015-15). ASU
2015-03 requires that debt issuance costs be presented in the balance sheet as a
deduction from the carrying amount of the debt. ASU 2015-15 allows an entity to
present debt issuance costs associated with a revolving line of credit
arrangement as an asset, regardless of whether a balance is outstanding. The
recognition and measurement guidance for debt issuance costs are not affected by
ASU 2015-03 or ASU 2015-15. These ASUs are effective for annual reporting
periods beginning after December 15, 2015, including interim periods within that
reporting period. The new standard will not affect the Companys financial
statements.
In April 2015, FASB issued ASU 2015-04,
Practical Expedient for the Measurement Date of an Employers Defined Benefit
Obligation and Plan Assets (ASU 2015-04). ASU 2015-04 allows employers with a
fiscal year end that does not coincide with a calendar month end to make an
accounting policy election to measure defined benefit plan assets and
obligations as of the end of the month closest to their fiscal year end. ASU
2015-04 is effective for annual reporting periods beginning after December 15,
2015, including interim periods within that reporting period. Prospective
application is required. The Company does not anticipate that the new guidance
will have any impact on its consolidated financial statements.
In July 2015, FASB issued ASU 2015-11,
Simplifying the Measurement of Inventory (ASU 2015-11). ASU 2015-11 requires
that an entity measure inventory at the lower of cost and net realizable value.
This ASU does not apply to inventory measured using last-in, first-out
methodology. ASU 2015-11 is effective for annual reporting periods beginning
after December 15, 2016, including interim periods within that reporting period.
The Company does not expect the new standard to have a significant impact on its
consolidated financial position, results of operations or cash flows.
In November 2015, the FASB issued ASU
2015-17, Balance Sheet Classification of Deferred Taxes (ASU 2015-17). ASU
2015-17 requires companies to classify all deferred tax assets or liabilities as
noncurrent on the balance sheet rather than separately disclosing deferred taxes
as current and noncurrent. This standard is effective for the Company beginning
on September 1, 2017 and can be applied either prospectively or retrospectively
to all periods presented upon adoption. The standard is not expected to have any
impact on the Companys financial statements.
110
In January 2016, FASB issued a new
standard to amend certain aspects of recognition, measurement, presentation, and
disclosure of financial instruments. Most prominent among the amendments is the
requirement for changes in fair value of equity investments, with certain
exceptions, to be recognized through profit or loss rather than other
comprehensive income. The new standard will be effective for the Company
beginning September 1, 2018. The standard is not expected to have any impact on
the Companys financial statements.
In February 2016 FASB issued ASU No.
2016-02, Leases
(Topic 842)
which supersedes FASB ASC Topic 840, Leases
(Topic 840) and provides principles for the recognition, measurement,
presentation, and disclosure of leases for both lessees and the lessors. The new
standard requires the lessees to apply a dual approach, classifying leases as
either finance or operating leases based on the principle of whether or not the
lease is effectively a financed purchase by the lessee. The classification will
determine whether lease expense is recognized based on an effective interest
method or on a straight-line basis over the term of the lease, respectively. A
lessee is also required to record a right-of-use asset and a lease liability for
all leases with a term of greater than twelve months regardless of
classification. Leases with a term of twelve months or less will be accounted
for similar to existing guidance for operating leases. The standard is effective
for annual and interim periods beginning after December 15, 2018, with early
adoption permitted upon issuance. When adopted, the Company does not expect this
guidance to have a material impact on its consolidated financial statements.
In March 2016, the FASB issued ASU
2016-09, Compensation-Stock Compensation (Topic 718), Improvements to Employee
Share-Based Payment Accounting. Under ASU 2016-09, companies will no longer
record excess tax benefits and certain tax deficiencies in additional paid in
capital (APIC). Instead, they will record all excess tax benefits and tax
deficiencies as income tax expense or benefit in the income statement and the
APIC pools will be eliminated. In addition, ASU 2016-09 eliminates the
requirement that excess tax benefits be realized before companies can recognize
them. ASU 2016-09 also requires companies to present excess tax benefits as an
operating activity on the statement of cash flows rather than as a financing
activity. Furthermore, ASU 2016-09 will increase the amount an employer can
withhold to cover income taxes on awards and still qualify for the exception to
liability classification for shares used to satisfy the employers statutory
income tax withholding obligation. An employer with a statutory income tax
withholding obligation will now be allowed to withhold shares with the fair
value up to the amount of taxes owed using the maximum statutory rate in the
employees applicable jurisdiction(s). ASU 2016-09 requires a company to
classify the cash paid to a tax authority when shares are withheld to satisfy
its statutory income tax withholding obligation as a financing activity on the
statement of cash flows. Under current U.S. GAAP, it is not specified how these
cash flows should be classified. In addition, companies will now have to elect
whether to account for forfeitures on share-based payments by (1) recognizing
forfeiture awards as they occur or (2) estimating the number of awards expected
to be forfeited and adjusting the estimate when it is likely to change, as in
currently required. The amendments of this ASU are effective for reporting
periods beginning after December 15, 2016, with early adoption permitted but all
of the guidance must be adopted in the same period. The Company is currently
assessing the impact the standard will have on its consolidated financial
statements.
6.
|
Accounts and Other
Receivable
|
|
|
|
August 31
|
|
|
August 31
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Territory License Fee
receivable (Note 9)
|
|
10,000
|
|
|
-
|
|
|
Sales tax receivable
|
|
27,583
|
|
|
31,382
|
|
|
Private Placement receivable (Note 11)
|
|
93,500
|
|
|
-
|
|
|
|
|
131,083
|
|
|
31,382
|
|
111
|
|
|
August 31
|
|
|
August 31
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
27,358
|
|
|
-
|
|
|
Finished goods
|
|
94,349
|
|
|
119,944
|
|
|
Work in progress
|
|
13,017
|
|
|
48,042
|
|
|
|
|
134,724
|
|
|
167,986
|
|
|
During the year ended August 31, 2016, Company wrote down
$44,040 (2015 - $nil) of inventory to reflect its net realisable
value.
|
|
|
8.
|
Alternative Health Products
|
|
|
|
On November 12, 2014, the Company signed an agreement
with Poppys Teas LLC. (PoViva) to acquire 51% of ViPova by satisfying
the following requirements:
|
|
|
Pay an initial consideration of $50,000 (paid);
|
|
|
|
|
|
Spend $75,000 over one year for product
marketing and operations (spent);
|
|
|
|
|
|
Extend to the founders of ViPova (Founders)
$25,000 worth of Lexaria common shares (issued);
|
|
|
|
|
|
Pay one of the Founders $2,000 a month for
production consulting for a period of 12 months (paid);
|
|
|
|
|
|
Pay one of the Founders $2,000 a month for
marketing consulting for a period of 12 months (paid);
|
|
|
|
|
|
Provide to the Founders a cash bonus in the amount of
$50,000 should the company generate $300,000 in sales within 8 months of
the execution of this agreement (N/A); and
|
|
|
|
|
|
Agree for the Founders to be automatically granted a
lifetime license to personally produce products covered by various
patents.
|
The Company also spent the required
minimum additional $100,000 on sales and marketing ViPova by Lexaria brand to
enable qualification to purchase additional interest in PoViva. The Company has
the option to acquire an additional 24% interest in PoViva (for a total interest
of 75%) by paying PoViva or its Founders 2.5 times trailing 12 months PoViva
revenue (pro-rata) calculated from the date that this option is exercised.
PoViva can receive up to 50% of this payment in the Companys common stock at
PoVivas discretion.
PoViva has a right of first refusal to
produce under white-label, additional cannabinoid based products on behalf of
the Company but the Company reserves the right to engage other producers should
it believe PoViva to be uncompetitive to supply the products requested by
Lexaria.
The acquisition of PoViva was treated
as an acquisition of assets rather than a business combination because PoViva
did not constitute a business. $48,039 acquired In-Process Research and
Development was expensed at the acquisition date in accordance with ASC
730-10-25-1.
In June 2015, the Company
simultaneously filed a U.S. utility patent application and an International
patent application under the Patent Cooperation Treaty (PCT) procedure, both
at the U.S. Patent and Trademark Office. These applications follow the Companys
2014 and 2015 family of provisional patent application filings in the U.S. and
serve two additional broad purposes. Firstly, these filings served to expand
potential intellectual property protection outside of the USA. Filing under the
PCT allows the Company to elect to pursue patent protection in up to 148 nations around the world. The second
purpose was to broaden the number of molecules for which intellectual property
protection is sought. Under the original patents pending application, only the
THC and CBD molecules, infused within a unique lipid-formulation technology,
were pursued. Under the newer patent applications, the list of molecules for a
unique delivery system was broadened to include THC, CBC, Nicotine,
Non-Steroidal Anti- Inflammatories, and certain Vitamins.
112
In December 2015, the Company filed two
further provisional patent applications in the U.S. These new applications
served to further broaden the variety and applicability of base compounds that
can be used when formulating the Companys lipid based technology. The first of
these applications identify compounds like edible starches (e.g., tapioca
starch) that are commonly used in food products today and could, therefore,
serve as a base for formulating and incorporating the Companys Technology into
a wide variety of every day food products. The second of these applications
identify emulsifier compounds like gum Arabic that are commonly used in beverage
products today in order to facilitate similar flexibility for formulating the
Companys Technology in every day, shelf-stable beverages.
As at August 31, 2016, the Company had
capitalized $53,997 for patent application. The Company was granted its first
patent subsequent to the year-end. The granted patent has a priority date of
June 10, 2014, a publish date of October 27, 2016, and protects the Companys
technology for twenty years.
On August 11, 2015, Lexaria signed a
license agreement with PoViva Tea LLC for $10,000, granting Lexaria a 35-year
non exclusive worldwide license to unencumbered use of PoViva Tea LLCs IP
Rights, including rights of resale. This license agreement ensures Lexaria has
full access to the underlying patent pending infusion Technology.
9.
|
Unearned Revenue
|
|
|
|
On May 14, 2016, the Company entered into a licensing
agreement (the Licensing Agreement) with an arms length party (the
Licensee) allowing the Licensee, for a two-year period, to utilize the
Companys Technology to create, test, manufacture, and sell
marijuana-infused consumable and/or topical products, in the state of
Colorado, with an option of extending the terms of the Licensing Agreement
to Washington, Oregon, and California (the Territorial License). In
addition to the granting of the license, the Company is required to
provide support services to the Licensee in connection with the use of the
Companys Technology during the term of the Licensing Agreement.
|
|
|
|
The Company determined that the provision of the support
services is a separate deliverable under the Licensing Agreement. As the
support services will not be sold on a stand-alone basis, the Company is
unable to establish a vendor-specific objective evidence of fair value of
such services to be able to objectively allocate the Territory License fee
receipts between the license and the support services. Accordingly, the
Company recognizes revenue ratably over the term of the Licensing
Agreement. As of August 31, 2016, the Company received $10,000 as first
installment of the Territory License Fee and recorded as receivable of a
further $10,000 for its second installment, which was received subsequent
to the year-end. During the year ended August 31, 2016, $7,500 was
recognized as revenue with the remaining $12,500 deferred for recognition
in future periods.
|
|
|
10.
|
Convertible Debenture
|
|
|
|
On March 8, 2016, the Company closed a private placement
offering of a convertible debenture in the aggregate amount of $45,000.
The convertible debenture matures on August 31, 2020 with an interest rate
of 10% per annum (on a simple basis) and is convertible at (i) $0.12 per
share at any time prior to August 31, 2016 (ii) $0.15 per share at any
time prior to August 31, 2017; (iii) $0.20 per share at any time prior to
August 31, 2018 or, at the sole option of the holder, a price equal to a
20% discount to the 10-day average closing price of the shares prior to
the date of conversion (the Average Price) provided that the Average
Price is less than $0.20 and provided further that the conversion price
shall not be less than $0.15; (iv) $0.25 per share at any time prior to
August 31, 2019 or, at the sole option of the holder, the Average Price
provided that the Average Price is less than $0.25 and provided further
that the conversion price shall not be less than $0.15; and (v) $0.30 per
share at any time prior to August 31, 2020 or, at the sole option of the
holder, the Average Price provided that the Average Price is less than
$0.30 and provided further that the conversion price shall not be less
than $0.15.
|
|
|
|
The Company determined that the conversion options did
not qualify as derivatives as they did not meet the net settlement
provision characteristics. The proceeds from the convertible debenture
therefore were not bifurcated on the balance sheet.
|
113
During the year ended August 31, 2016,
the Company paid interest of $2,250 in connection with the convertible
debenture.
11.
|
Common Shares and Warrants
|
|
|
|
Fiscal 2015 Activity
|
|
|
|
On July 14, 2014, the Company accepted Mr, Chris
Hornungs resignation with respect to his contract dated, April 24, 2014,
whereby the Company had entered into a one year consulting contract with
2342878 Ontario Inc., a wholly owned company by Chris Hornung as Assistant
Manager. Upon signing of the contract of acceptance the Company had issued
121,000 common shares valued at $35,200. The Companys 121,000 restricted
common shares that were issued were cancelled and returned back to
treasury.
|
|
|
|
On September 26, 2014, the Company raised gross proceeds
of $45,780 for private placement of 335,720 common shares of the Company
and 335,720 warrants with exercise price of $0.23 and expiry date of March
26, 2016.
|
|
|
|
On December 12, 2014, the Company issued 261,903 common
shares of the Company at a value of $25,000 in connection with the terms
of the ViPova agreement (Note 8).
|
|
|
|
On May 14, 2015, the Company closed a private placement
by issuing 5,500,000 units for gross proceeds of $500,000. Each unit
consisted of one common share of the Company and one share purchase
warrant, exercisable into one further common share at a price of $0.23 per
share and expiring on May 14, 2017. A cash finders fee for $32,900 was
paid to GMP Securities, Mackie Research and Peter Przygoda.; and 361,900
broker warrants with an exercise price of $0.23 for a period of
twenty-four months were issued to GMP, Mackie Research and Peter Przygoda.
Cash finders fee in the amount of $4,899 from Peter Przygoda was returned
in August, 2015.
|
|
|
|
On June 8, 2015, the Company issued 275,000 common shares
valued at $47,500 to Ron Keleher and Scott Urquart with respect to
agreements signed on April 2, 2015 and May 27, 2015.
|
|
|
|
On June 11, 2015, 550,000 restricted shares of the
Company issued previously in connection with the Companys joint venture
agreement were cancelled as joint venture agreement was
terminated.
|
|
|
|
On August 17, 2015, the Company issued 462,000 common
shares of the Company valued at $83,532 to Docherty Management Limited as
per the terms of the consulting agreement (Note 17).
|
|
|
|
As at August 31, 2015, the Company had 43,838,282 shares
issued and outstanding and 19,840,186 warrants issued and
outstanding.
|
|
|
|
Fiscal 2016 Activity
|
|
|
|
On September 16, 2015, the Companys Board appointed Ted
McKechnie as a Director of the Company. Mr. McKechnie was issued 110,000
common shares of the Company valued at $19,000.
|
|
|
|
On December 10, 2015, Lexaria closed a private placement
by issuing 550,000 units for gross proceeds of $90,000. Each unit
consisted of one common share of the Company and one half transferable
share purchase warrant. Each full warrant is exercisable into one further
share at a price of $0.27 per share for a period of 24 months. A cash
finders fee for $2,520 was paid to Leede Financial Markets Ltd.; and
15,400 broker warrants with an exercise price of $0.27 for a period of
twenty-four months were also issued to Leede Financial Markets Ltd. The
fair value of these broker warrants was determined to be $2,903.
|
|
|
|
On December 14, 2015, Lexaria signed an investor
relations contract with Radius Consulting Inc. for a fee of $2,500 and
55,000 common shares of Company valued at $9,500.
|
|
|
|
On April 15, 2016, pursuant to the agreement with Mr.
John Docherty (Note 17), the Company issued 210,000 common shares valued
at $21,000, for services rendered as the President of the
Company.
|
|
|
|
On April 15, 2016, the Company closed a private placement
of 750,000 units at a price of $0.08 per unit for gross proceeds of
$60,000. Each unit consisted of one common share of the Company and one
non-transferrable share purchase warrant, entitling the holder to purchase
one additional common share in the capital of the Company for a period of
18 months at an exercise price of $0.15 per share. The Company also issued
8,750 broker warrants to Haywood Securities Ltd. The broker warrants have
a term of 18 months and are each exercisable into one common share of the Company at a price of
$0.15. The fair value of these broker warrants was determined to be $805.
|
114
On June 6, 2016, the Company closed a
private placement of 700,000 units priced at $0.11 per unit for gross proceeds
of $77,000. Each unit consisted of one common share of the Company and one-half
of a non-transferrable share purchase warrant with each warrant entitling the
holder to purchase one additional common share of the Company for a period of
three years at an exercise price of $0.14 per share.
On July 28, 2016, pursuant to an
agreement, in return for marketing, branding, and investor relations advisory
services, the Company issued 250,000 common shares of the Company valued at
$0.12 per share (Note 17).
On August 10, 2016, the Company closed
a private placement by issuing 1,558,525 units at a price of $0.06 per unit for
gross proceeds of $93,512. Each unit consisted of one common share of the
Company and one non-transferable share purchase warrant entitling the holder to
purchase one additional common share in the capital of the Company for a period
of 24 months at an exercise price of $0.14 per share.
On August 31, 2016, the Company
completed a private placement by issuing 3,266,666 units at a price of $0.06 per
unit for gross proceeds of $196,000, of which $93,500 was collected during
September and October 2016. Each unit consisted of one common share of the
Company and one transferable share purchase warrant. Each full warrant is
exercisable into one further share at a price of $0.14 per share for a period of
24 months. A cash finders fee for $1,200 was paid and 50,000 broker warrants
with an exercise price of $0.14 for a period of twenty-four months were also
issued. The fair value of these broker warrants was determined to be $5,397.
As at August 31, 2016, Lexaria had
51,288,473 common shares issued and outstanding and 12,136,241 warrants issued
and outstanding.
A continuity schedule for warrants is
presented below:
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
Number of
|
|
|
Exercise Price
|
|
|
|
|
Warrants
|
|
|
$
|
|
|
Balance, August 31, 2014
|
|
14,250,184
|
|
|
0.23
|
|
|
Expired
|
|
(607,618
|
)
|
|
0.36
|
|
|
Issued
|
|
6,197,620
|
|
|
0.23
|
|
|
Balance, August 31, 2015
|
|
19,840,186
|
|
|
0.23
|
|
|
Expired
|
|
(13,978,286
|
)
|
|
0.22
|
|
|
Issued
|
|
6,274,341
|
|
|
0.15
|
|
|
Balance, August 31, 2016
|
|
12,136,241
|
|
|
0.18
|
|
The fair value of share purchase
warrants granted to the brokers was estimated as of the date of the grant by
using the Black-Scholes option pricing model with the following assumptions:
|
|
|
August 31
|
|
|
August 31
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Expected volatility
|
|
237% - 240%
|
|
|
N/A
|
|
|
Risk-free interest rate
|
|
0.74% - 0.95%
|
|
|
N/A
|
|
|
Expected life
|
|
1.5 2 years
|
|
|
N/A
|
|
|
Dividend yield
|
|
0.00%
|
|
|
N/A
|
|
|
Estimated fair value per option
|
$
|
0.09 - $0.19
|
|
|
N/A
|
|
115
A summary of warrants outstanding as of
August 31, 2016 is presented below:
|
# of Warrants
|
Weighted
|
Weighted
|
|
|
Average
|
Average
|
|
|
Remaining
|
Exercise Price
|
|
|
Contractual Life
|
$
|
|
5,500,000
|
0.70 years
|
0.23
|
|
361,900
|
0.70 years
|
0.18
|
|
758,750
|
1.04 years
|
0.15
|
|
290,400
|
1.28 years
|
0.27
|
|
1,558,525
|
1.95 years
|
0.14
|
|
3,316,666
|
2.00 years
|
0.14
|
|
350,000
|
2.76 years
|
0.14
|
|
12,136,241
|
1.31 years
|
0.18
|
|
As at August 31, 2016, the Company was obligated to
issue, for the month of August 2016, 250,000 warrants pursuant to
marketing, branding and investor relations advisory agreement (Note 17).
Such warrants were issued subsequent to the year-end (Note 19). The fair
value of such warrants was estimated using the Black- Scholes option
pricing model and determined to be $32,252. Assumptions used as inputs to
the model were consistent as the ones used for the calculation of stock
options granted during the year (Note 12).
|
|
|
12.
|
Stock Options
|
|
|
|
The Company has established its 2014 Stock Option Plan
whereby the board of directors may, from time to time, grant up to
3,850,000 (post forward stock split) stock options to directors, officers,
employees, and consultants. Stock options granted must be exercised no
later than five years from the date of grant or such lesser period as
determined by the Companys board of directors. The exercise price of an
option is equal to or greater than the closing market price of the
Companys common shares on the day preceding the date of grant. The
vesting terms of each grant are set by the board of directors.
|
|
|
|
Fiscal 2015 Activity
|
|
|
|
On December 22, 2014, the Company granted 1,567,500 stock
options to certain directors, officers and consultants, with 1,347,500
vesting immediately, 110,000 vesting in six months, and 110,000 vesting in
12 months. The options have an exercise price of $0.10 per share and
expire on December 22, 2019.
|
|
|
|
On February 4, 2015, the Company granted 275,000 stock
options to consultants with an exercise price of $0.09, vesting
immediately, expiring February 3, 2020.
|
|
|
|
On March 26, 2015, the Company granted 550,000 stock
options to an officer of the Company. The exercise price of the stock
options is $0.09, vesting immediately and expiring on March 26,
2020.
|
|
|
|
Fiscal 2016 Activity
|
|
|
|
On September 16, 2015, the Company granted 110,000 stock
options to a director of the Company. The exercise price of the stock
options is $0.17, vesting immediately and expiring on September 16,
2020.
|
|
|
|
On April 15, 2016, the Company granted 300,000 to an
officer of the Company. The exercise price of the stock options is $0.11
per share, vesting immediately and expiring on April 15, 2021.
|
|
|
|
On June 3, 2016, the Company granted 325,000 stock
options to a consultant, vesting immediately, with an exercise price of
$0.14 and expiring five years from the date of grant.
|
|
|
|
During the year ended August 31, 2016, the Company
recorded a total $122,015 (2015 $256,051) as stock based compensation
expense of which $83,865 (2015 - $200,734) pertained to the stock options
granted during the year with the remaining being the recognition of
expense from previous grants.
|
|
|
|
A continuity schedule for stock options is presented
below:
|
116
|
|
|
|
|
|
Weighted
|
|
|
|
|
Number of
|
|
|
Average Exercise
|
|
|
|
|
Option
|
|
|
Price
|
|
|
|
|
|
|
|
$
|
|
|
Balance, August 31, 2014
(vested and outstanding)
|
|
2,887,500
|
|
|
0.22
|
|
|
Expired
|
|
(1,210,000
|
)
|
|
0.21
|
|
|
Granted
|
|
2,392,500
|
|
|
0.10
|
|
|
Balance, August 31, 2015 (vested and
outstanding)
|
|
4,070,000
|
|
|
0.15
|
|
|
Expired
|
|
(385,000
|
)
|
|
0.32
|
|
|
Cancelled
|
|
(935,000
|
)
|
|
0.16
|
|
|
Granted
|
|
735,000
|
|
|
0.13
|
|
|
Balance, August 31, 2016 (vested and outstanding)
|
|
3,485,000
|
|
|
0.13
|
|
The fair value of options granted was
estimated as of the date of the grant by using the Black-Scholes option pricing
model with the following assumptions:
|
|
|
August 31
|
|
|
August 31
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Expected volatility
|
|
240% - 241%
|
|
|
243% - 249%
|
|
|
Risk-free interest rate
|
|
1.22% - 1.62%
|
|
|
1.47% - 1.66%
|
|
|
Expected life
|
|
5.00 years
|
|
|
5.00 years
|
|
|
Dividend yield
|
|
0.00%
|
|
|
0.00%
|
|
|
Estimated fair value per option
|
$
|
0.11 - $0.19
|
|
$
|
0.08 - $0.10
|
|
A summary of the Companys vested and
outstanding stock options as at August 31, 2016 is presented below:
|
# of Stock
|
Weighted
|
Weighted
|
Aggregate
|
|
Options
|
Average
|
Average
|
Intrinsic Value
|
|
|
Remaining
|
Exercise Price
|
|
|
|
Contractual Life
|
$
|
$
|
|
247,500
|
1.80 years
|
0.09
|
4,950
|
|
660,000
|
2.90 years
|
0.23
|
(85,800)
|
|
1,017,500
|
3.31 years
|
0.10
|
10,175
|
|
275,000
|
3.43 years
|
0.09
|
5,500
|
|
550,000
|
3.57 years
|
0.09
|
11,000
|
|
110,000
|
4.05 years
|
0.17
|
(7,700)
|
|
300,000
|
4.62 years
|
0.11
|
3,000
|
|
325,000
|
4.76 years
|
0.14
|
(6,500)
|
|
3,485,000
|
3.45 years
|
0.13
|
(65,375)
|
117
|
|
|
August 31
|
|
|
August 31
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
31,743
|
|
|
14,702
|
|
|
Licensing revenue (Note 9)
|
|
7,500
|
|
|
-
|
|
|
Freight revenue
|
|
1,149
|
|
|
-
|
|
|
Other revenue
|
|
326
|
|
|
-
|
|
|
|
|
40,718
|
|
|
14,702
|
|
14.
|
Discontinued Operations
|
|
|
|
On November 26, 2014, a Purchase and Sale Agreement was
executed between Lexaria and Cloudstream Belmont Lake, LP for the purchase
and sale of oil and gas working interests, net revenue interests and other
interests in Belmont Lake, Mississippi for total consideration of
$1,400,000. A total net amount of $721,806 was paid to the Company after
all short-term debts were paid out from the sale.
|
|
|
|
Accordingly, the results of the Companys former oil and
gas business were reported as discontinued operations during fiscal
2015.
|
|
|
|
Income from discontinued operations were comprised
of:
|
|
|
|
August 31
|
|
|
August 31
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
-
|
|
|
59,715
|
|
|
Cost
|
|
-
|
|
|
(10,797
|
)
|
|
|
|
-
|
|
|
48,918
|
|
15.
|
Related Party Transactions
|
|
|
|
For the year ended August 31, 2016, the Company
paid/accrued $120,000 to C.A.B Financial Services (CAB) (2015 -
$119,700); to BKB Management Ltd. (BKB) $44,767 (2015 - $69,543) for
management, consulting and accounting services; to a senior vice president
$18,000 (2015 - $42,000) for executive management consulting; and to
Docherty Management Limited $117,213 (2015 - $60,965). All fees incurred
were included as consulting on the Companys statement of operations. CAB
is owned by the CEO of the Company, BKB is owned by the former CFO of the
Company and Docherty Management Limited (Docherty Management) is owned
by the President of the Company. The CFO of the Company resigned effective
April 29, 2016.
|
|
|
|
During the year ended August 31, 2016, the Company also
granted 210,000 (2015 462,000) restricted common shares with a value of
$21,000 (2015 $83,532) per share to Mr. Docherty for his
services.
|
|
|
|
The Company granted a total of 410,000 (2015 1,870,000)
incentive stock options to the directors and officers of the Company with
a fair value of $51,642 (2015 - $159,082) (Note 11).
|
|
|
|
On July 25, 2016, the Company entered into a loan
agreement with CAB for a principal amount of $50,000. The term of the loan
agreement is 15 months, with an interest free period for the first three
months. For the final 12 months, Lexaria will pay simple interest at the
rate of 8% per annum.
|
|
|
|
During fiscal 2015, outstanding loans to Companys
related parties were repaid from the total consideration from the sale of
Lexarias oil and gas working interest (Note 14). Total interest expense
incurred on such loans during the year ended August 31, 2015 amounted to
CAD$24,720 and $10,333.
|
|
|
|
During July 2016, the Company entered into a marketing
agreement with a Company controlled by a
director for compensation of $4,000 per month. During the year ended
August 31, 2016, the Company paid $8,000 in such fees.
|
118
As at August 31, 2016, $331,371,
inclusive of loan noted above, was payable to the related parties (August 31,
2015 - $22,052).
The related party transactions are
recorded at the exchange amount established and agreed to between the related
parties.
16.
|
Segment Information
|
|
|
|
The Companys operations involve the development and
usage, including licensing, of its proprietary nutrient infusion
Technology. Lexaria is centrally managed and its chief operating decision
makers, being the president and the CEO, use the consolidated and other
financial information supplemented by revenue information by category of
alternative health products as well as licensing, as a whole, to make
operational decisions and to assess the performance of the Company.
Accordingly, the Company operates in a single segment.
|
|
|
|
During the year ended August 31, 2015, the Companys
operating segments were the oil and gas exploration and the alternative
health products, which were managed separately based on fundamental
differences in the nature of such operations.
|
|
|
|
Summarized financial information concerning Lexarias
reportable segment as at and during the year ended August 31, 2015 was as
follows:
|
|
|
|
|
|
|
Alternative
|
|
|
|
|
|
|
|
|
|
|
Oil and Gas
|
|
|
Health Products
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Revenue
|
|
48,918
|
|
|
14,702
|
|
|
-
|
|
|
63,620
|
|
|
Operation expenses
|
|
-
|
|
|
349,093
|
|
|
1,618,996
|
|
|
1,968,089
|
|
|
Total assets
|
|
-
|
|
|
214,632
|
|
|
497,090
|
|
|
711,722
|
|
17.
|
Commitments, Significant Contracts and
Contingencies
|
|
|
|
Management Agreements
|
|
|
|
As at August 31, 2016, the Company is party to the
following contractual commitments with
management.
|
|
Party
|
|
Monthly Commitment
|
|
|
C.A.B Financial Services
|
$
|
10,000
|
|
|
Docherty Management
|
|
CAD$12,500
|
|
|
Ltd.
|
|
|
|
The Company appointed Mr. John Docherty
as President of Lexaria effective April 15, 2015. The Company executed a
twenty-four month consulting contract with Docherty Management Limited, solely
owned by Mr. John Docherty with monthly compensation of CAD$12,500 and shall
increase to a total of CAD$15,000 per month effective at that time when the
Company has $1,000,000 or more in cash in its bank accounts, and continue at
CAD$15,000 per month from that moment until the termination or completion of the
contract. The Company may also pay Mr. Docherty a bonus from time to time, at
its sole discretion. Mr. Docherty will be entitled to receive common stock based
and stock option based bonuses upon achieving certain milestones during the time
of his consultancy with the Company. These milestones are:
|
|
Upon signing: A grant of 550,000 stock options priced
one-cent above market prices at the time of award. (granted)
|
|
|
|
|
|
90 Days after signing: A grant of 500,000 restricted
common shares (Completed - 462,000 restricted common shares issued with
cash payment of $16,000, as mutually agreed to between the parties).
|
|
|
|
|
|
Twelve months after signing: A grant of 300,000
stock options priced one-cent above market prices at
the time of award (granted).
|
119
|
|
18 months after signing: A grant of 300,000 restricted
common shares (252,000 restricted common shares issued subsequent to the
year end (Note 19), with cash payment of $6,240, as mutually agreed to
between the parties).
|
|
|
|
|
|
During the first twelve (12) months after signing; for
combined Lexaria Energy and ViPova products and including all combined
sales efforts, achieving non- refundable sales of $200,000 to any single
customer in any consecutive 60-day period would result in a restricted
common share award of 100,000 Company shares (expired); and, after the
first12 months after signing and expiring 24 months after signing; for
combined Lexaria Energy and ViPova products and including all sales
efforts, achieving non-refundable sales of $200,000 to any single customer
in any consecutive 60-day period would result in a restricted common share
award of 50,000 Company shares; this clause is limited to one payment per
customer during the 24-month period, but payable on each customer that
meets these sales thresholds;
|
|
|
|
|
|
During the first 12 months after signing; for combined
Lexaria Energy and ViPova products and including all combined sales
efforts, achieving non- refundable sales of $500,000 in any fiscal quarter
would result in a restricted common share award of 200,000 Company shares
(expired); and, after the first 12 months after signing and expiring 24
months after signing; for combined Lexaria Energy and ViPova products and
including all sales efforts, achieving non-refundable sales of $500,000 in
any fiscal quarter would result in a restricted common share award of
100,000 Company shares; this clause is limited to one payment per fiscal
quarter;
|
|
|
|
|
|
During the time this Agreement remains in effect, for
each new provisional patent application substantially devised by Mr.
Docherty and successfully created, written and filed with the US Patent
Office for Company-owned intellectual property, a restricted common share
award of 250,000 Company shares. This clause is not limited to frequency
of payment but each patent application is to be approved by the Board of
Directors of the Company, in advance. During the year ended August 31,
2016, the Company issued to Mr. Docherty 210,000 restricted common shares
and further accrued $4,000 combined in lieu of issuance of 250,000
restricted common shares, as mutually agreed to between the parties.
|
Lease
The Company has a lease commitments for
its office space for CAD$826 per month. The lease require a 90-day termination
notice.
Convertible Debenture
The Company has issued a convertible
debenture for $45,000, maturing on August 31, 2020. The convertible debenture
accrues interest at 10% per annum, payable in quarterly installments (Note
10).
Marketing, Branding, and Investor
Relations Advisory
On July 18, 2016, the Company entered
into a service agreement with an arms length service provider for marketing,
branding, and investor relations advisory services (the Advisory Agreement).
The Advisory Agreement has a term of one year with automatic renewal but can be
terminated by either party with 30 days notice. In exchange for services, the
Company issued 250,000 common shares upon signing of the agreement (Note 11) and
is obligated to issue share purchase warrants for purchase of 250,000 common
shares, on a monthly basis, with exercise price that is the average of the daily
closing prices of the preceding month with a minimum of $0.08 per share. The warrants will have a term of
five years from the date of issuance.
120
Lexaria retains the right but has no
obligation to make any future months payment in cash using the same formula to
establish and per-share valuation price, multiplied by 250,000, in lieu of
issuing the monthly warrants. The Advisory Service Provider is entitled to 3%
commissions on revenue received by Lexaria originating from the parties
introduced by the Advisory Service Provider.
18.
|
Income Tax
|
|
|
|
The following table reconciles the income tax benefit at
the U.S. Federal statutory rate to income tax benefit at the Companys
effective tax rates as at August 31, 2016 and
2015:
|
|
|
|
August 31
|
|
|
August 31
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Loss before taxes
|
|
(1,277,249
|
)
|
|
(1,934,352
|
)
|
|
Income tax rate
|
|
35.00%
|
|
|
35.00%
|
|
|
Expected income tax recovery
|
|
(447,037
|
)
|
|
(677,023
|
)
|
|
Non-deductible items
|
|
101,040
|
|
|
98,765
|
|
|
Change in estimates
|
|
(897,713
|
)
|
|
646,711
|
|
|
Change in valuation allowance
|
|
1,243,710
|
|
|
(68,453
|
)
|
|
Total income taxes
|
|
-
|
|
|
-
|
|
Deferred taxes reflect the tax effects
of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes. Deferred tax assets at August 31, 2016 and
2015 are comprised of the following:
|
|
|
August 31
|
|
|
August 31
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Non-capital losses
|
|
3,959,704
|
|
|
2,715,994
|
|
|
Valuation allowance
|
|
(3,959,704
|
)
|
|
(2,715,994
|
)
|
|
Net deferred tax assets recognized
|
|
-
|
|
|
-
|
|
121
The Company has net operating loss
carryforwards of approximately $11,313,000 which may be carried forward to apply
against future year income tax for U.S. tax purposes.
|
Year
|
Amount
|
|
2025
|
76,000
|
|
2026
|
508,000
|
|
2027
|
1,056,000
|
|
2028
|
720,000
|
|
2029
|
753,000
|
|
2030
|
552,000
|
|
2031
|
538,000
|
|
2032
|
252,000
|
|
2033
|
344,000
|
|
2034
|
3,257,000
|
|
2035
|
2,268,000
|
|
2036
|
989,000
|
|
|
11,313,000
|
|
f)
|
The Company granted 250,000 stock options to a consultant
with a strike price of $0.14 per share, and expiry term of two
years.
|
|
|
|
|
g)
|
Pursuant to its agreement with Docherty Management Ltd.
(Note 17), the Company issued 252,000 restricted common shares and cash
compensation of $6,240.
|
|
|
|
|
h)
|
Pursuant to the Advisory Agreement (Note 17), the Company
issued 750,000 warrants with an exercise price of $0.14 per share and
valid for five years, in return for consulting services provided in
August, September, and October. The Company recognized the related fair
value of 250,000 of such warrants for services received during the month
of August 2016, in these consolidated financial statements.
|
|
|
|
|
i)
|
The Company reached an agreement with a director to
settle the outstanding amount pursuant to a marketing agreement (Note 15),
through issuance of common shares of the Company. To settle the
outstanding amount of $16,000 for four months to October 31, 2016, the
Company issued 114,286 shares of its common stock at a value of $0.14 per
share.
|
|
|
|
|
j)
|
The Company issued 56,250 shares of its common stock in
settlement of $9,000, recognized within accounts payable and accrued
liabilities as at August 31, 2016.
|
|
|
|
|
k)
|
A total of 55,000 incentive stock options were exercised
for proceeds of $12,500.
|
|
|
|
|
l)
|
A total of 605,000 share purchase warrants were exercised
for proceeds of $137,508.
|
122
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Our managements discussion and analysis of financial condition
and results of operations provides a narrative about our financial performance
and condition that should be read in conjunction with the audited and unaudited
consolidated financial statements and related notes thereto included in this
proxy statement/prospectus. This discussion contains forward looking statements
reflecting our current expectations and estimates and assumptions about events
and trends that may affect our future operating results or financial position.
Our actual results and the timing of certain events could differ materially from
those discussed in these forward-looking statements due to a number of factors,
including, but not limited to, those set forth in the sections of this
prospectus titled Risk Factors beginning at page 10 above and Forward-Looking
Statements beginning at page 19 above.
Plan of Operations
During the next twelve month period (beginning December 1,
2017), we intend to:
|
|
continue sales and marketing efforts for
ViPova , Lexaria and new product lines
|
|
|
|
|
|
identify and secure sources of equity and/or
debt financing for patent applications;
|
|
|
|
|
|
identify and secure sources of equity and/or debt
financing for additional line of products for health and wellness;
|
|
|
|
|
|
identify and secure sources of equity and/or
debt financing for research and development
|
Our plans are dependent upon our ability to obtain sufficient
capital to execute and during the previous year we did not raise sufficient
capital to fulfill all our plans. Without sufficient capital, our plans will
change, and could change materially. We anticipate that we will incur the
following operating expenses during this period:
Estimated Funding Required During the 12 Months beginning
December 1, 2017
Expense
|
|
Amount
|
|
|
Estimated
|
|
|
|
|
|
|
Completion/Due
|
|
|
|
($)
|
|
|
Date
|
|
Research and Development of
additional products
|
|
70,000
|
|
|
12 months
|
|
Research and Development (General)
|
|
800,000
|
|
|
12 months
|
|
Patent applications and
trademark
|
|
250,000
|
|
|
12 months
|
|
Marketing and Sales
|
|
200,000
|
|
|
12 months
|
|
Consulting Fees (~50% is
officers and directors)
|
|
900,000
|
|
|
12 months
|
|
Professional fees
|
|
160,000
|
|
|
12 months
|
|
Rent
|
|
20,000
|
|
|
12 months
|
|
Other general administrative expenses
(including travel, insurance, conferences, and fees)
|
|
300,000
|
|
|
12 months
|
|
Interest Expense
|
|
10,000
|
|
|
12 months
|
|
Total
|
|
2,710,000
|
|
|
|
|
123
12 Month Outlook for Current Product Line, Product
Development & Design, Patents
As at November 30, 2017, we had a working capital surplus of $2,321,497 and cash on hand of $2,209,703. We therefore estimate that we will not require additional cash to finance our planned expenditures for the 12 months beginning December 1, 2017. In the uncertain event that our cash requirements exceed our anticipated expenses and we are unable to raise sufficient additional funds, or in the uncertain event that all of our debt obligations become due, we will be required to scale back our operations to prioritize immediate and necessary expenses in our longer term planning into fiscal 2019. These necessary expenses include professional fees and general and administrative expenses necessary to satisfy our public reporting requirements.
Our business strategy involves several elements. We intend to
prioritize our revenue generating efforts in 2018 on technology licensing,
with a secondary focus on our consumer food products enriched with full spectrum
hemp oil.
Our patented technology was developed to aid absorption and
bioavailability of certain payload molecules, including cannabinoids such as
cannabidiol (CBD) and tetrahydrocannabinol (THC). CBD is not psychoactive and
may have desirable qualities, and is found in plant species such as hemp,
cannabis, and Echinacea. Our technology appears to improve absorption and
bioavailability of CBD into human epi-intestinal cells. We are developing a line
of food products fortified with full spectrum hemp oil that contains
cannabinoids such as CBD, but contains less than 0.3% THC. Because of the low
amounts of THC, and because the hemp oil is derived from legally imported hemp,
the products are legal under Federal law.
We first began selling trial amounts of ViPova branded black
tea fortified with hemp oil and utilizing our technology, in January 2015. In
August 2015 we added six new flavors of tea to expand the brands reach. Sales
of these products have been modest but are expected to improve in the long term.
We also began offering our first coffee and hot chocolate also
fortified with full spectrum hemp oil, and also under the ViPova brand.
Together, tea, coffee and hot chocolate comprise all our product offerings under
the ViPova brand, despite modest changes to flavors or perhaps packaging, etc.
Offering a variety of self-made beverages to the consumers helps us to establish
the ViPova brand and may also help us to develop relationships with retail
distributors who are less likely to place orders from manufacturers that can
only offer a single product.
Generating meaningful revenue from product sales will be
challenging and will rely in part on our ability to achieve widespread retail
distribution access. We are also investigating the possibility of generating
sales from international markets, in those locations where hemp oil fortified
foods are permissible by law.
ViPova branded products are owned by our 51%-owned Poviva Tea
LLC subsidiary. As of October 2017 Lexaria acquired 100% of Poviva Tea LLC.
While the ViPova line is focused on a coffee house
experience, the Lexaria Energy line is focused on athletic performance and
active lifestyle needs. The first Lexaria Energy product is believed to be
unique or nearly so: a protein energy bar utilizing our technology to fortify with
full spectrum hemp oil. We first offered the Lexaria Energy Bar for sale in
November, 2015.
124
Lexaria Energy branded products are owned 100% by Lexaria Corp.
A manufacturing facility was contracted to produce the bar in
2015. Recipes have evolved and at the time of this report the Company had no
inventories of protein bars to be offered for sales, and was negotiating for a
suitable 2016/17 manufacturing facility and prices.
Our strategy was to encourage online sales via a dedicated
website, and also to encourage fitness enthusiasts to become aware of the
Lexaria Energy Bars at fitness clubs and gyms, which they are likely to
frequent. We did pursue traditional grocery store, convenience store, and
roadside store distribution channels in 2016 with some success but limited due
to our lack of an established distribution system.
It is our intention, subject to sufficient funding being
available, to provide R&D to develop additional fitness-style products in
2017 under the Lexaria Energy brand, such as protein powders for shakes or
smoothies, and protein energy drinks. We are also pursuing other product
development and expect to launch new products.
We believe the range of products available and under
development are sufficient to prepare for revenue growth and potentially
profitable long term operations if we are able to generate sufficient consumer
demand and obtain sufficiently widespread retail distribution locations.
Meanwhile our business strategy contains a second element that
we believe will be more impactful to future corporate growth that involves the
further development and out-licensing of our intellectual property of molecule
delivery that enhances bioactivity or absorption.
At this time we are not planning to offer for sale any products
containing THC in quantities higher than 0.3% . However we envision licensing
our technology to companies legally state-licensed to offer THC products in the
states or international jurisdictions where they do business. We also plan to
license our technology to other companies for the delivery of molecules other
than THC or cannabinoids. Our latest U.S. patent, granted on December 13, 2017,
for our technology related to new molecule groups may enhance our ability to
successfully pursue this initiative during fiscal 2018. We will attempt to
communicate the benefits of our technology to potential licensing partners, i.e.
with higher absorption levels a manufacturer could infuse smaller amounts of
active molecules into a product, thus reducing their manufacturing input costs.
We believe this to a meaningful competitive advantage that may lead to the
potential to generate licensing revenue, and will pursue these opportunities
within the THC market both within the USA and also internationally, in those
locations where it is legal and regulated by government.
We would not ourselves be selling any THC products we would
only be licensing technology to already-licensed participants in valid
jurisdictions. We expect a low number of licensees initially and currently have
one revenue generating agreement with such a licensee and additional letters of
intent and negotiations with other potential licensees.
Subject to budgetary availability, we also plan to conduct
additional in vitro and in vivo studies testing the absorption of some or all of
the molecules named within our patent applications CBD, NSAIDs, Vitamins, and
Nicotine to substantiate the effectiveness of our invention. More than simply
satisfying scientific curiosity, successful tests could lead to increased
awareness and acceptance of our technology as a meaningful method by which to
deliver some or all of the named molecules more effectively than their current
delivery methods. Therefore absorption tests could become an important element
leading towards higher rates of acceptance of our technology licensing
initiatives.
We will pursue technology licensing opportunities as a method
of generating highly profitable revenue streams over long periods of time. In
addition, while one of our patent applications has been granted by the USPTO and
another patent application has generated a Notice of Allowance, our remaining
patent applications have not yet been granted. It is not possible to forecast
with certainty when, or if, our remaining patent pendings will become granted
patents. But if our remaining patent applications do become granted patents, our
ability to generate meaningful license revenue from our intellectual property
may increase in a very short period of time.
125
We will continue to pursue our remaining patents pending as
vigorously as we are able, since the successful granting of more of those
applications could lead to material increases in shareholder value. We are
pursuing patent protection in more than 40 countries around the world.
Results of Operations – Three Months Ended November 30, 2017 and 2016
The following summary of our results of operations should be read in conjunction with our financial statements for the period ended November 30, 2017, which are included herein.
Our operating results for the three months ended November 30, 2017 and 2016 and the changes between those periods for the respective items are summarized as follows:
|
|
Three Months
|
|
|
Three Months
|
|
|
Change
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Between the
|
|
|
|
November 30
|
|
|
November 30
|
|
|
Periods
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Sales
|
|
24,635
|
|
|
9,225
|
|
|
15,410
|
|
Cost of Goods Sold
|
|
6,099
|
|
|
888
|
|
|
5,211
|
|
General and Administrative
|
|
593,703
|
|
|
405,466
|
|
|
188,237
|
|
Impairment of
Inventory
|
|
3,546
|
|
|
3,424
|
|
|
122
|
|
Net loss
|
|
(578,713
|
)
|
|
(400,553
|
)
|
|
(178,160
|
)
|
Our financial statements report a net loss of $578,711 for the
three month period ended November 30, 2017 compared to 2016 where we incurred a
net loss of $400,553. During the three month period ended November 30, 2017, our
general and administrative expenses were significantly higher compared to the
three months ended November 30, 2016, which is a result of the increases in
advertising and promotion to potential licensees and partners, patent and
trademark filing costs and increasing R&D expenditures. These increases are
in line with expectations for executing our business plan.
Revenue increases were primarily based on Licensing fees in
line with contract requirements, while consumer product sales remain low due to
challenges in securing expansive distribution opportunities, production
challenges and payment processing changes. The Company continues to pursue more
widespread distribution possibilities which have the potential to unlock more
significant consumer revenues.
The trend of hemp oil fortified foods, and hemp seed products,
gaining consumer acceptance continued through the period ended November 30,
2017, and provides a reason to believe that sales could increase. Those trends
should support higher potential consumer product sales. Release of the TurboCBD
product in fiscal 2017 was successful but ongoing sales were limited by changes
to payment processing services outside of the Companys control. At the time of
this report the Company had extinguished its supplies of certain products like
protein bars and the lack of inventory was also a negative impact on consumer
product sales potential.
For fiscal 2018 the Company expects to derive ever larger
proportions of its revenues from technology licensing to third parties. At the
time of this report the Company has entered more than 10 formal letters of
intent or definitive agreements and is negotiating more. The Company also has
formed a joint venture to develop, produce, and sell a line of healthy edible
cannabinoid products using our patented technology. It is the Companys view
that the November 2017 grant of patent 9839612 and its expanding patent
portfolio is a positive step in enabling the generation of more significant
revenues during fiscal 2018.
We do not expect that all of the Letters of Intent into which
we enter will result in definitive agreements with paying customers and cannot
predict how many will. We believe that strengthening and expanding our
intellectual property portfolio and conducting supportive R&D will jointly
contribute to strengthening revenue prospects.
126
Liquidity and Financial Condition
|
|
November 30
|
|
|
August 31
|
|
Working Capital
|
|
2017
|
|
|
2017
|
|
|
|
$
|
|
|
$
|
|
Current assets
|
|
2,417,202
|
|
|
2,795,495
|
|
Current
liabilities
|
|
95,705
|
|
|
92,347
|
|
Working capital balance (deficiency)
|
|
2,321,497
|
|
|
2,703,148
|
|
The Companys working capital balance decreased during the
three months ended November 30, 2017, as a result of its executing its operating
plan via increased activities in potential licensee outreach, research and
development and other aspects of our business plan utilizing funding from
financing activities during fiscal 2017 and the ongoing exercises of options and
warrants.
|
|
Three Months Ended
|
|
|
|
November 30
|
|
|
November 30
|
|
Cash flows
|
|
2017
|
|
|
2016
|
|
|
|
$
|
|
|
$
|
|
Cash flows used in operating activities
|
|
(520,321
|
)
|
|
(100,987
|
)
|
Cash flows used in investing activities
|
|
(85,715
|
)
|
|
(13,684
|
)
|
Cash flows provided by financing activities
|
|
282,402
|
|
|
145,508
|
|
Increase
(decrease) in cash
|
|
(323,634
|
)
|
|
30,837
|
|
Operating Activities
The increase in the net cash used in operating activities
during the three months ended November 30, 2017, is primarily the result of the
Companys execution of its operating plan with available funding compared to
cost containment during the period ended November 30, 2016. This difference was
largely due to the increased costs pertaining to consulting, advertising and
promotion, patent and trademark related filings, research and development, and
travel.
Investing Activities
During the three months ended November 30, 2017, the Company
continued its investment in expanding its patent applications and acquired 100%
ownership of our subsidiary PoViva Tea LLC.
Financing Activities
During the period ended November 30, 2017, the Company raised a
total of $282,402 from equity issuances, relating to the exercise of its
outstanding stock options and warrants.
127
Results of Operations for our Year Ended August 31, 2017
and August 31, 2016
Our net loss and comprehensive loss for the year ended August
31, 2017, for the year ended August 31, 2016 and the changes between those
periods for the respective items are summarized as follows:
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
August 31,
|
|
|
August 31,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
63,639
|
|
|
40,718
|
|
|
22,921
|
|
General and administrative
|
|
1,963,354
|
|
|
1,272,352
|
|
|
691,002
|
|
Interest expense
|
|
6,015
|
|
|
2,250
|
|
|
3,765
|
|
Consulting fees
|
|
1,017,872
|
|
|
565,543
|
|
|
452,329
|
|
Professional Fees
|
|
210,297
|
|
|
133,860
|
|
|
76,437
|
|
Net
loss
|
|
(1,929,465
|
)
|
|
(1,277,249
|
)
|
|
(652,216
|
)
|
Revenue
Licensing revenues represent the majority of the $63,639 in
revenues during the year ended August 31, 2017. Consumer product sales revenues
were lower due to challenges in securing expansive distribution opportunities,
production challenges and payment processing changes. Total licensing revenues
increased as they were included on a pro-rated basis and also included
additional contracted fees. Licensing revenues were recognized on a pro-rated
basis over the term of the licensing agreement as the Company is required to
provide additional support services during the term and is in a very early stage
of this revenue cycle to identify a vendor-specific objective evidence of fair
value of such services. Additional contracted fees were included as earned. As
of August 31 2017 the company had received all of the pre-defined Licensing
payments to August 31 2017 for a cash receipts of $50,000 of Licensing fees and
$20,392 of additional fees corresponding to the areas under the license
agreement where the licensee has been active to-date. During the year ended
August 31, 2017, $25,417 of the $50,000 was included (2016 $7,500) on a
pro-rated basis and $20,392 (2016 $NIL) of additional fees as licensing revenue
for a total of $45,809 in licensing revenue and $17,830 in product and other
revenues.
As fiscal 2017 came to a close, hemp oil fortified foods, and
hemp seed products continued gaining consumer acceptance and provide a reason to
believe that sales could increase. Those trends should support higher potential
consumer product sales. Release of the TurboCBD product was successful but sales
were limited by changes to payment processing services outside of the Companys
control. At the time of this report the Company had extinguished its supplies of
certain products like protein bars and the lack of inventory was also a negative
impact on consumer product sales potential.
For 2018 the Company expects to derive ever larger proportions
of its revenues from technology licensing to third parties. At August 31, 2015
the Company had zero technology licensing agreements entered. By August 31, 2016
we had entered several LOIs or definitive agreements related to technology
out-licensing. At the time of this report the Company has entered more than 10
formal letters of intent or definitive agreements and is negotiating more. The
Company also has formed a joint venture to develop, produce, and sell a line of
healthy edible cannabinoid products using our patented technology. It is the
Companys view that the expansion of our patent portfolio, including the December 13, 2017 patent granted by the USPTO, of will be a
positive step in enabling the generation of more significant revenues during
2018.
128
We do not expect that all of the Letters of Intent into which
we enter will result in definitive agreements with paying customers and cannot
predict how many will. We believe that strengthening and expanding our
intellectual property portfolio and conducting supportive R&D will jointly
contribute to strengthening revenue prospects.
General and Administrative
Our general and administrative expenses increased by $691,002
during the year ended August 31, 2017. The increase in our general and
administrative expenses was largely due to expected increases in executing
budgeted work. Examples are many and include additional consultants; increasing
legal fees for patent and trademark filings, new product development and launch,
and more. However roughly two-thirds of the increase included in the G&A
total is $258,406 valuation of warrants issued for services and $207,660 of
share issuance for contracts and in settlement of services recognized in
accounts payable regarding contractors. Significant increases are expected
during fiscal 2018 executing the budgeted scientific testing and research and
development.
Interest Expense
Interest expense for the year ended August 31, 2017 was $6,015
(2016 $2,250). The increase was primarily due to the issuance of a convertible
debt and related payments. As of the year ended August 31, 2017 we eliminated
our long-term loan and the convertible debt was converted.
Consulting fees
Our consulting fees increased during the year ended August 31,
2017 due to the involvement of additional consultants, including the appointment
of our interim CFO. Our executives are typically hired and compensated as
consultants and costs associated with those agreements comprise the largest
majority of our consulting fees expense.
Professional Fees
Our professional fees increased by $76,437 during fiscal 2017
primarily due to increases in patent and trademark filings, but were offset by
some reductions due to the appointment of our interim CFO reducing financial
report preparation fees from third party service providers. These efficiencies
reduced outside professional fees.
Liquidity and Financial Condition
|
|
August 31
|
|
|
August 31
|
|
Working Capital
|
|
2017
|
|
|
2016
|
|
|
|
$
|
|
|
$
|
|
Current assets
|
|
2,795,495
|
|
|
510,166
|
|
Current liabilities
|
|
92,347
|
|
|
433,881
|
|
Working capital balance
|
|
2,703,148
|
|
|
76,285
|
|
The Companys working capital balance increased during the year
ended August 31, 2017 as a result of its financing activities. The warrant
conversions from previous equity financings, and the new equity financings
during fiscal 2017 resulted in a significant improvement in our working capital
position of $2,626,863 compared to the year earlier period.
129
|
|
Year Ended
|
|
|
|
August 31
|
|
|
August 31
|
|
Cash flows
|
|
2017
|
|
|
2016
|
|
|
|
$
|
|
|
$
|
|
Cash flows (used in) provided
by operating activities
|
|
(1,545,909
|
)
|
|
(660,856
|
)
|
Cash flows (used in) provided by investing
activities
|
|
(9,699
|
)
|
|
(20,102
|
)
|
Cash flows (used in) provided by financing activities
|
|
3,995,536
|
|
|
514,292
|
|
Increase (decrease) in cash
|
|
2,439,928
|
|
|
(166,666
|
)
|
Operating Activities
Net cash used in operating activities was $1,545,909 for the
year ended August 31, 2017 compared with cash used in operating activities of
$660,856 during the same period in 2016. This difference was largely due to the
increased costs pertaining to consulting, advertising and promotion, patent and
trademark related filings, research and development, and travel.
Investing Activities
Net cash used in investing activities was $9,699 (2016 $20,102)
for the year ended August 31, 2017 is primarily due to the Companys cost
incurred related to its patent related applications.
Financing Activities
Net cash provided from financing activities was $3,995,536
during the year ended August 31, 2017 compared to net cash provided of $514,292
during the same period in 2016. During fiscal 2017, the Company closed a
brokered private placement and had significant warrant exercises. The Company
also repaid its loan due to our Chief Executive Officer. We raised $1,635,242
from equity private placements $177,262 from option and $2,233,032 from warrant
exercises in fiscal 2017 compared to $419,292 of equity from private placements
and $95,000 in debt during fiscal 2016.
Contractual Obligations
As a smaller reporting company, we are not required to
provide tabular disclosure obligations.
Going Concern
The Companys consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States (U.S. GAAP) applicable to a going concern, which contemplates the
realization of assets and the satisfaction of liabilities and commitments in the
normal course of business. The Company has a net loss attributable to its common
shareholders of $1,869,277 for the year ended August 31, 2017 (2016: $1,214,773)
and at August 31, 2017 had a deficit accumulated since its inception of
$13,169,939 (2016: $11,300,662). The Company has a working capital balance of
$2,703,148 as at August 31, 2017 (2016: $76,285). The Company requires
additional funds to maintain its operations and developments beyond fiscal 2018.
Managements plans in this regard are to raise equity and debt financing as
required, but there is no certainty that such financing will be available or that it will be available
at acceptable terms. The outcome of these matters cannot be predicted at this
time.
130
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that are material to
stockholders.
Critical Accounting Policies
The discussion and analysis of our financial condition and
results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with the accounting principles generally
accepted in the United States of America. Preparing consolidated 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 aspects of our financial statements
are
critical to an understanding of our financial statements as more particularly
described in Note 3 to our audited annual consolidated financial statements
included herein.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (the
FASB) issued a new standard related to the revenue recognition. Under the new
standard, recognition of revenue occurs when a customer obtains control of
promised goods or services in an amount that reflects the consideration which
the entity expects to receive in exchange for those goods or services. In
addition, the standard requires disclosure of the nature, amount, timing, and
uncertainty of revenue and cash flows arising from contracts with customers. The
FASB has recently issued several amendments to the standards, including
clarification on the accounting for licenses of intellectual property and
identifying performance obligations.
The guidance permits two methods of adoption: retrospectively
to each prior reporting period presented (full retrospective method), or
retrospectively with the cumulative effect of initially applying the guidance
recognized at the date of initial application (the cumulative catch-up
transition method). The Company will apply the full retrospective approach to
adopt the standard but does not anticipate that this standard will have a
material impact on its consolidated financial statements.
In July 2015, FASB issued ASU 2015-11, Simplifying the
Measurement of Inventory (ASU 2015-11). ASU 2015-11 requires that an entity
measure inventory at the lower of cost and net realizable value. This ASU does
not apply to inventory measured using last-in, first-out methodology. ASU
2015-11 is effective for annual reporting periods beginning after December 15,
2016, including interim periods within that reporting period. The Company does
not expect the new standard to have a significant impact on its consolidated
financial position, results of operations or cash flows.
In November 2015, the FASB issued guidance that requires
companies to classify all deferred tax assets or liabilities as noncurrent on
the balance sheet rather than separately disclosing deferred taxes as current
and noncurrent. This standard is effective for the Company beginning on
September 1, 2017 and can be applied either prospectively or retrospectively to
all periods presented upon adoption. The standard is not expected to have any
impact on the Companys financial statements.
In January 2016, FASB issued a new standard to amend certain
aspects of recognition, measurement, presentation, and disclosure of financial
instruments. Most prominent among the amendments is the requirement for changes
in fair value of equity investments, with certain exceptions, to be recognized
through profit or loss rather than other comprehensive income. The new standard
will be effective for the Company beginning September 1, 2018. The standard is
not expected to have any impact on the Companys financial statements.
131
In February 2016 FASB issued ASU No. 2016-02, Leases (Topic
842) which supersedes FASB ASC Topic 840, Leases (Topic 840) and provides
principles for the recognition, measurement, presentation, and disclosure of
leases for both lessees and the lessors. The new standard requires the lessees
to apply a dual approach, classifying leases as either finance or operating
leases based on the principle of whether or not the lease is effectively a
financed purchase by the lessee. The classification will determine whether lease
expense is recognized based on an effective interest method or on a
straight-line basis over the term of the lease, respectively. A lessee is also
required to record a right-of-use asset and a lease liability for all leases
with a term of greater than twelve months regardless of classification. Leases
with a term of twelve months or less will be accounted for similar to existing
guidance for operating leases. The standard is effective for annual and interim
periods beginning after December 15, 2018, with early adoption permitted upon
issuance. When adopted, the Company does not expect this guidance to have a
material impact on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Compensation-Stock
Compensation (Topic 718), Improvements to Employee Share-Based Payment
Accounting. Under ASU 2016-09, companies will no longer record excess tax
benefits and certain tax deficiencies in additional paid in capital (APIC).
Instead, they will record all excess tax benefits and tax deficiencies as income
tax expense or benefit in the income statement and the APIC pools will be
eliminated. In addition, ASU 2016-09 eliminates the requirement that excess tax
benefits be realized before companies can recognize them. ASU 2016-09 also
requires companies to present excess tax benefits as an operating activity on
the statement of cash flows rather than as a financing activity. Furthermore,
ASU 2016-09 will increase the amount an employer can withhold to cover income
taxes on awards and still qualify for the exception to liability classification
for shares used to satisfy the employers statutory income tax withholding
obligation. An employer with a statutory income tax withholding obligation will
now be allowed to withhold shares with the fair value up to the amount of taxes
owed using the maximum statutory rate in the employees applicable
jurisdiction(s). ASU 2016-09 requires a company to classify the cash paid to a
tax authority when shares are withheld to satisfy its statutory income tax
withholding obligation as a financing activity on the statement of cash flows.
Under current U.S. GAAP, it is not specified how these cash flows should be
classified. In addition, companies will now have to elect whether to account for
forfeitures on share-based payments by (1) recognizing forfeiture awards as they
occur or (2) estimating the number of awards expected to be forfeited and
adjusting the estimate when it is likely to change, as in currently required.
The amendments of this ASU are effective for reporting periods beginning after
December 15, 2016, with early adoption permitted but all of the guidance must be
adopted in the same period. The Company is currently assessing the impact the
standard will have on its consolidated financial statements.
In June 2016, the FASB issued a new standard to replace the
incurred loss impairment methodology in current U.S. GAAP with a methodology
that reflects expected credit losses and requires consideration of a broader
range of reasonable and supportable information to inform credit loss credit
loss estimates. For trade and other receivables, loans and other financial
instruments, the Company will be required to use a forward-looking expected loss
model rather than the incurred loss model for recognizing credit losses which
reflects losses that are probable. Credit losses relating to available for sale
debt securities will also be recorded through an allowance for credit losses
rather than as a reduction in the amortized cost basis of the securities. The
new standard will be effective for Lexaria beginning September 1, 2020, with
early adoption permitted. Application of the amendments is through a
cumulative-effect adjustment to deficit as of the effective date. The Company is
currently assessing the impact of the standard on its consolidated financial
statements.
DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive 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:
132
Name
|
Position Held with our Company
|
Age
|
Date First Elected
Or Appointed
|
Date of
Resignation
|
Christopher Bunka
|
Chief Executive Officer,
Director, Chairman of the Board of Directors
|
55
|
October 26, 2006
February
14, 2007
April 29, 2016
|
-
|
John Docherty
|
President and Director
|
46
|
April 15, 2015
April 29, 2016
|
-
|
Allan Spissinger
|
Chief Financial Officer
|
|
June 1, 2017
|
|
Nicholas Baxter
|
Director
|
63
|
July 8, 2011
|
-
|
Ted McKenchnie
|
Director
|
69
|
September 16, 2015
|
-
|
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 person's principal occupation during the period, and the name
and principal business of the organization by which he was employed.
Mr. Christopher Bunka Chief Executive Officer,Director,
Chairman of the Board of Directors
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
our company, completed the acquisition of additional oil & gas assets,
disposed of other oil & gas assets, and restructured our company. He has
refocused our 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.
Mr Bunka was formerly Chairman/CEO of Enertopia Corp, (symbol
ENRT-OTC) but resigned in 2013. Mr. Bunka was formerly a director of Defiance
Capital Corp., (symbol DEF-TSXV) a Canadian resource company, but resigned in
2014.
Mr. John Docherty President and Director
Mr. Docherty was appointed President of Lexaria effective April
15, 2015. Prior to Lexaria Mr. Docherty was former President and Chief Operating
officer of Helix BioPharma Corp. (TSX: HBP), where he led the companys
pharmaceutical development programs for its plant and recombinantly derived
therapeutic protein product candidates. Mr. Docherty is a senior operations and
management executive with over 20 years experience in the pharmaceutical and
biopharmaceutical sectors. He has worked with large multinational companies and
emerging, private and publicly held start-ups. At Helix, Mr. Docherty was also
instrumental in the areas of investor/stakeholder relations, capital raising,
capital markets development, strategic partnering, regulatory authority
interactions and media relations, and he also served as a management member of
its board of directors. Prior to this, Mr. Docherty was President and a board
member of PharmaDerm Laboratories Ltd., a Canadian drug delivery company that
developed unique microencapsulation formulation technologies for use with a
range of active compounds.
Mr. Docherty has also held positions with companies such as
Astra Pharma Inc., Nu-Pharm Inc. and PriceWaterhouseCoopers former global
pharmaceutical industry consulting practice. He is a named inventor on issued
and pending patents and he has a M.Sc. in pharmacology and a B.Sc. in Toxicology
from the University of Toronto. He has served as a director of Lexaria since
April 29, 2016.
133
Mr. Nicholas Baxter - Director
Mr. Baxter has been in the oil & gas business for 30 years.
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 that went public on the USM in London in 1983 and
graduated to the London Stock Exchange in 1984. Mr. Baxter established his own
company in 1985 as a co-founder of Addison & Baxter Limited, 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. Mr. Baxter worked
as an independent upstream oil and gas consultant from 2002 to 2004. He joined
Eurasia Energy Ltd in 2005, where he is currently President and Chief Executive
Officer.
Mr. Ted McKechnie Director
An entrepreneurial executive with extensive Board and Senior
Management Experience in the consumer goods industry with a proven track record
for achieving corporate financial and growth objectives. He is the former
President and COO of Maple Leaf Foods, which in 2014 had revenue of over CDN
$3.1 billion dollars. Mr. McKechnie also has held executive positions with
Kraft, Frito Lay, General Foods, PepsiCo, and Philip Morris Companies. He is the
Founder, Chairman and CEO of Canadas Technology For Food. Mr. McKechnie is an
energetic leader experienced in building teams in marketing, sales and supply
chain management. Ted is the recipient of the Philip Morris Chairmans Award for
recognition of extraordinary contributions having a significant and lasting
impact on the Corporation.
Mr. Allan Spissinger Chief Financial Officer
Allan Spissinger was involved in the information technologies
(IT) sector for more than 10 years working on corporate IT infrastructure and
software development projects before focusing on finance and accounting. Allan
joined the audit and assurance practice of PricewaterouseCoopers (PwC) obtaining
his Chartered Professional Accountant (CPA) designation by working primarily in
the public company space on financial reporting and Sarbanes-Oxley (SOX)
compliance in sectors including resources, manufacturing and technologies. Allan
has managed private businesses for 20 years before joining Lexaria in September
2014 as its corporate controller and is intimately familiar with its operations,
procedures and controls.
Family Relationships
There are no family relationships between our directors and
executive officers.
Involvement in Certain Legal Proceedings
Our directors and executive officers have not been involved in
any of the following events during the past ten years:
|
1.
|
any bankruptcy petition filed by or against any business
of which such person was a general partner or executive officer either at
the time of the bankruptcy or within two years prior to that
time;
|
|
|
|
|
2.
|
any conviction in a criminal proceeding or being subject
to a pending criminal proceeding (excluding traffic violations and other
minor offenses);
|
|
|
|
|
3.
|
being subject to any order, judgment, or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining, barring, suspending or
otherwise limiting his involvement in any type of business, securities or
banking activities;
|
|
|
|
|
4.
|
being found by a court of competent jurisdiction (in a
civil action), the Securities and Exchange Commission 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;
|
|
|
|
|
5.
|
being 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, relating to an alleged
violation of: (i) any federal or state securities or commodities law or
regulation; or (ii) 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 (iii) any law or regulation prohibiting mail or wire fraud
or fraud in connection with any business entity; or
|
134
|
6.
|
being 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
Securities Exchange Act of 1934), any registered entity (as defined in
Section 1(a)(29) of the Commodity Exchange Act), or any equivalent
exchange, association, entity or organization that has disciplinary
authority over its members or persons associated with a
member.
|
Corporate Governance
Public Availability of Corporate Governance
Documents
Our key corporate governance documents, including our Code of
Ethics and the charter of our audit committee are:
|
|
available on our corporate website;
|
|
|
|
|
|
available in print to any stockholder who
requests them from our President; and
|
|
|
|
|
|
certain of them are filed as exhibits to our
securities filings with the Securities and Exchange Commission.
|
Code of Ethics
Our board of directors has established a Code of Ethics and
Business Conduct of Officers, Directors and Employees which applies to all of
our officers, directors and employees. The Code of Ethics is intended to meet
the requirements for a code of ethics under the Sarbanes-Oxley Act of 2002, or
SOX, and under the policies of the Canadian Securities Exchange, a Canadian
stock exchange, and is specifically applicable to our principal executive
officer, principal financial and accounting officer and controller or persons
performing similar functions. Among other matters, the Code of Ethics is
designed to deter wrongdoing and to promote:
|
|
honest and ethical conduct, including the
ethical handling of actual or apparent conflicts of interest between
personal and professional relationships;
|
|
|
|
|
|
ethical and fair dealing with our financial
institutions, suppliers, vendors, competitors, agents and employees;
|
|
|
|
|
|
full, fair, accurate, timely and understandable
disclosure in our SEC reports and other public communications;
|
|
|
|
|
|
compliance with applicable governmental laws,
rules and regulations;
|
|
|
|
|
|
lawful and ethical conduct when dealing with
public officials and government entities;
|
|
|
|
|
|
prompt internal reporting of violations of the
Code of Ethics to appropriate persons identified in the code; and
|
|
|
|
|
|
accountability for adherence to the Code of
Ethics.
|
Waivers to the Code of Ethics may be granted only by our full
board of directors. In the event that our board of directors grants any waiver
of the elements listed above to any of our directors or officers, we expect to
announce the waiver within four business days on the corporate governance
section of our website at
www._______________________.
135
Meetings
During the fiscal year ended August 31, 2017, our board of
directors held at least __________________ meetings and each director attended
all of the meetings of our board of directors and the committees upon which such
member served.
Committees of the Board of Directors
Our board of directors has one standing committee, the audit
committee, consisting ofeach member of our board of directors, including
Christopher Bunka, John Docherty, Nicholas Baxter, and Ted McKechnie.
Audit
Committee and Audit Committee Financial Expert
Our board of directors created an audit committee and adopted
an audit committee charter. Currently, we have appointed Christopher Bunka, John
Docherty, Nicholas Baxter, and Ted McKechnie as members of our audit committee.
However, our board of directors has determined that we do not have a member of
our audit committee that qualifies as an audit committee financial expert as
defined in Item 407(d)(5) of Regulation S-K. All of the members of our audit
committee are independent under Canadian Securities Exchange and SEC
independence standards. We do not have an audit committee financial expert
because we believe that the members of our audit committee are collectively
capable of analyzing and evaluating our financial statements and understanding
internal controls and procedures for financial reporting.
Our audit committee operates pursuant to a written charter
adopted by our board of directors, a copy of which is on the corporate
governance section of our website at www.Lexariamining.com. Among other things,
the charter calls upon the audit committee to:
|
|
oversee our auditing, accounting and control
functions, including having primary responsibility for our financial
reporting process;
|
|
|
|
|
|
monitor the integrity of our financial
statements to ensure the balance, transparency and integrity of published
financial information;
|
|
|
|
|
|
monitor our outside auditors independence,
qualifications and performance;
|
|
|
|
|
|
monitor our compliance with legal and
regulatory requirements; and
|
|
|
|
|
|
monitor the effectiveness of our internal
controls and risk management system.
|
It is not the duty of our audit committee to determine that our
financial statements are complete and accurate and in accordance with generally
accepted accounting principles. Our management is responsible for preparing our
financial statements, and our independent registered public accounting firm is
responsible for auditing those financial statements. Our audit committee does,
however, consult with management and our independent registered public
accounting firm prior to the presentation of financial statements to
stockholders and, as appropriate, initiates inquiries into various aspects of
our financial affairs. In addition, our audit committee is responsible for
retaining, evaluating and, if appropriate, recommending the termination of our
independent registered public accounting firm and approving professional
services provided by them.
Audit Committee Report
Our audit committee oversees our financial reporting process.
Management has the primary responsibility for the financial statements and the
reporting process, including the system of internal accounting controls.
Our audit committee has reviewed and discussed the audited
financial statements for the year ended August 31, 2017 with management.
Our audit committee has discussed with Davidson & Company
LLP, Chartered Accountants, our independent registered public accounting firm
for the year ended August 31, 2016, the matters required to be discussed by the
statement on Auditing Standards No. 61, as amended (AICPA, Professional
Standards, Vol. 1. AU Section 380) as adopted by the Public Accounting Oversight
Board in Rule 3200T.
136
Our audit committee has received written disclosures and the
letter from Davidson & Company LLP required by Independence Standards Board
Standard No. 1 (Independence Standards Board Standard No. 1,
Independence
Discussions with Audit Committees
) as adopted the Public Company
Accounting Oversight Board in Rule 3600T, and has discussed with Davidson &
Company LLP its independence.
Based on the reviews and discussions referred to above, our
audit committee recommended to our board of directors that the audited financial
statements referred to above to be included in our annual report on Form 10-K
for the year ended August 31, 2017 for filing with the Securities and Exchange
Commission.
Not Soliciting Material
The material in this
report is not soliciting material, is not deemed filed with the Securities
and Exchange Commission and is not to be incorporated by reference in any filing
of our company under the Securities Act of 1933 or the Securities Exchange Act
of 1934 whether made before or after the date hereof and irrespective of any
general incorporation language in any such filing.
Director Independence
Under NASDAQ Rule 5605(a)(2), a director is not considered to
be independent if he or she is also an executive officer or employee of the
corporation. Two of our current directors are independent as that term is
defined by NASDAQ Rule 5605(a)(2).
Stockholder Communications with Our Board of Directors
We do not have a formal procedure for stockholder communication
with our board of directors. In general, members of our board of directors and
executive officers are accessible by telephone or mail. Any matter intended for
our board of directors, or for any individual member or members of our board of
directors, should be directed to our President with a request to forward the
communication to the intended recipient.
Board Leadership Structure
The positions of our principal executive officer and the
chairman of our Board of Directors are served by one individual, Chris Bunka.
We have determined that the leadership structure of our board of
directors is appropriate, especially given the early stage of our development
and the size of our company. Our board of directors provides oversight of our
risk exposure by receiving periodic reports from senior management regarding
matters relating to financial, operational, legal and strategic risks and
mitigation strategies for such risks.
Section 16(a) Beneficial Ownership Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires
our executive officers and directors, and persons who beneficially own more than
10% of our common stock, to file reports regarding ownership of, and
transactions in, our securities with the Securities and Exchange Commission and
to provide us with copies of those filings. 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 the fiscal year ended August 31, 2017,
all filing requirements applicable to our executive officers, directors and
persons who beneficially own more than 10% of our common stock were complied
with.
EXECUTIVE COMPENSATION
The following table sets forth all compensation received during
the years ended August 31, 2017 and 2016 by our Chief Executive Officer, Chief
Financial Officer and each of the other most highly compensated executive
officers whose total compensation exceeded $100,000 in such fiscal year. These
officers are referred to as the named executive officers in this proxy
statement/prospectus.
Summary Compensation
The following table provides a summary of the compensation
received by the persons set out therein for each of our last two fiscal
years:
137
S
UMMARY
COMPENSATION TABLE
|
Name and
Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan
Compensation
($)
|
Non-Qualified
Deferred
Compensation
Earnings
($)
|
All Other
Compensation
($)
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
Christopher Bunka
(1)
,
|
2017
|
-
|
-
|
61,950
(7)
|
-
|
-
|
-
|
147,800
|
209,750
|
Chairman, Chief
|
2016
|
-
|
-
|
-
|
-
|
-
|
-
|
120,000
|
120,000
|
Executive
|
|
|
|
|
|
|
|
|
|
Officer &
|
2015
|
-
|
-
|
-
|
-
|
-
|
-
|
119,700
|
163,750
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bal Bhullar
(2)
,
|
2017
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Chief Financial
|
|
|
|
|
|
|
|
|
|
Officer &
|
2016
|
-
|
-
|
-
|
-
|
-
|
-
|
44,767
|
44,767
|
Director
|
|
|
|
|
|
|
|
|
|
|
2015
|
-
|
-
|
-
|
49,750
|
-
|
-
|
69,543
|
119,293
|
|
|
|
|
|
|
|
|
|
|
Tom Irkhe
(4)
|
2017
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
Vice President
|
2016
|
-
|
-
|
-
|
-
|
-
|
-
|
18,000
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
-
|
-
|
-
|
9,947
|
-
|
-
|
42,000
|
51,947
|
|
|
|
|
|
|
|
|
|
|
John Docherty
(5)
|
2017
|
-
|
-
|
97,710
(6)
|
-
|
-
|
-
|
143,434
|
241,144
|
|
|
|
|
|
|
|
|
|
|
President
|
2016
|
-
|
-
|
21,000
|
32,768
(3)
|
-
|
-
|
117,213
|
170,981
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
-
|
-
|
83,532
|
39,722
|
-
|
-
|
44,965
|
168,219
|
|
|
|
|
|
|
|
|
|
|
Allan Spissinger
(8)
|
2017
|
-
|
-
|
-
|
54,204
(9)
|
-
|
-
|
57,104
|
111,308
|
|
|
|
|
|
|
|
|
|
|
Interim Chief
|
2016
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Financial
|
|
|
|
|
|
|
|
|
|
Officer
|
2015
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
(1)
|
Mr. Bunka was appointed as chairman, president, chief
executive officer, and director on October 26, 2006, and was chief
financial officer of our company from April 29, 2016 to May 31 2017. He
resigned as president on April 15, 2015. We pay Mr. Bunka a consulting fee
through CAB Financial Services Ltd., where he is also the Chief Executive
Officer.
|
|
|
|
|
(2)
|
Ms. Bhullar was appointed Chief Financial Officer on May
12, 2009 and resigned April 29, 2016. We paid Ms. Bhullar consulting fees
through her wholly owned company BKB Management
Ltd.
|
138
|
(3)
|
The fair value of the stock options awarded was estimated
using the Black-Scholes option pricing model with the following
assumptions: expected volatility of 240%; risk-free interest rate of
1.22%; expected life of 5 years; and dividend yield of 0.00%.
|
|
|
|
|
(4)
|
Mr. Ihrke became Vice President on December 23, 2015 and
resigned on March 8, 2016.
|
|
|
|
|
(5)
|
Mr. Docherty became President on April 15, 2015 and a
director on April 29, 2016. We pay Mr. Docherty a consulting fee through
his wholly owned company Docherty Management Ltd.
|
|
|
|
|
(6)
|
Pursuant to the agreement with Docherty Management Ltd.
Mr. Docherty received 462,000 (2016 - 210,000) common shares with a value
of 97,710 (2016 - $21,000).
|
|
|
|
|
(7)
|
Pursuant to the agreement with CAB Financial Services
Ltd. Mr. Bunka received 210,000 (2016 - NIL) common shares with a value of
$61,950 (2016 - $NIL).
|
|
|
|
|
(8)
|
Mr. Spissinger became Interim Chief Financial Officer on
June 1, 2017. We pay Mr. Spissinger a consulting fee through his wholly
owned company M&E Services Ltd.
|
|
|
|
|
(9)
|
The fair value of the stock options awarded was estimated
using the Black-Scholes option pricing model with the following
assumptions: expected volatility of 102%; risk-free interest rate of
1.71%; expected life of 5 years; and dividend yield of
0%.
|
Our company is currently paying consulting fees to our chief
executive officer $12,000 per month, our president CAD$15,000 per month and our
Interim Chief Financial Officer CAD$8,000 per month in consulting fees. There are
no arrangements or plans in which we provide pension, retirement or similar
benefits for directors or executive officers, except that our directors and
executive officers may receive stock options at the discretion of our
compensation committee and our board of directors.
Other than our Stock Option Plan, and Mr. Dochertys incentive
bonuses, we do not have any 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.
On November 27, 2008, we entered into a consulting agreement
with CAB Financial Services Ltd., a British Columbia company. The consulting
services provided by CAB Financial are on a continuing basis for a consideration
of CAD$8,000 per month plus applicable taxes. CAB Financial is a consulting
company controlled by our chief executive officer, Christopher Bunka. Effective
December 1, 2014, the company entered into a new consulting agreement for
consulting services of $10,000 a month plus GST. On December 1, 2016, the
Company amended its agreement with CAB Financial Services Ltd. As Chief
Executive Officer for a revised consulting fee of $12,000 per month plus
applicable taxes, superseding the previous agreement for $10,000 per month plus
applicable taxes.
139
On May 12, 2009 the Company entered into a consulting agreement
with BKB Management Ltd. for the services of Bal Bhullar to act as the Chief
Financial Officer and a Director. December 1, 2014, the Company entered into an
updated consulting agreement for CAD$7,500 per month plus GST. Effective April
29, 2016, Ms. Bhullar reigned her position and the contract was terminated.
On August 5, 2010 we entered into a three-month management
agreement with Tom Ihrke for Mr. Ihrke to act as the senior vice-president,
business development for our company for consideration of $3,125 per month. On
December 2, 2010, we amended the agreement to be month-to-month. On October 3,
2011 Mr. Ihrke and our company amended the agreement whereby his title changed
to manager, business development for a monthly consulting fee of $3,125.
Effective January 15, 2012, the consulting agreement was decreased to $10 a
month. Effective April 1, 2014, the amended consulting agreement was increased
to $5,000 per month. Effective December 23, 2014 the company entered into a new
Executive Management consulting agreement for consulting services of $3,000 a
month. Mr. Ihrke tendered his resignation on March 8, 2016.
On September 1, 2014, the company entered into a contract with
M&E Services Ltd., wholly owned company by Allan Spissinger as Controller
for CAD$2,500 plus GST. This contract was amended on December 1, 2014 to
CAD$3,400 a month plus GST.
The company appointed Mr. John Docherty as President of Lexaria
effective April 15, 2015. The company executed a twenty-four-month consulting
contract with Docherty Management Limited, solely owned by Mr. John Docherty
with monthly compensation of CAD$12,500 and shall increase to a total of
CAD$15,000 per month effective at that time when the company has $1,000,000 or
more in cash in its bank accounts, and continue at CAD$15,000 per month from
that moment until the termination or completion of the contract. The company may
pay Mr. Docherty a bonus from time to time, at its sole discretion. Mr. Docherty
will be entitled to receive common stock-based and stock option based bonuses
upon achieving certain milestones during the time of his consultancy with the
company. These milestones are:
|
|
Upon signing: A grant of 500,000 stock options priced
one-cent above market prices at the time of award. (granted).
|
|
|
|
|
|
90 Days after signing: A grant of 500,000 restricted
common shares (Completed - 420,000 restricted common shares issued with
cash payment of $16,000).
|
|
|
|
|
|
Twelve months after signing: A grant of 300,000 stock
options priced one-cent above market prices at the time of award
(granted).
|
|
|
|
|
|
18 months after signing: A grant of 300,000 restricted
common shares (210,000 restricted common shares issued).
|
|
|
|
|
|
During the first 12 months after signing; for combined
Lexaria Energy and ViPova products and including all combined sales
efforts, achieving non-refundable sales of $200,000 to any single customer
in any consecutive 60-day period would result in a restricted common share
award of 100,000 Company shares (expired); and, after the first 12 months
after signing and expiring 24 months after signing; for combined Lexaria
Energy and ViPova products and including all sales efforts, achieving
non-refundable sales of $200,000 to any single customer in any consecutive
60-day period would result in a restricted common share award of 50,000
shares; this clause is limited to one payment per customer during the 24-
month period, but payable on each customer that meets these sales
thresholds;
|
|
|
|
|
|
During the first 12 months after signing; for combined
Lexaria Energy and ViPova products and including all combined sales
efforts, achieving non- refundable sales of $500,000 in any fiscal quarter
would result in a restricted common share award of 200,000 company shares
(expired); and, after the first 12 months after signing and expiring 24
months after signing; for combined Lexaria Energy and ViPova products and
including all sales efforts, achieving non-refundable sales of $500,000 in
any fiscal quarter would result in a restricted common share award of
100,000 Company shares; this clause is limited to one payment per fiscal
quarter;
|
|
|
|
|
|
During the time this Agreement remains in effect, for
each new provisional patent application substantially devised by Mr.
Docherty and successfully created, written and filed with the US Patent
Office for company-owned intellectual property, a restricted
common share award of 250,000 Company shares. This clause is not limited to the
frequency of payment but each patent application is to be approved by the Board
of Directors of the company, in advance. During the nine months ended May 31,
2016, the company issued to Mr. Docherty, 210,000 restricted common shares and
further accrued $4,000 combined in lieu of issuance of 250,000 restricted common
shares, as mutually agreed to between the parties.
|
140
On March 1, 2017, the Company executed a revised twenty four
month consulting contract with Docherty Management Limited, solely owned by Mr.
John Docherty to act as President with monthly compensation of CAD$15,000 plus
applicable taxes, superseding the previous agreement with monthly compensation
of CAD$12,500 plus applicable taxes.
Grants of Plan-Based Awards Table
We did not grant any awards to our named executive officers
during our fiscal year ended August 31, 2016.
Outstanding Equity Awards at Fiscal Year End
The particulars of unexercised options, stock that has not
vested and equity incentive plan awards for our named executive officers are set
out in the following table:
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
|
|
|
OPTION
AWARDS
|
STOCK
AWARDS
|
Name
|
Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
|
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number of
Shares
or
Units
of Stock
That
Have
Not
Vested
(#)
|
Market
Value of
Shares o
r Units
of Stock
That
Have
Not
Vested
($)
|
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights
That
Have
Not
Vested
(#)
|
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other Rights
That Have
Not Vested
(#)
|
|
|
|
|
|
|
|
|
|
|
Christopher
|
550,000
|
-
|
-
|
$0.11
|
2019/12/22
|
-
|
-
|
-
|
-
|
Bunka
|
247,500
|
-
|
-
|
$0.10
|
2018/06/18
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tom Ihrke
|
330,000
|
-
|
-
|
$0.11
|
2019/12/22
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
John
|
550,000
|
-
|
-
|
$0.10
|
2020/03/26
|
-
|
-
|
-
|
-
|
Docherty
|
300,000
|
-
|
-
|
$0.11
|
2021/04/15
|
-
|
-
|
-
|
-
|
Option Exercises
During our fiscal year ended August 31, 2017, on January 9
2017, Allan Spissinger exercised 27,500 options previously granted at $0.10
prior to his being appointed interim CFO June 1 2017.
During our fiscal year ended August 31, 2016, no options were
exercised by our named officers.
141
Compensation of Directors
We do not have any agreements for compensating our directors
for their services in their capacity as directors, although such directors are
expected in the future to receive stock options to purchase shares of our common
stock as awarded by our board of directors. We have an agreement with a director
for marketing services that is not in their capacity as a director for $4,000
per month plus applicable taxes.
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.
Compensation Committee Interlocks and Insider
Participation
During 2016, 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
2016.
Compensation Committee Report
None.
TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND
CERTAIN
CONTROL PERSONS
Except as disclosed in the above section of this registration
statement entitled EXECUTIVE COMPENSATION, since the beginning of the year
ended August 31, 2016, there have been no transactions or proposed transactions
in which the amount involved exceeds the lesser of $120,000 or one percent of
the average of our total assets at year-end for the last two completed fiscal
years in which any of our directors, executive officers or beneficial holders of
more than 5% of the outstanding shares of our common stock, or any of their
respective relatives, spouses, associates or affiliates, has had or will have
any direct or material indirect interest.
On
Compensation for Executive Officers and
Directors
For information regarding compensation for our executive
officers and directors, see Executive Compensation.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth, as of February 5, 2018, certain
information with respect to the beneficial ownership of our common shares by
each shareholder known by us to be the beneficial owner of more than 5% of our
common shares, as well as by each of our current directors and executive
officers as a group. Each person has sole voting and investment power with
respect to the shares of common stock, except as otherwise indicated. Beneficial
ownership consists of a direct interest in the shares of common stock, except as
otherwise indicated.
142
Name and
Address of Beneficial Owner
|
Amount and Nature of
Beneficial Ownership
|
Percentage
of Class
|
|
|
|
Christopher Bunka; Kelowna BC Canada
|
14,144,398
(1)
|
19.92%
|
Nicholas Baxter; Aberdeenshire, UK
|
330,000
(2)
|
0.46%
|
John Docherty; Toronto, Ontario
|
2,162,000
(3)
|
3.05%
|
Ted McKechnie; Toronto, Ontario
|
445,738
(4)
|
0.63%
|
Allan Spissinger;
Langley, BC
|
469,166
(5)
|
0.66%
|
|
|
|
Directors and Executive Officers as a Group (5
persons)
|
17,551,302
|
24.72%
|
David DeMartini,
Texas, Houston
|
3,609,375
|
5.08%
|
|
|
|
Total as a
Group (6 persons)
(6)
|
21,160,677
|
29.35%
|
(1)
|
Includes 5,631,844 shares held in the name of C.A.B.
Financial Services and 7,265,054 shares held directly by Chris Bunka,
chairman, chief executive officer and a director of our company. Includes
450,000 warrants held directly by Chris Bunka with an exercise price of
$0.14. Includes 247,000 options which are exercisable at $0.09 and 550,000
options exercisable at $0.10.
|
|
|
(2)
|
Includes 110,000 options which are exercisable at $0.10.
Nicholas Baxter is a director of our company.
|
|
|
(3)
|
Includes 550,000 options which are exercisable at $0.10
and 300,000 options which are exercisable at $0.11. John Docherty is the
President and a Director of our Company
|
|
|
(4)
|
Includes 110,000 options exercisable at $0.17. Ted
McKechnie is a Director of our Company.
|
|
|
(5)
|
Includes 200,000 options exercisable at $0.37 and 200,000 options exercisable at $0.83. Allan
Spissinger is interim chief financial officer of our company.
|
|
|
(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 person’s actual ownership or voting power with respect to the number of shares of common stock actually outstanding on February 5, 2018. As of February 5, 2018, there were 71,001,039 shares of our common stock issued and outstanding.
|
Changes in Control
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.
Changes in Control
We are unaware of any contract or other arrangement the
operation of which may at a subsequent date result in a change of control of our
company.
143
FEES PAID TO OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
Audit fees
The aggregate fees billed for the two most recently completed
fiscal years ended August 31, 2017 and August 31, 2016 for professional services
rendered by Davidson & Company LLP for the audit of our annual consolidated
financial statements, quarterly reviews of our interim consolidated financial
statements and services normally provided by the independent registered public
accounting firm in connection with statutory and regulatory filings or
engagements for these fiscal years were as follows:
|
Year Ended
August 31, 2017
|
Year Ended
August 31, 2016
|
Audit Fees and Audit Related Fees
|
35,392
|
38,186
|
Tax Fees
|
15,982
|
Nil
|
All Other Fees
|
Nil
|
Nil
|
Total
|
51,374
|
38,186
|
In the above table, audit fees are fees billed by our
independent registered public accounting firm for services provided in auditing
our annual financial statements for the subject year. Audit-related fees are
fees not included in audit fees that are billed by the independent registered
public accounting firm for assurance and related services that are reasonably
related to the performance of the audit review of our financial statements. Tax
fees are fees billed by the independent registered public accounting firm for
professional services rendered for tax compliance, tax advice and tax planning.
All other fees are fees billed by the independent registered public accounting
firm for products and services not included in the foregoing categories.
Policy on Pre-Approval by Audit Committee of Services
Performed by Independent Registered Public Accounting Firm
Our audit committee pre-approves all services performed by
Davidson & Company LLP prior to Davidson & Company LLPs performance of
such services. All of the above services were reviewed and pre-approved by our
audit committee before those services were rendered.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
No director, executive officer, or nominee for election as a
director of our company and no associate of any of the foregoing persons has any
substantial interest, direct or indirect, by security holding or otherwise, in
any matter to be acted upon at the annual and special meeting, other than
elections to office.
HOUSEHOLDING OF PROXY MATERIALS
The Securities and Exchange Commission permits companies and
intermediaries such as brokers to satisfy the delivery requirements for proxy
statements and annual reports with respect to two or more stockholders sharing
the same address by delivering a single proxy statement or annual report, as
applicable, addressed to those stockholders. This process, which is commonly
referred to as householding, potentially provides extra conveniences for
stockholders and cost savings for companies.
Although we do not intend to household for our stockholders of
record, some brokers household our proxy materials and annual reports,
delivering a single copy of proxy statement or annual report to multiple
stockholders sharing an address unless contrary instructions have been received
from the affected stockholders. Once you have received notice from your broker
that it will be householding materials to your address, householding will
continue until you are notified otherwise or until you revoke your consent. If,
at any time, you no longer wish to participate in householding and would prefer
to receive a separate copy of proxy statement or annual report, or if you are
receiving multiple copies of either document and wish to receive only one,
please notify your broker. Stockholders who currently receive multiple copies of the proxy statement at
their address from their brokers and would like to request householding of
their communications should contact their brokers.
144
STOCKHOLDER PROPOSALS
Stockholder proposals to be considered for inclusion in the
proxy statement and form of proxy relating to our next annual meeting of
stockholders must be received no later than ♦. If we change the date of our next
annual meeting of stockholders by more than 30 days from the date of the
previous years annual meeting of stockholders, then the deadline is a
reasonable time before we begin to print and send our proxy materials. All such
proposals must comply with the requirements of Rule 14a-8 of Regulation 14A of
the
Securities Exchange Act of 1934
, which sets forth specific
requirements and limitations applicable to nominations and proposals at annual
meetings of stockholders.
All stockholder proposals, notices and requests should be made
in writing and sent via registered, certified or express mail, to Lexaria
Bioscience Corp., 156 Valleyview Road, Kelowna, British Columbia, V1X 3M4,
Canada, Attention: President.
With respect to business to be brought before our annual and
special meeting of stockholders to be held on ♦, 2017, we have received no
notices from our stockholders that we were required to include in this proxy
statement/prospectus.
WHERE YOU CAN FIND MORE INFORMATION
We are not required to deliver an annual report to our
stockholders unless our directors are elected at a meeting of our stockholders
or by written consents of our stockholders. If our directors are not elected in
such manner, we are not required to deliver an annual report to our stockholders
and will not voluntarily send an annual report.
We are required to file annual, quarterly and current reports,
proxy statements and other information with the Securities and Exchange
Commission. Subsequent to the consummation of the continuation, we anticipate
that we will qualify as a foreign private issuer for purposes of the Securities
Exchange Act of 1934. Upon our company qualifying as a foreign private issuer,
we intend to file annual reports on Form 20-F and will no longer required to
file quarterly reports, however we will be required to file our interim
financial statements and management discussion and analysis that we prepare as a
reporting issuer under Canadian securities legislation with the Securities and
Exchange Commission on Form 6-K. Such filings are available to the public over
the internet at the Securities and Exchange Commissions website at
http://www.sec.gov.
We have filed with the Securities and Exchange Commission a
registration statement on Form S-4 under the Securities Act of 1933 with respect
to the issuance of the common shares of Lexaria BC in connection with the
continuation. This proxy statement/prospectus, which forms a part of that
registration statement, does not contain all information included in the
registration statement. Certain information is omitted and you should refer to
the registration statement and its exhibits.
You may review a copy of the registration statement at the
Securities and Exchange Commissions public reference room at 100 F Street, N.E.
Washington, D.C. 20549 on official business days during the hours of 10 a.m. to
3 p.m. You may obtain information on the operation of the public reference room
by calling the Securities and Exchange Commission at 1-800-SEC-0330. You may
also read and copy any materials we file with the Securities and Exchange
Commission at the Securities and Exchange Commissions public reference room.
Our filings and the registration statement can also be reviewed by accessing the
Securities and Exchange Commissions website at http://www.sec.gov.
We undertake, on your written request, to provide without
charge a copy of our annual report on Form 10-K for the year ended August 31,
2016, as filed with the Securities and Exchange Commission on November 29, 2016.
Request should be made to our company at Lexaria Bioscience Corp., 156
Valleyview Road, Kelowna, British Columbia, V1X 3M4, Canada, Attention:
President.
OTHER MATTERS
Our board of directors does not intend to bring any other
business before the annual and special meeting, and so far as is known to our board of directors, no matters are to be
brought before the annual and special meeting except as specified in the notice
of the annual and special meeting. If any other matters are properly brought
before the annual and special meeting, it is the intention of the persons named
on the proxy to vote the shares represented by the proxy on such matters in
accordance with their judgment.
145
By Order of the Board of Directors
|
|
|
|
/s/Chris Bunka
|
Chris Bunka
|
Chief Executive Officer and Director
|
March 1 , 2018
|
146
SCHEDULE A
PLAN OF CONVERSION
OF
LEXARIA BIOSCIENCE CORP.
(A corporation incorporated
under the laws of the State of Nevada)
INTO
LEXARIA BIOSCIENCE CORP.
(A corporation organized
under the laws of the Province of British Columbia)
Lexaria Bioscience Corp., a Nevada corporation, hereby adopts
the following plan of conversion (this
Plan of Conversion
):
1.
|
The name of the constituent entity (the
Constituent
Entity
) is Lexaria Bioscience Corp. (
Lexaria
) and the
jurisdiction of the laws that govern the Constituent Entity is the State
of Nevada.
|
|
|
2.
|
The name of the resulting entity (the
Resulting
Entity
) is Lexaria Bioscience Corp. and the jurisdiction of the laws
that will govern the Resulting Entity is the Province of British Columbia,
Canada.
|
|
|
3.
|
This Plan of Conversion is subject to approval by the
holders of a majority of the outstanding shares of common stock of
Constituent Entity, and the Canadian Securities Exchange Inc.
|
|
|
4.
|
The Constituent Entity seeks to effect a conversion of
the Constituent Entity into the Resulting Entity (the
Conversion
)
pursuant to Section 92A.105 of the Nevada Revised Statutes (
NRS
)
and intends that this Plan of Conversion will constitute the complete plan
of conversion referred to in Section 92A.105 of the NRS.
|
|
|
5.
|
As promptly as practicable after approval of this Plan of
Conversion by the holders of a majority of the outstanding shares of
common stock of the Constituent Entity, shall cause the Conversion to be
consummated by the filing the Articles of Conversion with the Nevada
Secretary of State in such form as is required by, and signed in
accordance with, the applicable provisions of Chapter 92A of the NRS and
the execution and filing of the Continuation Application with the
Registrar of Companies in the Province of British Columbia. The effective
date and time (the
Effective Time
) of the Conversion shall be the
date and time on and at which the Conversion becomes effective under the
laws of the State of Nevada or the date and time on and at which the
Conversion becomes effective under the laws of the Province of British
Columbia, whichever occurs later.
|
|
|
6.
|
As of the Effective Time of the
Conversion:
|
|
(a)
|
The Constituent Entity shall be converted into the
Resulting Entity, a corporation organized under the
Business
Corporations Act
(British Columbia);
|
|
|
|
|
(b)
|
The proposed Continuation Application and Articles of the
Resulting Entity, substantially in the forms attached hereto as Appendix
A and Appendix B, respectively, will replace the Articles of
Incorporation and Bylaws of the Constituent Entity, and the proposed
Continuation Application and Articles of the Resulting Entity will
continue in full force and effect until changed, altered or amended as
provided in the
Business Corporations Act
(British
Columbia);
|
|
|
|
|
(c)
|
The separate existence of the Constituent Entity will
cease;
|
147
|
(d)
|
The title to all real estate vested by deed or otherwise
under the laws of any jurisdiction, and the title to all other property,
real and personal, owned by the Constituent Entity, and all debts due to
the Constituent Entity on whatever account, as well as all other things in
action or belonging to the Constituent Entity, shall in accordance with
the NRS be vested in the Resulting Entity without reservation or
impairment;
|
|
|
|
|
(e)
|
The Resulting Entity shall have all of the debts,
liabilities and duties of the Constituent Entity, and all rights of
creditors accruing and all liens placed upon any property of the
Constituent Entity up to the Effective Time of the Conversion shall be
preserved unimpaired, and all debts, liabilities and duties of the
Constituent Entity shall attach to the Resulting Entity and may be
enforced against it to the same extent as if it had incurred or contracted
such debts, liabilities and duties;
|
|
|
|
|
(f)
|
Any proceeding pending against the Constituent Entity may
be continued as if the Conversion had not occurred or the Resulting Entity
may be substituted in the proceeding in place of the Constituent
Entity;
|
|
|
|
|
(g)
|
Each share of common stock of the Constituent Entity,
with US$0.001 par value per share, issued and outstanding immediately
before the Effective Time of the Conversion will, by virtue of the
Conversion and without any action on the part of the holder thereof, be
converted into and become one validly issued, fully paid and nonassessable
common share of the Resulting Entity, without par value;
|
|
|
|
|
(h)
|
Each option to acquire shares of common stock of the
Constituent Entity outstanding immediately before the Effective Time of
the Conversion will, by virtue of the Conversion and without any action on
the part of the holder thereof, be converted into and become an equivalent
option to acquire, upon the same terms and conditions, the number of
common shares of the Resulting Entity that is equal to the number of
shares of common stock of the Constituent Entity that the optionee would
have received had the optionee exercised such option in full immediately
before the Effective Time of the Conversion (whether or not such option
was then exercisable) and the exercise price per share under each such
option shall be equal to the exercise price per share thereunder
immediately before the Effective Time of the Conversion, unless otherwise
provided in the instrument granting such option;
|
|
|
|
|
(i)
|
Each warrant to acquire shares of common stock of the
Constituent Entity outstanding immediately before the Effective Time of
the Conversion will, by virtue of the Conversion and without any action on
the part of the holder thereof, be converted into and become an equivalent
warrant to acquire, upon the same terms and conditions, the number of
common shares of the Resulting Entity that is equal to the number of
shares of common stock of the Constituent Entity that the warrant holder
would have received had the warrant holder exercised such warrant in full
immediately before the Effective Time of the Conversion (whether or not
such warrant was then exercisable) and the exercise price per share under
each such warrant shall be equal to the exercise price per share
thereunder immediately before the Effective Time of the Conversion, unless
otherwise provided in the instrument granting such warrant;
|
|
|
|
|
(j)
|
Any other right, by contract or otherwise, to acquire
shares of common stock of the Constituent Entity outstanding immediately
before the Effective Time of the Conversion shall, by virtue of the
Conversion and without any action on the part of the holder thereof, be
converted into and become a right to acquire, upon the same terms and
conditions, the number of common shares of the Resulting Entity that is
equal to the number of shares of common stock of the Constituent Entity
that the right holder would have received had the right holder exercised
such right in full immediately before the Effective Time of the Conversion
(whether or not such right was then exercisable) and the exercise price
per share under each such right shall be equal to the exercise price per
share thereunder immediately before the Effective Time of the Conversion,
unless otherwise provided in the agreement granting such right;
and
|
148
|
(k)
|
The directors and officers of the Constituent Entity in
office at the Effective Time of the Conversion will become the directors
and officers, respectively, of the Resulting Entity, each of such
directors and officers to hold office, subject to the applicable
provisions of the Continuation Application, Articles of the Resulting
Entity and the
Business Corporations Act
(British Columbia), until
his or her successor is duly elected or appointed and
qualified.
|
7.
|
The boards of directors of the Constituent Entity may
amend this Plan of Conversion at any time before the Effective Time of
Conversion, provided, however, that an amendment made subsequent to the
approval of the Conversion by the stockholders of the Constituent Entity,
whichever is earlier, shall not (a) alter or change the manner or basis of
exchanging a stockholders shares of the Constituent Entity for a
stockholders shares, rights to purchase a stockholders shares, or other
securities of the Resulting Entity, or for cash or other property in whole
or in part or (b) alter or change any of the terms and conditions of this
Plan of Conversion in a manner that adversely affects the stockholders of
the Constituent Entity.
|
|
|
8.
|
At any time before the Effective Time of Conversion, this
Plan of Conversion may be terminated and the Conversion contemplated
hereby may be abandoned by the board of directors of the Constituent
Entity, notwithstanding approval of this Plan of Conversion by the
stockholders of the Constituent Entity.
|
LEXARIA BIOSCIENCE CORP.
|
a Nevada corporation
|
|
|
|
|
By:
|
/s/
Chris Bunka
|
|
Name: Chris Bunka
|
|
Title: Chief Executive Officer, Director,
Chairman of the Board of Directors
|
|
|
Date:
|
_______________________, 2018
|
149
APPENDIX A
|
|
SCHEDULE TO
|
CONTINUATION APPLICATION OF
|
LEXARIA BIOSCIENCE CORP.
|
ADDITIONAL DIRECTORS
DIRECTOR NAME(S) AND ADDRESS(ES)
LAST NAME
|
FIRST NAME
|
|
|
DELIVERY ADDRESS
|
|
|
|
MAILING ADDRESS
|
|
|
|
|
|
LAST NAME
|
FIRST NAME
|
|
|
DELIVERY ADDRESS
|
|
|
|
MAILING ADDRESS
|
|
150
APPENDIX B
ARTICLES
Continuation No.
BUSINESS CORPORATIONS ACT
ARTICLES
OF
LEXARIA BIOSCIENCE CORP.
Table of Contents
Part 1 Interpretation
|
1
|
Part 2 Shares and Share certificates
|
2
|
Part 3 Issue of Shares
|
2
|
Part 4 Share Transfers
|
3
|
Part 5 Acquisition of Shares
|
3
|
Part 6 Borrowing Powers
|
4
|
Part 7 General Meetings
|
4
|
Part 8 Proceedings at Meetings of Shareholders
|
5
|
Part 9 Alterations
|
8
|
Part 10 Votes of Shareholders
|
9
|
Part 11 Directors
|
12
|
Part 12 Election and Removal of Directors
|
13
|
Part 13 Proceedings of Directors
|
15
|
Part 14 Committees of Directors
|
16
|
Part 15 Officers
|
17
|
Part 16 Certain Permitted Activities of Directors
|
18
|
Part 17 Indemnification
|
18
|
Part 18 Auditor
|
18
|
Part 19 Dividends
|
18
|
Part 20 Accounting Records
|
19
|
Part 21 Execution of Instruments
|
19
|
Part 22 Notices
|
20
|
Part 23 Restriction on Share Transfer
|
21
|
Part 24 Special Rights and Restrictions
|
21
|
151
Continuation No.
BUSINESS CORPORATIONS ACT
ARTICLES
OF
LEXARIA BIOSCIENCE CORP.
(the Company)
PART 21 INTERPRETATION
Without limiting Article 1.2, in these
Articles, unless the context requires otherwise:
adjourned meeting
means the
meeting to which a meeting is adjourned under Article 8.7 or 8.11;
board
and
directors
mean the directors or sole director of the Company for the time being;
Business Corporations
Act
means the
Business Corporations Act
,
S.B.C. 2002, c.57, and includes its regulations;
Interpretation
Act
means the
Interpretation Act
, R.S.B.C. 1996, c. 238;
trustee,
in relation to a
shareholder, means the personal or other legal representative of the
shareholder, and includes a trustee in bankruptcy of the shareholder.
21.2
|
Business Corporations Act definitions
apply
|
|
|
|
The definitions in the
Business Corporations Act
apply to these Articles.
|
|
|
21.3
|
Interpretation Act applies
|
|
|
|
The
Interpretation Act
applies to the
interpretation of these Articles as if these Articles were an
enactment.
|
|
|
21.4
|
Conflict in definitions
|
|
|
|
If there is a conflict between a definition in the
Business Corporations Act
and a definition or rule in the
Interpretation Act
relating to a term used in these Articles, the
definition in the
Business Corporations Act
will prevail in
relation to the use of the term in these Articles.
|
|
|
21.5
|
Conflict between Articles and
legislation
|
|
|
|
If there is a conflict between these Articles and the
Business Corporations Act
, the
Business Corporations Act
will prevail.
|
152
PART 22 SHARES AND SHARE CERTIFICATES
22.1
|
Form of share certificate
|
|
|
|
Each share certificate issued by the Company must comply
with, and be signed as required by, the
Business Corporations
Act
.
|
|
|
22.2
|
Shareholder Entitled to Certificate or
Acknowledgement
|
|
|
|
Each shareholder is entitled, without charge, to (a) one
share certificate representing the shares of each class or series of
shares registered in the shareholders name or (b) a non-transferable
written acknowledgement of the shareholders right to obtain such a share
certificate, provided that in respect of a share held jointly by several
persons, the Company is not bound to issue more than one share certificate
and delivery of a share certificate for a share to one of several joint
shareholders or to one of the shareholders duly authorized agents will be
sufficient delivery to all.
|
|
|
22.3
|
Sending of share certificate
|
|
|
|
Any share certificate to which a shareholder is entitled
may be sent to the shareholder by mail and neither the Company nor any
agent is liable for any loss to the shareholder because the certificate
sent is lost in the mail or stolen.
|
|
|
22.4
|
Replacement of worn out or defaced
certificate
|
|
|
|
If the directors are satisfied that a share certificate
is worn out or defaced, they must, on production to them of the
certificate and on such other terms, if any, as they think
fit,
|
|
(a)
|
order the certificate to be cancelled, and
|
|
|
|
|
(b)
|
issue a replacement share
certificate.
|
22.5
|
Replacement of lost, stolen or destroyed
certificate
|
|
|
|
If a share certificate is lost, stolen or destroyed, a
replacement share certificate must be issued to the person entitled to
that certificate if the directors receive
|
|
(a)
|
proof satisfactory to them that the certificate is lost,
stolen or destroyed, and
|
|
|
|
|
(b)
|
any indemnity the directors consider
adequate.
|
22.6
|
Splitting share certificates
|
|
|
|
If a shareholder surrenders a share certificate to the
Company with a written request that the Company issue in the shareholders
name 2 or more certificates, each representing a specified number of
shares and in the aggregate representing the same number of shares as the
certificate, so surrendered, the Company must cancel the surrendered
certificate and issue replacement share certificates in accordance with
that request.
|
PART 23 ISSUE OF SHARES
23.1
|
Directors authorized to issue shares
|
|
|
|
The directors may, subject to the rights of the holders
of the issued shares of the Company, issue, allot, sell, grant options on
or otherwise dispose of the unissued shares, and issued shares held by the
Company, at the times, to the persons, including directors, in the manner,
on the terms and conditions and for the issue prices that the directors,
in their absolute discretion, may determine.
|
|
|
23.2
|
Company need not recognize unregistered
interests
|
|
|
|
Except as required by law or these Articles, the Company
need not recognize or provide for any persons interests in or rights to a
share unless that person is the shareholder of the
share.
|
153
PART 24 SHARE TRANSFERS
24.1
|
Recording or registering transfer
|
|
|
|
A transfer of a share of the Company must not be
registered
|
|
(a)
|
unless a duly signed instrument of transfer in respect of
the share has been received by the Company and the certificate
representing the share to be transferred has been surrendered and
cancelled, or
|
|
|
|
|
(b)
|
if no certificate has been issued by the Company in
respect of the share, unless a duly signed instrument of transfer in
respect of the share has been received by the
Company.
|
24.2
|
Form of instrument of transfer
|
|
|
|
The instrument of transfer in respect of any share of the
Company must be either in the form, if any, on the back of the Companys
share certificates or in any other form that may be approved by the
directors from time to time.
|
|
|
24.3
|
Signing of instrument of transfer
|
|
|
|
If a shareholder, or his or her duly authorized attorney,
signs an instrument of transfer in respect of shares registered in the
name of the shareholder, the signed instrument of transfer constitutes a
complete and sufficient authority to the Company and its directors,
officers and agents to register the number of shares specified in the
instrument of transfer, or, if no number is specified, all the shares
represented by share certificates deposited with the instrument of
transfer,
|
|
(a)
|
in the name of the person named as transferee in that
instrument of transfer, or
|
|
|
|
|
(b)
|
if no person is named as transferee in that instrument of
transfer, in the name of the person on whose behalf the share certificate
is deposited for the purpose of having the transfer
registered.
|
24.4
|
Enquiry as to title not required
|
|
|
|
Neither the Company nor any director, officer or agent of
the Company is bound to inquire into the title of the person named in the
instrument of transfer as transferee or, if no person is named as
transferee in the instrument of transfer, of the person on whose behalf
the instrument is deposited for the purpose of having the transfer
registered or is liable for any claim related to registering the transfer
by the shareholder or by any intermediate owner or holder of the shares,
of any interest in the shares, of any share certificate representing such
shares or of any written acknowledgment of a right to obtain a share
certificate for such shares.
|
|
|
24.5
|
Transfer fee
|
|
|
|
There must be paid to the Company, in relation to the
registration of any transfer, the amount determined by the
directors.
|
PART 25 ACQUISITION OF SHARES
25.1
|
Company authorized to purchase shares
|
|
|
|
Subject to the special rights and restrictions attached
to any class or series of shares, the Company may, if it is authorized to
do so by the directors, purchase or otherwise acquire any of its
shares.
|
|
|
25.2
|
Company authorized to accept surrender of
shares
|
|
|
|
The Company may, if it is authorized to do so by the
directors, accept a surrender of any of its shares by way of gift or for
cancellation.
|
154
25.3
|
Company authorized to convert fractional shares into
whole shares
|
|
|
|
The Company may, if it is authorized to do so by the
directors, convert any of its fractional shares into whole shares in
accordance with, and subject to the limitations contained in, the
Business Corporations Act
.
|
PART 26 BORROWING POWERS
26.1
|
Powers of directors
|
|
|
|
The directors may from time to time on behalf of the
Company
|
|
(a)
|
borrow money in the manner and amount, on the security,
from the sources and on the terms and conditions that they consider
appropriate,
|
|
|
|
|
(b)
|
issue bonds, debentures and other debt obligations either
outright or as security for any liability or obligation of the Company or
any other person, and at any discount or premium and on such other terms
as they consider appropriate,
|
|
|
|
|
(c)
|
guarantee the repayment of money by any other person or
the performance of any obligation of any other person, and
|
|
|
|
|
(d)
|
mortgage or charge, whether by way of specific or
floating charge, or give other security on the whole or any part of the
present and future assets and undertaking of the
Company.
|
PART 27 GENERAL MEETINGS
27.1
|
Annual general meetings
|
|
|
|
Unless an annual general meeting is deferred or waived in
accordance with section 182(2)(a) or (c) of the
Business Corporations
Act
, the Company must hold its first annual general meeting within 18
months after the date on which it was incorporated or otherwise
recognized, and after that must hold an annual general meeting at least
once in each calendar year and not more than 15 months after the last
annual general meeting.
|
|
|
27.2
|
When annual general meeting is deemed to have been
held
|
|
|
|
If all of the shareholders who are entitled to vote at an
annual general meeting consent by a unanimous resolution under the
Business Corporations Act
to all of the business that is required
to be transacted at that annual general meeting, the annual general
meeting is deemed to have been held on the date of the unanimous
resolution. The shareholders must, in any unanimous resolution passed
under this Article 7.2, select as the Companys annual reference date a
date that would be appropriate for the holding of the applicable annual
general meeting.
|
|
|
27.3
|
Calling of shareholder meetings
|
|
|
|
The directors may, whenever they think fit, call a
meeting of shareholders.
|
|
|
27.4
|
Notice for meetings of shareholders
|
|
|
|
The Company must send notice of the date, time and
location of any meeting of shareholders, in the manner provided in these
Articles, or in such other manner, if any, as may be prescribed by
ordinary resolution (whether previous notice of the resolution has been
given or not), to each shareholder entitled to attend the meeting, to each
director and to the auditor of the Company, unless these Articles
otherwise provide, at least the following number of days before the
meeting:
|
|
(a)
|
if and for so long as the Company is a public company, 21
days;
|
|
|
|
|
(b)
|
otherwise, 10 days.
|
155
27.5
|
Record date for notice
|
|
|
|
The directors may set a date as the record date for the
purpose of determining shareholders entitled to notice of any meeting of
shareholders. The record date must not precede the date on which the
meeting is to be held by more than two months or, in the case of a general
meeting requisitioned by shareholders under the
Business Corporations
Act
, by more than four months. The record date must not precede the
date on which the meeting is held by fewer
than:
|
|
(a)
|
if and for so long as the Company is a public company, 21
days;
|
|
|
|
|
(b)
|
otherwise, 10 days.
|
If no record date is set, the record
date is 5 p.m. on the day immediately preceding the first date on which the
notice is sent or, if no notice is sent, the beginning of the meeting.
27.6
|
Record date for voting
|
|
|
|
The directors may set a date as the record date for the
purpose of determining shareholders entitled to vote at any meeting of
shareholders. The record date must not precede the date on which the
meeting is to be held by more than two months or, in the case of a general
meeting requisitioned by shareholders under the
Business Corporations
Act
, by more than four months. If no record date is set, the record
date is 5 p.m. on the day immediately preceding the first date on which
the notice is sent or, if no notice is sent, the beginning of the
meeting.
|
|
|
27.7
|
Failure to give notice and waiver of
notice
|
|
|
|
The accidental omission to send notice of any meeting to,
or the non-receipt of any notice by, any of the persons entitled to notice
does not invalidate any proceedings at that meeting. Any person entitled
to notice of a meeting of shareholders may, in writing or otherwise, waive
or reduce the period of notice of such meeting.
|
|
|
27.8
|
Notice of special business at meetings of
shareholders
|
|
|
|
If a meeting of shareholders is to consider special
business within the meaning of Article 8.1, the notice of meeting
must:
|
|
(a)
|
state the general nature of the special business;
and
|
|
|
|
|
(b)
|
if the special business includes considering, approving,
ratifying, adopting or authorizing any document or the signing of or
giving of effect to any document, have attached to it a copy of the
document or state that a copy of the document will be available for
inspection by shareholders:
|
|
(i)
|
at the Companys records office, or at such other
reasonably accessible location in British Columbia as is specified in the
notice; and
|
|
|
|
|
(ii)
|
during statutory business hours on any one or more
specified days before the day set for the holding of the
meeting.
|
PART 28 PROCEEDINGS AT MEETINGS OF SHAREHOLDERS
28.1
|
Special business
|
|
|
|
At a meeting of shareholders, the following business is
special business:
|
|
(a)
|
at a meeting of shareholders that is not an annual
general meeting, all business is special business except business relating
to the conduct of or voting at the meeting;
|
|
|
|
|
(b)
|
at an annual general meeting, all business is special
business except for the following:
|
|
(i)
|
business relating to the conduct of or voting at the
meeting;
|
156
|
(ii)
|
consideration of any financial statements of the Company
presented to the meeting;
|
|
|
|
|
(iii)
|
consideration of any reports of the directors or
auditor;
|
|
|
|
|
(iv)
|
the setting or changing of the number of
directors;
|
|
|
|
|
(v)
|
the election or appointment of directors;
|
|
|
|
|
(vi)
|
the appointment of an auditor;
|
|
|
|
|
(vii)
|
the setting of the remuneration of an auditor;
|
|
|
|
|
(viii)
|
business arising out of a report of the directors not
requiring the passing of a special resolution or an exceptional
resolution;
|
|
|
|
|
(ix)
|
any other business which, under these Articles or the
Business Corporations Act
, may be transacted at a meeting of
shareholders without prior notice of the business being given to the
shareholders.
|
28.2
|
Special majority
|
|
|
|
The majority of votes required for the Company to pass a
special resolution at a meeting of shareholders is two-thirds of the votes
cast on the resolution.
|
|
|
28.3
|
Quorum
|
|
|
|
Subject to the special rights and restrictions attached
to the shares of any class or series of shares, the quorum for the
transaction of business at a meeting of shareholders is 2 persons who are,
or who represent by proxy, shareholders who, in the aggregate, hold at
least 1/20 of the issued shares entitled to be voted at the
meeting.
|
|
|
28.4
|
One shareholder may constitute quorum
|
|
|
|
If there is only one shareholder entitled to vote at a
meeting of shareholders,
|
|
(a)
|
the quorum is one person who is, or who represents by
proxy, that shareholder, and
|
|
|
|
|
(b)
|
that shareholder, present in person or by proxy, may
constitute the meeting.
|
28.5
|
Other persons may attend
|
|
|
|
The directors, the president, if any, the secretary, if
any, and any lawyer or auditor for the Company are entitled to attend any
meeting of shareholders, but if any of those persons do attend a meeting
of shareholders, that person is not to be counted in the quorum, and is
not entitled to vote at the meeting, unless that person is a shareholder
or proxy holder entitled to vote at the meeting.
|
|
|
28.6
|
Requirement of quorum
|
|
|
|
No business, other than the election of a chair of the
meeting and the adjournment of the meeting, may be transacted at any
meeting of shareholders unless a quorum of shareholders entitled to vote
at the meeting is present at the commencement of the meeting.
|
|
|
28.7
|
Lack of quorum
|
|
|
|
If, within 1/2 hour from the time set for the holding of
a meeting of shareholders, a quorum is not
present,
|
|
(a)
|
in the case of a general meeting convened by requisition
of shareholders, the meeting is dissolved, and
|
|
|
|
|
(b)
|
in the case of any other meeting of shareholders, the
meeting stands adjourned to the same day in the next week at the same time
and place.
|
157
28.8
|
Lack of quorum at succeeding meeting
|
|
|
|
If, at the meeting to which the first meeting referred to
in Article 8.7 was adjourned, a quorum is not present within 1/2 hour from
the time set for the holding of the meeting, the persons present and who
are, or who represent by proxy, shareholders entitled to attend and vote
at the meeting constitute a quorum.
|
|
|
28.9
|
Chair
|
|
|
|
The following individual is entitled to preside as chair
at a meeting of shareholders:
|
|
(a)
|
the chair of the board, if any;
|
|
|
|
|
(b)
|
if the chair of the board is absent or unwilling to act
as chair of the meeting, the president, if
any.
|
28.10
|
Alternate chair
|
|
|
|
At any meeting of shareholders, the directors present
must choose one of their number to be chair of the meeting if: (a) there
is no chair of the board or president present within 15 minutes after the
time set for holding the meeting; (b) the chair of the board and the
president are unwilling to act as chair of the meeting; or (c) if the
chair of the board and the president have advised the secretary, if any,
or any director present at the meeting, that they will not be present at
the meeting. If, in any of the foregoing circumstances, all of the
directors present decline to accept the position of chair or fail to
choose one of their number to be chair of the meeting, or if no director
is present, the shareholders present in person or by proxy must choose any
person present at the meeting to chair the meeting.
|
|
|
28.11
|
Adjournments
|
|
|
|
The chair of a meeting of shareholders may, and if so
directed by the meeting must, adjourn the meeting from time to time and
from place to place, but no business may be transacted at any adjourned
meeting other than the business left unfinished at the meeting from which
the adjournment took place.
|
|
|
28.12
|
Notice of adjourned meeting
|
|
|
|
It is not necessary to give any notice of an adjourned
meeting or of the business to be transacted at an adjourned meeting of
shareholders except that, when a meeting is adjourned for 30 days or more,
notice of the adjourned meeting must be given as in the case of the
original meeting.
|
|
|
28.13
|
Motion need not be seconded
|
|
|
|
No motion proposed at a meeting of shareholders need be
seconded unless the chair of the meeting rules otherwise, and the chair of
any meeting of shareholders is entitled to propose or second a
motion.
|
|
|
28.14
|
Manner of taking a poll
|
|
|
|
Subject to Article 8.15, if a poll is duly demanded at a
meeting of shareholders,
|
|
(a)
|
the poll must be taken
|
|
(i)
|
at the meeting, or within 7 days after the date of the
meeting, as the chair of the meeting directs, and
|
|
|
|
|
(ii)
|
in the manner, at the time and at the place that the
chair of the meeting directs,
|
|
(b)
|
the result of the poll is deemed to be a resolution of,
and passed at, the meeting at which the poll is demanded, and
|
|
|
|
|
(c)
|
the demand for the poll may be
withdrawn.
|
158
28.15
|
Demand for a poll on adjournment
|
|
|
|
|
A poll demanded at a meeting of shareholders on a question
of adjournment must be taken immediately at the meeting.
|
|
28.16
|
Demand for a poll not to prevent continuation of
meeting
|
|
|
|
|
The demand for a poll at a meeting of shareholders does
not, unless the chair of the meeting so rules, prevent the continuation of
a meeting for the transaction of any business other than the question on
which a poll has been demanded.
|
|
|
|
28.17
|
Poll not available in respect of election of
chair
|
|
|
|
|
No poll may be demanded in respect of the vote by which a
chair of a meeting of shareholders is elected.
|
|
|
|
28.18
|
Casting of votes on poll
|
|
|
|
|
On a poll, a shareholder entitled to more than one vote
need not cast all the votes in the same way.
|
|
|
|
28.19
|
Chair must resolve dispute
|
|
|
|
|
In the case of any dispute as to the admission or
rejection of a vote given on a poll, the chair of the meeting must
determine the same, and his or her determination made in good faith is
final and conclusive.
|
|
|
|
28.20
|
Chair has no second vote
|
|
|
|
|
In case of an equality of votes, the chair of a meeting
of shareholders does not, either on a show of hands or on a poll, have a
casting or second vote in addition to the vote or votes to which the chair
may be entitled as a shareholder.
|
|
|
|
28.21
|
Declaration of result
|
|
|
|
|
The chair of a meeting of shareholders must declare to
the meeting the decision on every question in accordance with the result
of the show of hands or the poll, as the case may be, and that decision
must be entered in the minutes of the meeting.
|
|
|
|
28.22
|
Meetings by telephone or other communications
medium
|
|
|
|
|
A shareholder or proxy holder who is entitled to
participate in a meeting of shareholders may do so in person, or by
telephone or other communications medium, if all shareholders and proxy
holders participating in the meeting are able to communicate with each
other; provided, however, that nothing in this Section shall obligate the
Company to take any action or provide any facility to permit or facilitate
the use of any communications medium at a meeting of shareholders. If one
or more shareholders or proxy holders participate in a meeting of
shareholders in a manner contemplated by this
Section,
|
|
(a)
|
each such shareholder or proxy holder shall be deemed to
be present at the meeting, and
|
|
|
|
|
(b)
|
the meeting shall be deemed to be held at the location
specified in the notice of the meeting.
|
PART 29 ALTERATIONS
29.1
|
Alteration of Authorized Share Structure
|
|
|
|
Subject to the
Business Corporations Act
, the
Company may by resolution of the directors:
|
|
(a)
|
create one or more classes or series of shares or, if
none of the shares of a class or series of shares are allotted or issued,
eliminate that class or series of shares;
|
|
|
|
|
(b)
|
increase, reduce or eliminate the maximum number of
shares that the Company is authorized to issue out of any class or series
of shares or establish a maximum number of shares that
the Company is authorized to issue out of any class or series of
shares for which no maximum is established;
|
159
|
(c)
|
if the Company is authorized to issue shares of a class
of shares with par value:
|
|
(i)
|
decrease the par value of those shares;
|
|
|
|
|
(ii)
|
if none of the shares of that class of shares are
allotted or issued, increase the par value of those shares;
|
|
|
|
|
(iii)
|
subdivide all or any of its unissued, or fully paid
issued, shares with par value into shares of smaller par value;
or
|
|
|
|
|
(iv)
|
consolidate all or any of its unissued, or fully paid
issued, shares with par value into shares of larger par
value;
|
|
(d)
|
subdivide all or any of its unissued, or fully paid
issued, shares without par value;
|
|
|
|
|
(e)
|
consolidate all or any of its unissued, or fully paid
issued, shares without par value;
|
|
|
|
|
(f)
|
subdivide all or any of its unissued, or fully paid
issued, shares by way of a share dividend;
|
|
|
|
|
(g)
|
change all or any of its unissued, or fully paid issued,
shares with par value into shares without par value or all or any of its
unissued shares without par value into shares with par value;
|
|
|
|
|
(h)
|
alter the identifying name of any of its shares;
or
|
|
|
|
|
(i)
|
otherwise alter its shares or authorized share structure
when required or permitted to do so by the
Business Corporations
Act
.
|
29.2
|
Change of Name
|
|
|
|
The Company may by resolution of the directors alter its
Notice of Articles in order to change its name or adopt or change any
translation of that name.
|
|
|
29.3
|
Other Alterations
|
|
|
|
If the
Business Corporations Act
does not specify
the type of resolution and these Articles do not specify another type of
resolution, the Company may by resolution of the directors alter these
Articles.
|
PART 30 VOTES OF SHAREHOLDERS
30.1
|
Voting rights
|
|
|
|
Subject to any special rights or restrictions attached to
any shares and to the restrictions imposed on joint registered holders of
shares under Article 10.3,
|
|
(a)
|
on a vote by show of hands, every person present who is a
shareholder or proxy holder and entitled to vote at the meeting has one
vote, and
|
|
|
|
|
(b)
|
on a poll, every shareholder entitled to vote has one
vote in respect of each share held by that shareholder that carries the
right to vote on that poll and may exercise that vote either in person or
by proxy.
|
30.2
|
Trustee of shareholder may vote
|
|
|
|
A person who is not a shareholder may vote on a
resolution at a meeting of shareholders, whether on a show of hands or on
a poll, and may appoint a proxy holder to act at the meeting in relation
to that resolution, if, before doing so, the person satisfies the chair of
the meeting at which the resolution is to be considered, or satisfies all of the directors present at the
meeting, that the person is a trustee for a shareholder who is entitled to vote
on the resolution.
|
160
30.3
|
Votes by joint shareholders
|
|
|
|
If there are joint shareholders registered in respect of
any share,
|
|
(a)
|
any one of the joint shareholders, but not both or all,
may vote at any meeting, either personally or by proxy, in respect of the
share as if that joint shareholder were solely entitled to it,
or
|
|
|
|
|
(b)
|
if more than one of the joint shareholders is present at
any meeting, personally or by proxy, the joint shareholder present whose
name stands first on the central securities register in respect of the
share is alone entitled to vote in respect of that
share.
|
30.4
|
Trustees as joint shareholders
|
|
|
|
Two or more trustees of a shareholder in whose sole name
any share is registered are, for the purposes of Article 10.3, deemed to
be joint shareholders.
|
|
|
30.5
|
Representative of a corporate
shareholder
|
|
|
|
If a corporation that is not a subsidiary of the Company
is a shareholder, that corporation may appoint a person to act as its
representative at any meeting of shareholders of the Company,
and,
|
|
(a)
|
for that purpose, the instrument appointing a
representative must
|
|
(i)
|
be received at the registered office of the Company or at
any other place specified, in the notice calling the meeting, for the
receipt of proxies, at least 2 business days before the day set for the
holding of the meeting, or
|
|
|
|
|
(ii)
|
be provided, at the meeting, to the chair of the meeting,
and
|
|
(b)
|
if a representative is appointed under this Article
10.5,
|
|
(i)
|
the representative is entitled to exercise in respect of
and at that meeting the same rights on behalf of the corporation that the
representative represents as that corporation could exercise if it were a
shareholder who is an individual, including, without limitation, the right
to appoint a proxy holder, and
|
|
|
|
|
(ii)
|
the representative, if present at the meeting, is to be
counted for the purpose of forming a quorum and is deemed to be a
shareholder present in person at the meeting.
|
30.6
|
When proxy provisions do not apply
|
|
|
|
Articles 10.7 to 10.13 do not apply to the Company if and
for so long as it is a public company.
|
|
|
30.7
|
Appointment of proxy holder
|
|
|
|
Every shareholder of the Company, including a corporation
that is a shareholder but not a subsidiary of the Company, entitled to
vote at a meeting of shareholders of the Company may, by proxy, appoint a
proxy holder to attend and act at the meeting in the manner, to the extent
and with the powers conferred by the proxy.
|
|
|
30.8
|
Alternate proxy holders
|
|
|
|
A shareholder may appoint one or more alternate proxy
holders to act in the place of an absent proxy
holder.
|
161
30.9
|
When proxy holder need not be
shareholder
|
|
|
|
A person must not be appointed as a proxy holder unless
the person is a shareholder, although a person who is not a shareholder
may be appointed as a proxy holder if
|
|
(a)
|
the person appointing the proxy holder is a corporation
or a representative of a corporation appointed under Article
10.5,
|
|
|
|
|
(b)
|
the Company has at the time of the meeting for which the
proxy holder is to be appointed only one shareholder entitled to vote at
the meeting, or
|
|
|
|
|
(c)
|
the shareholders present in person or by proxy at and
entitled to vote at the meeting for which the proxy holder is to be
appointed, by a resolution on which the proxy holder is not entitled to
vote but in respect of which the proxy holder is to be counted in the
quorum, permit the proxy holder to attend and vote at the
meeting.
|
30.10
|
Form of proxy
|
|
|
|
A proxy, whether for a specified meeting or otherwise,
must be either in the following form or in any other form approved by the
directors or the chair of the meeting:
|
(Name of Company)
|
|
The undersigned, being a shareholder of the above named
Company, hereby appoints ___________________or, failing that
person,___________________ , as proxy holder for the undersigned to
attend, act and vote for and on behalf of the undersigned at the meeting
of shareholders to be held on the day of and at any adjournment of that
meeting.
|
|
Signed ______this day of ___________________,
__________
|
|
_______________________________
|
Signature of shareholder
|
30.11
|
Provision of proxies
|
|
|
|
A proxy for a meeting of shareholders
must
|
|
(a)
|
be received at the registered office of the Company or at
any other place specified, in the notice calling the meeting, for the
receipt of proxies, at least the number of business days specified in the
notice, or if no number of days is specified, 2 business days, before the
day set for the holding of the meeting, or
|
|
|
|
|
(b)
|
unless the notice provides otherwise, be provided at the
meeting to the chair of the meeting.
|
30.12
|
Revocation of proxies
|
Subject to Article 10.13, every proxy
may be revoked by an instrument in writing that is
|
(a)
|
received at the registered office of the Company at any
time up to and including the last business day before the day set for the
holding of the meeting at which the proxy is to be used, or
|
|
|
|
|
(b)
|
provided at the meeting to the chair of the
meeting.
|
30.13
|
Revocation of proxies must be
signed
|
An instrument referred to in Article
10.12 must be signed as follows:
|
(a)
|
if the shareholder for whom the proxy holder is appointed
is an individual, the instrument must be signed by the shareholder or his
or her trustee;
|
162
|
(b)
|
if the shareholder for whom the proxy holder is appointed
is a corporation, the instrument must be signed by the corporation or by a
representative appointed for the corporation under Article
10.5.
|
30.14
|
Validity of proxy votes
|
|
|
|
A vote given in accordance with the terms of a proxy is
valid despite the death or incapacity of the shareholder giving the proxy
and despite the revocation of the proxy or the revocation of the authority
under which the proxy is given, unless notice in writing of that death,
incapacity or revocation is received
|
|
(a)
|
at the registered office of the Company, at any time up
to and including the last business day before the day set for the holding
of the meeting at which the proxy is to be used, or
|
|
|
|
|
(b)
|
by the chair of the meeting, before the vote is
taken.
|
30.15
|
Production of evidence of authority to
vote
|
|
|
|
The chair of any meeting of shareholders may, but need
not, inquire into the authority of any person to vote at the meeting and
may, but need not, demand from that person production of evidence as to
the existence of the authority to vote.
|
PART 31 DIRECTORS
31.1
|
First directors; number of directors
|
|
|
|
The first directors are the persons designated as
directors of the Company in the Notice of Articles that applies to the
Company when it is recognized under the
Business Corporations Act
.
The number of directors, excluding additional directors appointed under
Article 12.8, is set at:
|
|
(a)
|
subject to paragraph (b), the number of directors that is
equal to the number of the Companys first directors;
|
|
|
|
|
(b)
|
the number most recently
established:
|
|
(i)
|
by ordinary resolution (whether or not previous notice of
the resolution was given); and
|
|
|
|
|
(ii)
|
under Article 12.4;
|
provided, however, if the Company is a
public company, the Company must have at least 3 directors.
31.2
|
Change in number of
directors
|
If the number of directors is set under
Articles 11.1(b)(i):
|
(a)
|
the shareholders may elect or appoint the directors
needed to fill any vacancies in the board of directors up to that
number;
|
|
|
|
|
(b)
|
if, contemporaneously with setting that number, the
shareholders do not elect or appoint the directors needed to fill
vacancies in the board of directors up to that number, then the directors
may appoint, or the shareholders may elect or appoint, directors to fill
those vacancies.
|
31.3
|
Directors acts valid despite vacancy
|
|
|
|
An act or proceeding of the directors is not invalid
merely because fewer directors have been appointed or elected than the
number of directors set or otherwise required under these
Articles.
|
|
|
31.4
|
Qualifications of directors
|
|
|
|
A director is not required to hold a share in the capital
of the Company as qualification for his or her office but must be
qualified as required by the
Business Corporations Act
to become,
act or continue to act as a director.
|
163
31.5
|
Remuneration of directors
|
|
|
|
The directors are entitled to the remuneration, if any,
for acting as directors as the directors may from time to time determine.
If the directors so decide, the remuneration of the directors will be
determined by the shareholders. That remuneration may be in addition to
any salary or other remuneration paid to a director in such directors
capacity as an officer or employee of the Company.
|
|
|
31.6
|
Reimbursement of expenses of directors
|
|
|
|
The Company must reimburse each director for the
reasonable expenses that he or she may incur in and about the business of
the Company.
|
|
|
31.7
|
Special remuneration for directors
|
|
|
|
If any director performs any professional or other
services for the Company that in the opinion of the directors are outside
the ordinary duties of a director, or if any director is otherwise
specially occupied in or about the Companys business, he or she may be
paid remuneration fixed by the directors, or, at the option of that
director, fixed by ordinary resolution, and such remuneration may be
either in addition to, or in substitution for, any other remuneration that
he or she may be entitled to receive.
|
|
|
31.8
|
Gratuity, pension or allowance on retirement of
director
|
|
|
|
Unless otherwise determined by ordinary resolution, the
directors on behalf of the Company may pay a gratuity or pension or
allowance on retirement to any director who has held any salaried office
or place of profit with the Company or to his or her spouse or dependants
and may make contributions to any fund and pay premiums for the purchase
or provision of any such gratuity, pension or
allowance.
|
PART 32 ELECTION AND REMOVAL OF DIRECTORS
32.1
|
Election at annual general meeting
|
|
|
|
At every annual general meeting and in every unanimous
resolution contemplated by Article 7.2:
|
|
(a)
|
the shareholders entitled to vote at the annual general
meeting for the election of directors must elect, or in the unanimous
resolution appoint, a board of directors consisting of the number of
directors for the time being set under these Articles; and
|
|
|
|
|
(b)
|
all the directors cease to hold office immediately before
the election or appointment of directors under paragraph (a), but are
eligible for re-election or re-appointment.
|
32.2
|
Consent to be a director
|
|
|
|
No election, appointment or designation of an individual
as a director is valid unless:
|
|
(a)
|
that individual consents to be a director in the manner
provided for in the
Business Corporations Act
;
|
|
|
|
|
(b)
|
that individual is elected or appointed at a meeting at
which the individual is present and the individual does not refuse, at the
meeting, to be a director; or
|
|
|
|
|
(c)
|
with respect to first directors, the designation is
otherwise valid under the
Business Corporations
Act
.
|
32.3
|
Failure to elect or appoint directors
|
|
|
|
If:
|
|
(a)
|
the Company fails to hold an annual general meeting, and
all the shareholders who are entitled to vote at an annual general meeting
fail to pass the unanimous resolution contemplated by
Article 7.2, on or before the date by which the annual general meeting
is required to be held under the
Business Corporations Act
; or
|
164
|
(b)
|
the shareholders fail, at the annual general meeting or
in the unanimous resolution contemplated by Article 7.2, to elect or
appoint any directors;
|
then each director in office at such
time continues to hold office until the earlier of:
|
(c)
|
the date on which his or her successor is elected or
appointed; and
|
|
|
|
|
(d)
|
the date on which he or she otherwise ceases to hold
office under the
Business Corporations Act
or these
Articles.
|
32.4
|
Places of retiring directors not filled
|
|
|
|
If, at any meeting of shareholders at which there should
be an election of directors, the places of any of the retiring directors
are not filled by that election, those retiring directors who are not
re-elected and who are asked by the newly elected directors to continue in
office will, if willing to do so, continue in office to fill the vacancies
in the number of directors set pursuant to these Articles until further
new directors are elected at a meeting of shareholders convened for that
purpose. If any such election or continuance of directors does not result
in the election or continuance of the number of directors set pursuant to
these Articles, the number of directors of the Company is deemed to be set
at the number of directors actually elected or continued in
office.
|
|
|
32.5
|
Directors may fill casual vacancies
|
|
|
|
Any casual vacancy occurring in the board of directors
may be filled by the directors.
|
|
|
32.6
|
Remaining directors power to act
|
|
|
|
The directors may act notwithstanding any vacancy in the
board of directors, but if the Company has fewer directors in office than
the number set pursuant to these Articles as the quorum of directors, the
directors may only act for the purpose of appointing directors up to that
number or for the purpose of summoning a meeting of shareholders to fill
any vacancies on the board of directors or for any other purpose permitted
by the
Business Corporations Act
.
|
|
|
32.7
|
Shareholders may fill vacancies
|
|
|
|
If the Company has no directors or fewer directors in
office than the number set pursuant to these Articles as the quorum of
directors, the shareholders may elect or appoint directors to fill any
vacancies on the board of directors.
|
|
|
32.8
|
Additional directors
|
|
|
|
Notwithstanding Articles 11.1 and 11.2, between annual
general meetings or unanimous resolutions contemplated by Article 7.2, the
directors may appoint one or more additional directors, but the number of
additional directors appointed under this Article 12.8 must not at any
time exceed:
|
|
(a)
|
one-third of the number of first directors, if, at the
time of the appointments, one or more of the first directors have not yet
completed their first term of office; or
|
|
|
|
|
(b)
|
in any other case, one-third of the number of the current
directors who were elected or appointed as directors other than under this
Article 12.8.
|
Any director so appointed ceases to
hold office immediately before the next election or appointment of directors
under Article 12.1(a), but is eligible for re-election or re-appointment.
32.9
|
Ceasing to be a director
|
A director ceases to be a director
when:
165
|
(a)
|
the term of office of the director expires;
|
|
|
|
|
(b)
|
the director dies;
|
|
|
|
|
(c)
|
the director resigns as a director by notice in writing
provided to the Company or a lawyer for the Company; or
|
|
|
|
|
(d)
|
the director is removed from office pursuant to Articles
12.10 or 12.11.
|
32.10
|
Removal of director by shareholders
|
|
|
|
The Shareholders may, by special resolution, remove any
director before the expiration of his or her term of office, and may, by
ordinary resolution, elect or appoint a director to fill the resulting
vacancy. If the shareholders do not contemporaneously elect or appoint a
director to fill the vacancy created by the removal of a director, then
the directors may appoint, or the shareholders may elect or appoint by
ordinary resolution, a director to fill that vacancy.
|
|
|
32.11
|
Removal of director by directors
|
|
|
|
The directors may remove any director before the
expiration of his or her term of office if the director is convicted of an
indictable offence, or if the director ceases to be qualified to act as a
director of a company and does not promptly resign, and the directors may
appoint a director to fill the resulting vacancy.
|
PART 33 PROCEEDINGS OF DIRECTORS
33.1
|
Meetings of directors
|
|
|
|
The directors may meet together for the conduct of
business, adjourn and otherwise regulate their meetings as they think fit,
and meetings of the board held at regular intervals may be held at the
place, at the time and on the notice, if any, that the board may by
resolution from time to time determine.
|
|
|
33.2
|
Chair of meetings
|
|
|
|
Meetings of directors are to be chaired
by
|
|
(a)
|
the chair of the board, if any,
|
|
|
|
|
(b)
|
in the absence of the chair of the board, the president,
if any, if the president is a director, or
|
|
|
|
|
(c)
|
any other director chosen by the directors
if
|
|
(i)
|
neither the chair of the board nor the president, if a
director, is present at the meeting within 15 minutes after the time set
for holding the meeting,
|
|
|
|
|
(ii)
|
neither the chair of the board nor the president, if a
director, is willing to chair the meeting, or
|
|
|
|
|
(iii)
|
the chair of the board and the president, if a director,
have advised the secretary, if any, or any other director, that they will
not be present at the meeting.
|
33.3
|
Voting at meetings
|
|
|
|
Questions arising at any meeting of directors are to be
decided by a majority of votes and, in the case of an equality of votes,
the chair of the meeting does not have a second or casting vote.
|
|
|
33.4
|
Meetings by telephone or other communications
medium
|
|
|
|
A director may participate in a meeting of the directors
or of any committee of the directors in person, or by telephone or other
communications medium, if all directors participating in the meeting are
able to communicate with each other. A director may participate in a
meeting of the directors or of any committee of the directors by a
communications medium other than telephone if all directors participating
in the meeting, whether in person or by telephone or other
communications medium, are able to communicate with each other and if all
directors who wish to participate in the meeting agree to such participation. A
director who participates in a meeting in a manner contemplated by this Article
13.4 is deemed for all purposes of the
Business Corporations Act
and
these Articles to be present at the meeting and to have agreed to participate in
that manner
.
|
166
33.5
|
Who may call extraordinary meetings
|
|
|
|
A director may call a meeting of the board at any time.
The secretary, if any, must on request of a director , call a meeting of
the board.
|
|
|
33.6
|
Notice of extraordinary meetings
|
|
|
|
Subject to Articles 13.7 and 13.8, if a meeting of the
board is called under Article 13.5, reasonable notice of that meeting,
specifying the place, date and time of that meeting, must be given to each
of the directors
|
|
(a)
|
by mail addressed to the directors address as it appears
on the books of the Company or to any other address provided to the
Company by the director for this purpose,
|
|
|
|
|
(b)
|
by leaving it at the directors prescribed address or at
any other address provided to the Company by the director for this
purpose, or
|
|
|
|
|
(c)
|
orally, by delivery of written notice or by telephone,
voice mail, e-mail, fax or any other method of legibly transmitting
messages.
|
33.7
|
When notice not required
|
|
|
|
It is not necessary to give notice of a meeting of the
directors to a director if
|
|
(a)
|
the meeting is to be held immediately following a meeting
of shareholders at which that director was elected or appointed or is the
meeting of the directors at which that director is appointed, or
|
|
|
|
|
(b)
|
the director has filed a waiver under Article
13.9.
|
33.8
|
Meeting valid despite failure to give
notice
|
|
|
|
The accidental omission to give notice of any meeting of
directors to any director, or the non-receipt of any notice by any
director, does not invalidate any proceedings at that meeting.
|
|
|
33.9
|
Waiver of notice of meetings
|
|
|
|
Any director may file with the Company a document signed
by the director waiving notice of any past, present or future meeting of
the directors and may at any time withdraw that waiver with respect to
meetings of the directors held after that withdrawal.
|
|
|
33.10
|
Effect of waiver
|
|
|
|
After a director files a waiver under Article 13.9 with
respect to future meetings of the directors, and until that waiver is
withdrawn, notice of any meeting of the directors need not be given to
that director unless the director otherwise requires in writing to the
Company.
|
|
|
33.11
|
Quorum
|
|
|
|
The quorum necessary for the transaction of the business
of the directors may be set by the directors and, if not so set, is a
majority of the directors.
|
|
|
33.12
|
If only one director
|
|
|
|
If, in accordance with Article 11.1, the number of
directors is one, the quorum necessary for the transaction of the business
of the directors is one director, and that director may constitute a
meeting.
|
167
PART 34 COMMITTEES OF DIRECTORS
34.1
|
Appointment of committees
|
The directors may, by resolution,
|
(a)
|
appoint one or more committees consisting of the director
or directors that they consider appropriate,
|
|
|
|
|
(b)
|
delegate to a committee appointed under paragraph (a) any
of the directors powers, except
|
|
(i)
|
the power to fill vacancies in the board,
|
|
|
|
|
(ii)
|
the power to change the membership of, or fill vacancies
in, any committee of the board, and
|
|
|
|
|
(iii)
|
the power to appoint or remove officers appointed by the
board, and
|
|
(c)
|
make any delegation referred to in paragraph (b) subject
to the conditions set out in the resolution.
|
34.2
|
Obligations of committee
|
Any committee formed under Article
14.1, in the exercise of the powers delegated to it, must
|
(a)
|
conform to any rules that may from time to time be
imposed on it by the directors, and
|
|
|
|
|
(b)
|
report every act or thing done in exercise of those
powers to the earliest meeting of the directors to be held after the act
or thing has been done.
|
The board may, at any time,
|
(a)
|
revoke the authority given to a committee, or override a
decision made by a committee, except as to acts done before such
revocation or overriding,
|
|
|
|
|
(b)
|
terminate the appointment of, or change the membership
of, a committee, and
|
|
|
|
|
(c)
|
fill vacancies in a
committee,
|
Subject to Article 14.2(a),
|
(a)
|
the members of a directors committee may meet and
adjourn as they think proper,
|
|
|
|
|
(b)
|
a directors committee may elect a chair of its meetings
but, if no chair of the meeting is elected, or if at any meeting the chair
of the meeting is not present within 15 minutes after the time set for
holding the meeting, the directors present who are members of the
committee may choose one of their number to chair the meeting,
|
|
|
|
|
(c)
|
a majority of the members of a directors committee
constitutes a quorum of the committee, and
|
|
|
|
|
(d)
|
questions arising at any meeting of a directors
committee are determined by a majority of votes of the members present,
and in case of an equality of votes, the chair of the meeting has no
second or casting vote.
|
168
PART 35 OFFICERS
35.1
|
Appointment of officers
|
|
|
|
The board may, from time to time, appoint a president,
secretary or any other officers that it considers necessary, and none of
the individuals appointed as officers need be a member of the
board.
|
|
|
35.2
|
Functions, duties and powers of officers
|
|
|
|
The board may, for each
officer,
|
|
(a)
|
determine the functions and duties the officer is to
perform,
|
|
|
|
|
(b)
|
entrust to and confer on the officer any of the powers
exercisable by the directors on such terms and conditions and with such
restrictions as the directors think fit, and
|
|
|
|
|
(c)
|
from time to time revoke, withdraw, alter or vary all or
any of the functions, duties and powers of the
officer.
|
35.3
|
Remuneration
|
|
|
|
All appointments of officers are to be made on the terms
and conditions and at the remuneration (whether by way of salary, fee,
commission, participation in profits or otherwise) that the board thinks
fit and are subject to termination at the pleasure of the
board.
|
PART 36 CERTAIN PERMITTED ACTIVITIES OF DIRECTORS
36.1
|
Other office of director
|
|
|
|
A director may hold any office or place of profit with
the Company (other than the office of auditor of the Company) in addition
to his or her office of director for the period and on the terms (as to
remuneration or otherwise) that the directors may determine.
|
|
|
36.2
|
No disqualification
|
|
|
|
No director or intended director is disqualified by his
or her office from contracting with the Company either with regard to the
holding of any office or place of profit the director holds with the
Company or as vendor, purchaser or otherwise.
|
|
|
36.3
|
Professional services by director or
officer
|
|
|
|
Subject to compliance with the provisions of the
Business Corporations Act
, a director or officer of the Company, or
any corporation or firm in which that individual has an interest, may act
in a professional capacity for the Company, except as auditor of the
Company, and the director or officer or such corporation or firm is
entitled to remuneration for professional services as if that individual
were not a director or officer.
|
|
|
36.4
|
Remuneration and benefits received from certain
entities
|
|
|
|
A director or officer may be or become a director,
officer or employee of, or may otherwise be or become interested in, any
corporation, firm or entity in which the Company may be interested as a
shareholder or otherwise, and, subject to compliance with the provisions
of the
Business Corporations Act
, the director or officer is not
accountable to the Company for any remuneration or other benefits received
by him or her as director, officer or employee of, or from his or her
interest in, such other corporation, firm or
entity.
|
169
PART 37 INDEMNIFICATION
37.1
|
Indemnification of directors
|
|
|
|
The directors must cause the Company to indemnify its
directors and former directors, and their respective heirs and personal or
other legal representatives to the greatest extent permitted by Division 5
of Part 5 of the
Business Corporations Act
.
|
|
|
37.2
|
Deemed contract
|
|
|
|
Each director is deemed to have contracted with the
Company on the terms of the indemnity referred to in Article
17.1.
|
PART 38 AUDITOR
38.1
|
Remuneration of an auditor
|
|
|
|
The directors may set the remuneration of the auditor of
the Company.
|
|
|
38.2
|
Waiver of appointment of an auditor
|
|
|
|
The Company shall not be required to appoint an auditor
if all of the shareholders of the Company, whether or not their shares
otherwise carry the right to vote, resolve by a unanimous resolution to
waive the appointment of an auditor. Such waiver may be given before, on
or after the date on which an auditor is required to be appointed under
the
Business Corporations Act
, and is effective for one financial
year only.
|
PART 39 DIVIDENDS
39.1
|
Declaration of dividends
|
|
|
|
Subject to the rights, if any, of shareholders holding
shares with special rights as to dividends, the directors may from time to
time declare and authorize payment of any dividends the directors consider
appropriate.
|
|
|
39.2
|
No notice required
|
|
|
|
The directors need not give notice to any shareholder of
any declaration under Article 19.1.
|
|
|
39.3
|
Directors may determine when dividend
payable
|
|
|
|
Any dividend declared by the directors may be made
payable on such date as is fixed by the directors.
|
|
|
39.4
|
Dividends to be paid in accordance with number of
shares
|
|
|
|
Subject to the rights of shareholders, if any, holding
shares with special rights as to dividends, all dividends on shares of any
class or series of shares must be declared and paid according to the
number of such shares held.
|
|
|
39.5
|
Manner of paying dividend
|
|
|
|
A resolution declaring a dividend may direct payment of
the dividend wholly or partly by the distribution of specific assets or of
paid up shares or fractional shares, bonds, debentures or other debt
obligations of the Company, or in any one or more of those ways, and, if
any difficulty arises in regard to the distribution, the directors may
settle the difficulty as they consider expedient, and, in particular, may
set the value for distribution of specific assets.
|
|
|
39.6
|
Dividend bears no interest
|
|
|
|
No dividend bears interest against the
Company.
|
170
39.7
|
Fractional dividends
|
|
|
|
If a dividend to which a shareholder is entitled includes
a fraction of the smallest monetary unit of the currency of the dividend,
that fraction may be disregarded in making payment of the dividend and
that payment represents full payment of the dividend.
|
|
|
39.8
|
Payment of dividends
|
|
|
|
Any dividend or other distribution payable in cash in
respect of shares may be paid by cheque, made payable to the order of the
person to whom it is sent, and mailed
|
|
(a)
|
subject to paragraphs (b) and (c), to the address of the
shareholder,
|
|
|
|
|
(b)
|
subject to paragraph (c), in the case of joint
shareholders, to the address of the joint shareholder whose name stands
first on the central securities register in respect of the shares,
or
|
|
|
|
|
(c)
|
to the person and to the address as the shareholder or
joint shareholders may direct in writing.
|
39.9
|
Receipt by joint shareholders
|
|
|
|
If several persons are joint shareholders of any share,
any one of them may give an effective receipt for any dividend, bonus or
other money payable in respect of the share.
|
PART 40 ACCOUNTING RECORDS
40.1
|
Recording of financial affairs
|
|
|
|
The board must cause adequate accounting records to be
kept to record properly the financial affairs and condition of the Company
and to comply with the provisions of the
Business Corporations
Act
.
|
PART 41 EXECUTION OF INSTRUMENTS
41.1
|
Who may attest seal
|
|
|
|
The Companys seal, if any, must not be impressed on any
record except when that impression is attested by the signature or
signatures of
|
|
(a)
|
any 2 directors,
|
|
|
|
|
(b)
|
any officer, together with any director,
|
|
|
|
|
(c)
|
if the Company has only one director, that director,
or
|
|
|
|
|
(d)
|
any one or more directors or officers or persons as may
be determined by resolution of the directors.
|
41.2
|
Sealing copies
|
|
|
|
For the purpose of certifying under seal a true copy of
any resolution or other document, the seal must be impressed on that copy
and, despite Article 21.1, may be attested by the signature of any
director or officer.
|
|
|
41.3
|
Execution of documents not under seal
|
|
|
|
Any instrument, document or agreement for which the seal
need not be affixed may be executed for and on behalf of and in the name
of the Company by any one director or officer of the Company, or by any
other person appointed by the directors for such
purpose.
|
171
PART 42 NOTICES
42.1
|
Method of giving notice
|
|
|
|
Unless the
Business Corporations Act
or these
Articles provides otherwise, a notice, statement, report other record
required or permitted by the
Business Corporations Act
or these
Articles to be sent by or person may be sent by any one of the following
methods:
|
|
(a)
|
mail addressed to the person at the applicable address
for that person as follows:
|
|
(i)
|
for a record mailed to a shareholder, the shareholders
registered address;
|
|
|
|
|
(ii)
|
for a record mailed to a director or officer, the
prescribed address for mailing shown for the director or officer in the
records kept by the Company or the mailing address provided by the
recipient for the sending of that record or records of that
class;
|
|
|
|
|
(iii)
|
in any other case, the mailing address of the intended
recipient;
|
|
(b)
|
delivery at the applicable address for that person as
follows, addressed to the person:
|
|
(i)
|
for a record delivered to a shareholder, the
shareholders registered address;
|
|
|
|
|
(ii)
|
for a record delivered to a director or officer, the
prescribed address for delivery shown for the director or officer in the
records kept by the Company or the delivery address provided by the
recipient for the sending of that record or records of that
class;
|
|
|
|
|
(iii)
|
in any other case, the delivery address of the intended
recipient;
|
|
(c)
|
sending the record by fax to the fax number provided by
the intended recipient for the sending of that record or records of that
class;
|
|
|
|
|
(d)
|
sending the record by email to the email address provided
by the intended recipient for the sending of that record or records of
that class;
|
|
|
|
|
(e)
|
physical delivery to the intended
recipient.
|
42.2
|
Deemed receipt of mailing
|
|
|
|
A record that is mailed to a person by ordinary mail to
the applicable address for that person referred to in Article 22.1 is
deemed to be received by the person to whom it was mailed on the day,
Saturdays, Sundays and holidays excepted, following the date of
mailing.
|
|
|
42.3
|
Certificate of sending
|
|
|
|
A certificate signed by the secretary, if any, or other
officer of the Company or of any other corporation acting in that behalf
for the Company stating that a notice, statement, report or other record
was addressed as required by Article 22.1, prepaid and mailed or otherwise
sent as permitted by Article 22.1 is conclusive evidence of that
fact.
|
|
|
42.4
|
Notice to joint shareholders
|
|
|
|
A notice, statement, report or other record may be
provided by the Company to the joint registered shareholders of a share by
providing the notice to the joint registered shareholder first named in
the central securities register in respect of the share.
|
|
|
42.5
|
Notice to trustees
|
|
|
|
A notice, statement, report or other record may be
provided by the Company to the persons entitled to a share in consequence
of the death, bankruptcy or incapacity of a shareholder
by:
|
|
(a)
|
mailing the record, addressed to
them:
|
|
(i)
|
by name, by the title of the legal personal
representative of the deceased or incapacitated shareholder, by the title
of trustee of the bankrupt shareholder or by any similar description;
and
|
|
|
|
|
(ii)
|
at the address, if any, supplied to the Company for that
purpose by the persons claiming to be so entitled;
or
|
|
(b)
|
if an address referred to in Article 22.5(a)(ii) has not
been supplied to the Company, by giving the notice in a manner in which it
might have been given if the death, bankruptcy or incapacity had not
occurred.
|
172
PART 43 RESTRICTION ON SHARE TRANSFER
43.1
|
Application
|
|
|
|
Article 23.2 does not apply to the Company if and for so
long as it is a public company.
|
|
|
43.2
|
Consent required for transfer
|
|
|
|
No shares may be sold, transferred or otherwise disposed
of without the consent of the directors and directors are not required to
give any reason for refusing to consent to any such sale, transfer or
disposition.
|
PART 44 SPECIAL RIGHTS AND RESTRICTIONS
44.1
|
Preferred shares issuable in series
|
|
|
|
The Preferred shares may include one or more series and,
subject to the
Business Corporations Act
, the directors may, by
resolution, if none of the shares of any particular series are issued,
alter the Articles of the Company and authorize the alteration of the
Notice of Articles of the Company, as the case may be, to do one or more
of the following:
|
|
(a)
|
determine the maximum number of shares of that series
that the Company is authorized to issue, determine that there is no such
maximum number, or alter any such determination;
|
|
|
|
|
(b)
|
create an identifying name for the shares of that series,
or alter any such identifying name; and
|
|
|
|
|
(c)
|
attach special rights or restrictions to the shares of
that series, or alter any such special rights or
restrictions.
|
44.2
|
Dissolution or winding up
|
|
|
|
The holders of Preferred shares shall be entitled, on the
liquidation or dissolution of the Company, whether voluntary or
involuntary, or on any other distribution of its assets among its
shareholders for the purpose of winding up its affairs, to receive, before
any distribution is made to the holders of Common shares or any other
shares of the Company ranking junior to the Preferred shares with respect
to the repayment of capital on the liquidation or dissolution of the
Company, whether voluntary or involuntary, or on any other distribution of
its assets among its shareholders for the purpose of winding up its
affairs, the amount paid up with respect to each Preferred share held by
them, together with the fixed premium (if any) thereon, all accrued and
unpaid cumulative dividends (if any and if preferential) thereon, which
for such purpose shall be calculated as if such dividends were accruing on
a day-to-day basis up to the date of such distribution, whether or not
earned or declared, and all declared and unpaid non-cumulative dividends
(if any and if preferential) thereon. After payment to the holders of the
Preferred shares of the amounts so payable to them, they shall not, as
such, be entitled to share in any further distribution of the property or
assets of the Company, except as specifically provided in the special
rights and restrictions attached to any particular series. All assets
remaining after payment to the holders of Preferred shares as aforesaid
shall be distributed rateably among the holders of the Common
shares.
|
173
44.3
|
Preferred shares do not confer right to receive notice
of, attend or vote at general meetings
|
|
|
|
Except for such rights relating to the election of
directors on a default in payment of dividends as may be attached to any
series of the Preferred shares by the directors, holders of Preferred
shares shall not be entitled, as such, to receive notice of, or to attend
or vote at, any general meeting of shareholders of the
Company.
|
Full Name and Signature of Authorized Signatory:
|
Date of Signing
|
|
|
CHRIS BUNKA
|
|
|
|
|
,
|
Authorized Signatory for
|
|
LEXARIA
BIOSCIENCE CORP.
|
|
174
SCHEDULE B
NEVADA REVISED STATUTES
CHAPTER 92A - MERGERS, CONVERSIONS, EXCHANGES AND
DOMESTICATIONS
RIGHTS OF DISSENTING OWNERS
NRS 92A.300 Definitions.
As used in
NRS 92A.300
to
92A.500
, inclusive, unless the context otherwise
requires, the words and terms defined in
NRS
92A.305
to
92A.335
, inclusive, have
the meanings ascribed to them in those sections. (Added to NRS by
1995, 2086
)
NRS 92A.305 Beneficial
stockholder defined.
Beneficial stockholder means a person who is a
beneficial owner of shares held in a voting trust or by a nominee as the
stockholder of record. (Added to NRS by
1995,
2087
)
NRS 92A.310 Corporate action
defined.
Corporate action means the action of a domestic corporation.
(Added to NRS by
1995, 2087
)
NRS 92A.315 Dissenter
defined.
Dissenter means a stockholder who is entitled to dissent from a
domestic corporations action under
NRS
92A.380
and who exercises that right when and in the manner required
by
NRS 92A.400
to
92A.480
, inclusive. (Added to NRS by
1995, 2087
; A
1999,
1631
)
NRS 92A.320 Fair value
defined.
Fair value, with respect to a dissenters shares, means the value
of the shares determined:
1.
Immediately before the effectuation of the corporate action to which the
dissenter objects, excluding any appreciation or depreciation in anticipation of
the corporate action unless exclusion would be inequitable;
2. Using
customary and current valuation concepts and techniques generally employed for
similar businesses in the context of the transaction requiring appraisal; and
3.
Without discounting for lack of marketability or minority status. (Added to NRS
by
1995, 2087
; A
2009,
1720
)
NRS 92A.325 Stockholder
defined.
Stockholder means a stockholder of record or a beneficial
stockholder of a domestic corporation. (Added to NRS by
1995, 2087
)
NRS 92A.330 Stockholder of
record defined.
Stockholder of record means the person in whose name
shares are registered in the records of a domestic corporation or the beneficial
owner of shares to the extent of the rights granted by a nominees certificate
on file with the domestic corporation. (Added to NRS by
1995, 2087
)
NRS 92A.335 Subject
corporation defined.
Subject corporation means the domestic corporation
which is the issuer of the shares held by a dissenter before the corporate
action creating the dissenters rights becomes effective or the surviving or
acquiring entity of that issuer after the corporate action becomes effective.
(Added to NRS by
1995, 2087
)
NRS 92A.340 Computation of
interest.
Interest payable pursuant to
NRS
92A.300
to
92A.500
, inclusive, must
be computed from the effective date of the action until the date of payment, at
the rate of interest most recently established pursuant to
NRS 99.040
. (Added to NRS by
1995, 2087
; A
2009,
1721
)
175
NRS 92A.350 Rights of
dissenting partner of domestic limited partnership.
A partnership agreement
of a domestic limited partnership or, unless otherwise provided in the
partnership agreement, an agreement of merger or exchange, may provide that
contractual rights with respect to the partnership interest of a dissenting
general or limited partner of a domestic limited partnership are available for
any class or group of partnership interests in connection with any merger or
exchange in which the domestic limited partnership is a constituent entity.
(Added to NRS by
1995, 2088
)
NRS 92A.360 Rights of
dissenting member of domestic limited-liability company.
The articles of
organization or operating agreement of a domestic limited-liability company or,
unless otherwise provided in the articles of organization or operating
agreement, an agreement of merger or exchange, may provide that contractual
rights with respect to the interest of a dissenting member are available in
connection with any merger or exchange in which the domestic limited-liability
company is a constituent entity. (Added to NRS by
1995,
2088
)
NRS 92A.370 Rights of
dissenting member of domestic nonprofit corporation.
1.
Except as otherwise provided in subsection 2, and unless otherwise provided in
the articles or bylaws, any member of any constituent domestic nonprofit
corporation who voted against the merger may, without prior notice, but within
30 days after the effective date of the merger, resign from membership and is
thereby excused from all contractual obligations to the constituent or surviving
corporations which did not occur before the members resignation and is thereby
entitled to those rights, if any, which would have existed if there had been no
merger and the membership had been terminated or the member had been expelled.
2. Unless
otherwise provided in its articles of incorporation or bylaws, no member of a
domestic nonprofit corporation, including, but not limited to, a cooperative
corporation, which supplies services described in
chapter
704
of NRS to
its members only, and no person who is a member of a domestic nonprofit
corporation as a condition of or by reason of the ownership of an interest in
real property, may resign and dissent pursuant to subsection 1. (Added to NRS by
1995, 2088
)
NRS 92A.380 Right of
stockholder to dissent from certain corporate actions and to obtain payment for
shares.
1. Except
as otherwise provided in
NRS 92A.370
and
92A.390
and subject to the limitation in
paragraph (f), any stockholder is entitled to dissent from, and obtain payment
of the fair value of the stockholders shares in the event of any of the
following corporate actions:
(a) Consummation of a plan of
merger to which the domestic corporation is a constituent entity:
(1)
If approval by the stockholders is required for the merger by
NRS 92A.120
to
92A.160
, inclusive, or the articles of incorporation,
regardless of whether the stockholder is entitled to vote on the plan of merger;
or
(2)
If the domestic corporation is a subsidiary and is merged with its parent
pursuant to
NRS 92A.180
.
(b) Consummation of a plan of
conversion to which the domestic corporation is a constituent entity as the
corporation whose subject owners interests will be converted.
(c) Consummation of a plan of
exchange to which the domestic corporation is a constituent entity as the
corporation whose subject owners interests will be acquired, if the
stockholders shares are to be acquired in the plan of exchange.
(d) Any corporate action taken
pursuant to a vote of the stockholders to the extent that the articles of
incorporation, bylaws or a resolution of the board of directors provides that
voting or nonvoting stockholders are entitled to dissent and obtain payment for
their shares.
(e) Accordance of full voting
rights to control shares, as defined in NRS 78.3784, only to the extent provided
for pursuant to
NRS 78.3793
.
176
(f) Any corporate action not
described in this subsection that will result in the stockholder receiving money
or scrip instead of a fraction of a share except where the stockholder would not
be entitled to receive such payment pursuant to
NRS
78.205
,
78.2055
or
78.207
. A dissent pursuant to this paragraph applies
only to the fraction of a share, and the stockholder is entitled only to obtain
payment of the fair value of the fraction of a share.
2. A
stockholder who is entitled to dissent and obtain payment pursuant to
NRS 92A.300
to
92A.500
, inclusive, may not challenge the corporate
action creating the entitlement unless the action is unlawful or fraudulent with
respect to the stockholder or the domestic corporation.
3. Subject
to the limitations in this subsection, from and after the effective date of any
corporate action described in subsection 1, no stockholder who has exercised the
right to dissent pursuant to
NRS
92A.300
to
92A.500
,
inclusive, is entitled to vote his or her shares for any purpose or to receive
payment of dividends or any other distributions on shares. This subsection does
not apply to dividends or other distributions payable to stockholders on a date
before the effective date of any corporate action from which the stockholder has
dissented. If a stockholder exercises the right to dissent with respect to a
corporate action described in paragraph (f) of subsection 1, the restrictions of
this subsection apply only to the shares to be converted into a fraction of a
share and the dividends and distributions to those shares. (Added to NRS by
1995, 2087
; A
2001,
1414
,
3199
;
2003,
3189
;
2005, 2204
;
2007,
2438
;
2009, 1721
;
2011, 2814
)
NRS 92A.390 Limitations on
right of dissent: Stockholders of certain classes or series; action of
stockholders not required for plan of merger.
1. There
is no right of dissent with respect to a plan of merger, conversion or exchange
in favor of stockholders of any class or series which is:
(a) A covered security under
section 18(b)(1)(A) or (B) of the Securities Act of 1933, 15 U.S.C. §
77r(b)(1)(A) or (B), as amended;
(b) Traded in an organized market
and has at least 2,000 stockholders and a market value of at least $20,000,000,
exclusive of the value of such shares held by the corporations subsidiaries,
senior executives, directors and beneficial stockholders owning more than 10
percent of such shares; or
(c) Issued by an open end
management investment company registered with the Securities and Exchange
Commission under the Investment Company Act of 1940, 15 U.S.C. §§ 80a-1 et seq.,
as amended, and which may be redeemed at the option of the holder at net asset
value,
➥ unless the articles of incorporation of the
corporation issuing the class or series or the resolution of the board of
directors approving the plan of merger, conversion or exchange expressly provide
otherwise.
2. The
applicability of subsection 1 must be determined as of:
(a) The record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the corporate action requiring dissenters
rights; or
(b) The day before the effective
date of such corporate action if there is no meeting of stockholders.
3. Subsection
1 is not applicable and dissenters rights are available pursuant to
NRS 92A.380
for the holders of any class or series of
shares who are required by the terms of the corporate action requiring
dissenters rights to accept for such shares anything other than cash or shares
of any class or any series of shares of any corporation, or any other
proprietary interest of any other entity, that satisfies the standards set forth
in subsection 1 at the time the corporate action becomes effective.
4. There
is no right of dissent for any holders of stock of the surviving domestic
corporation if the plan of merger does not require action of the stockholders of
the surviving domestic corporation under
NRS
92A.130
.
177
5. There
is no right of dissent for any holders of stock of the parent domestic
corporation if the plan of merger does not require action of the stockholders of
the parent domestic corporation under
NRS
92A.180
. (Added to NRS by
1995,
2088
; A
2009, 1722
;
2013, 1285
)
NRS 92A.400 Limitations on
right of dissent: Assertion as to portions only to shares registered to
stockholder; assertion by beneficial stockholder.
1. A
stockholder of record may assert dissenters rights as to fewer than all of the
shares registered in his or her name only if the stockholder of record dissents
with respect to all shares of the class or series beneficially owned by any one
person and notifies the subject corporation in writing of the name and address
of each person on whose behalf the stockholder of record asserts dissenters
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which the partial dissenter dissents and his or her other
shares were registered in the names of different stockholders.
2. A
beneficial stockholder may assert dissenters rights as to shares held on his or
her behalf only if the beneficial stockholder:
(a) Submits to the subject
corporation the written consent of the stockholder of record to the dissent not
later than the time the beneficial stockholder asserts dissenters rights; and
(b) Does so with respect to all
shares of which he or she is the beneficial stockholder or over which he or she
has power to direct the vote. (Added to NRS by
1995,
2089
; A
2009, 1723
)
NRS 92A.410 Notification
of stockholders regarding right of dissent.
1. If
a proposed corporate action creating dissenters rights is submitted to a vote
at a stockholders meeting, the notice of the meeting must state that
stockholders are, are not or may be entitled to assert dissenters rights under
NRS 92A.300
to
92A.500
, inclusive. If the domestic corporation
concludes that dissenters rights are or may be available, a copy of
NRS 92A.300
to
92A.500
, inclusive, must accompany the meeting notice
sent to those record stockholders entitled to exercise dissenters rights.
2. If
the corporate action creating dissenters rights is taken by written consent of
the stockholders or without a vote of the stockholders, the domestic corporation
shall notify in writing all stockholders entitled to assert dissenters rights
that the action was taken and send them the dissenters notice described in
NRS 92A.430
. (Added to NRS by
1995, 2089
; A
1997,
730
;
2009, 1723
;
2013, 1286
)
NRS 92A.420 Prerequisites
to demand for payment for shares.
1. If
a proposed corporate action creating dissenters rights is submitted to a vote
at a stockholders meeting, a stockholder who wishes to assert dissenters
rights with respect to any class or series of shares:
(a) Must deliver to the subject
corporation, before the vote is taken, written notice of the stockholders
intent to demand payment for his or her shares if the proposed action is
effectuated; and
(b) Must not vote, or cause or
permit to be voted, any of his or her shares of such class or series in favor of
the proposed action.
2. If
a proposed corporate action creating dissenters rights is taken by written
consent of the stockholders, a stockholder who wishes to assert dissenters
rights with respect to any class or series of shares must not consent to or
approve the proposed corporate action with respect to such class or series.
3. A
stockholder who does not satisfy the requirements of subsection 1 or 2 and
NRS 92A.400
is not entitled to payment for his
or her shares under this chapter. (Added to NRS by
1995,
2089
; A
1999, 1631
;
2005, 2204
;
2009,
1723
;
2013,
1286
)
178
NRS 92A.430 Dissenters
notice: Delivery to stockholders entitled to assert rights; contents.
1. The
subject corporation shall deliver a written dissenters notice to all
stockholders of record entitled to assert dissenters rights in whole or in
part, and any beneficial stockholder who has previously asserted dissenters
rights pursuant to
NRS 92A.400
.
2. The
dissenters notice must be sent no later than 10 days after the effective date
of the corporate action specified in
NRS
92A.380
, and must:
(a) State where the demand for
payment must be sent and where and when certificates, if any, for shares must be
deposited;
(b) Inform the holders of shares
not represented by certificates to what extent the transfer of the shares will
be restricted after the demand for payment is received;
(c) Supply a form for demanding
payment that includes the date of the first announcement to the news media or to
the stockholders of the terms of the proposed action and requires that the
person asserting dissenters rights certify whether or not the person acquired
beneficial ownership of the shares before that date;
(d) Set a date by which the
subject corporation must receive the demand for payment, which may not be less
than 30 nor more than 60 days after the date the notice is delivered and state
that the stockholder shall be deemed to have waived the right to demand payment
with respect to the shares unless the form is received by the subject
corporation by such specified date; and
(e) Be accompanied by a copy of
NRS 92A.300
to
92A.500
, inclusive. (Added to NRS by
1995, 2089
; A
2005,
2205
;
2009,
1724
;
2013, 1286
)
NRS 92A.440 Demand for payment
and deposit of certificates; loss of rights of stockholder; withdrawal from
appraisal process.
1. A
stockholder who receives a dissenters notice pursuant to
NRS 92A.430
and who wishes to exercise dissenters
rights must:
(a) Demand payment;
(b) Certify whether the
stockholder or the beneficial owner on whose behalf he or she is dissenting, as
the case may be, acquired beneficial ownership of the shares before the date
required to be set forth in the dissenters notice for this certification; and
(c) Deposit the stockholders
certificates, if any, in accordance with the terms of the notice.
2. If
a stockholder fails to make the certification required by paragraph (b) of
subsection 1, the subject corporation may elect to treat the stockholders
shares as after-acquired shares under
NRS
92A.470
.
3. Once
a stockholder deposits that stockholders certificates or, in the case of
uncertified shares makes demand for payment, that stockholder loses all rights
as a stockholder, unless the stockholder withdraws pursuant to subsection 4.
4.
A stockholder who has complied with subsection 1 may nevertheless decline to
exercise dissenters rights and withdraw from the appraisal process by so
notifying the subject corporation in writing by the date set forth in the
dissenters notice pursuant to
NRS 92A.430
. A
stockholder who fails to so withdraw from the appraisal process may not
thereafter withdraw without the subject corporations written consent.
179
5. The
stockholder who does not demand payment or deposit his or her certificates where
required, each by the date set forth in the dissenters notice, is not entitled
to payment for his or her shares under this chapter. (Added to NRS by
1995, 2090
; A
1997,
730
;
2003, 3189
;
2009, 1724
)
NRS 92A.450 Uncertificated
shares: Authority to restrict transfer after demand for payment.
The subject
corporation may restrict the transfer of shares not represented by a certificate
from the date the demand for their payment is received. (Added to NRS by
1995, 2090
; A
2009,
1725
)
NRS 92A.460 Payment for
shares: General requirements.
1.
Except as otherwise provided in
NRS 92A.470
,
within 30 days after receipt of a demand for payment pursuant to
NRS 92A.440
, the subject corporation shall pay in cash
to each dissenter who complied with
NRS
92A.440
the amount the subject corporation
estimates to be the fair value of the dissenters shares, plus accrued interest.
The obligation of the subject corporation under this subsection may be enforced
by the district court:
(a) Of the county where the
subject corporations principal office is located;
(b) If the subject corporations
principal office is not located in this State, in the county in which the
corporations registered office is located; or
(c) At the election of any
dissenter residing or having its principal or registered office in this State,
of the county where the dissenter resides or has its principal or registered
office.
The court shall dispose of the complaint promptly.
2. The
payment must be accompanied by:
(a) The subject corporations
balance sheet as of the end of a fiscal year ending not more than 16 months
before the date of payment, a statement of income for that year, a statement of
changes in the stockholders equity for that year or, where such financial
statements are not reasonably available, then such reasonably equivalent
financial information and the latest available quarterly financial statements,
if any;
(b) A statement of the subject
corporations estimate of the fair value of the shares; and
(c) A statement of the
dissenters rights to demand payment under
NRS
92A.480
and that if any such stockholder does not do so within the
period specified, such stockholder shall be deemed to have accepted such payment
in full satisfaction of the corporations obligations under this chapter. (Added
to NRS by
1995, 2090
; A
2007, 2704
;
2009,
1725
;
2013, 1287
)
NRS 92A.470 Withholding
payment for shares acquired on or after date of dissenters notice: General
requirements.
1. A
subject corporation may elect to withhold payment from a dissenter unless the
dissenter was the beneficial owner of the shares before the date set forth in
the dissenters notice as the first date of any announcement to the news media
or to the stockholders of the terms of the proposed action.
2. To
the extent the subject corporation elects to withhold payment, within 30 days
after receipt of a demand for payment pursuant to
NRS
92A.440
, the subject corporation shall notify the dissenters
described in subsection 1:
(a) Of the information required
by paragraph (a) of subsection 2 of
NRS
92A.460
;
(b) Of the subject corporations
estimate of fair value pursuant to paragraph (b) of subsection 2 of
NRS
92A.460
;
180
(c) That they may accept the
subject corporations estimate of fair value, plus interest, in full
satisfaction of their demands or demand appraisal under
NRS 92A.480
;
(d) That those stockholders who
wish to accept such an offer must so notify the subject corporation of their
acceptance of the offer within 30 days after receipt of such offer; and
(e) That those stockholders who
do not satisfy the requirements for demanding appraisal under
NRS
92A.480
shall be
deemed to have accepted the subject corporations offer.
3.
Within 10 days after receiving the stockholders acceptance pursuant to
subsection 2, the subject corporation shall pay in cash the amount offered under
paragraph (b) of subsection 2 to each stockholder who agreed to accept the
subject corporations offer in full satisfaction of the stockholders demand.
4. Within
40 days after sending the notice described in subsection 2, the subject
corporation shall pay in cash the amount offered under paragraph (b) of
subsection 2 to each stockholder described in paragraph (e) of subsection 2.
(Added to NRS by
1995, 2091
; A
2009, 1725
;
2013,
1287
)
NRS 92A.480 Dissenters
estimate of fair value: Notification of subject corporation; demand for payment
of estimate.
1. A
dissenter paid pursuant to
NRS 92A.460
who is
dissatisfied with the amount of the payment may notify the subject corporation
in writing of the dissenters own estimate of the fair value of his or her
shares and the amount of interest due, and demand payment of such estimate, less
any payment pursuant to
NRS 92A.460
. A
dissenter offered payment pursuant to
NRS
92A.470
who is dissatisfied with the offer may reject the offer
pursuant to
NRS 92A.470
and demand payment of
the fair value of his or her shares and interest due.
2. A
dissenter waives the right to demand payment pursuant to this section unless the
dissenter notifies the subject corporation of his or her demand to be paid the
dissenters stated estimate of fair value plus interest under subsection 1 in
writing within 30 days after receiving the subject corporations payment or
offer of payment under
NRS 92A.460
or
92A.470
and is entitled only to the payment made or
offered. (Added to NRS by
1995,
2091
; A
2009, 1726
)
NRS 92A.490 Legal proceeding
to determine fair value: Duties of subject corporation; powers of court; rights
of dissenter.
1. If
a demand for payment pursuant to
NRS 92A.480
remains unsettled, the subject corporation shall commence a proceeding within 60
days after receiving the demand and petition the court to determine the fair
value of the shares and accrued interest. If the subject corporation does not
commence the proceeding within the 60-day period, it shall pay each dissenter
whose demand remains unsettled the amount demanded by each dissenter pursuant to
NRS 92A.480
plus interest.
2. A
subject corporation shall commence the proceeding in the district court of the
county where its principal office is located in this State. If the principal
office of the subject corporation is not located in this State, the right to
dissent arose from a merger, conversion or exchange and the principal office of
the surviving entity, resulting entity or the entity whose shares were acquired,
whichever is applicable, is located in this State, it shall commence the
proceeding in the county where the principal office of the surviving entity,
resulting entity or the entity whose shares were acquired is located. In all
other cases, if the principal office of the subject corporation is not located
in this State, the subject corporation shall commence the proceeding in the
district court in the county in which the corporations registered office is
located.
3. The
subject corporation shall make all dissenters, whether or not residents of
Nevada, whose demands remain unsettled, parties to the proceeding as in an
action against their shares. All parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
181
4. The
jurisdiction of the court in which the proceeding is commenced under subsection
2 is plenary and exclusive. The court may appoint one or more persons as
appraisers to receive evidence and recommend a decision on the question of fair
value. The appraisers have the powers described in the order appointing them, or
any amendment thereto. The dissenters are entitled to the same discovery rights
as parties in other civil proceedings.
5. Each
dissenter who is made a party to the proceeding is entitled to a judgment:
(a) For the amount, if any, by
which the court finds the fair value of the dissenters shares, plus interest,
exceeds the amount paid by the subject corporation; or
(b) For the fair value, plus
accrued interest, of the dissenters after-acquired shares for which the subject
corporation elected to withhold payment pursuant to
NRS
92A.470
. (Added to NRS by
1995,
2091
; A
2007,
2705
;
2009, 1727
;
2011, 2815
;
2013,
1288
)
NRS 92A.500 Assessment of
costs and fees in certain legal proceedings.
1. The
court in a proceeding to determine fair value shall determine all of the costs
of the proceeding, including the reasonable compensation and expenses of any
appraisers appointed by the court. The court shall assess the costs against the
subject corporation, except that the court may assess costs against all or some
of the dissenters, in amounts the court finds equitable, to the extent the court
finds the dissenters acted arbitrarily, vexatiously or not in good faith in
demanding payment.
2. The
court may also assess the fees and expenses of the counsel and experts for the
respective parties, in amounts the court finds equitable:
(a) Against the subject
corporation and in favor of all dissenters if the court finds the subject
corporation did not substantially comply with the requirements of
NRS 92A.300
to
92A.500
, inclusive; or
(b) Against either the subject
corporation or a dissenter in favor of any other party, if the court finds that
the party against whom the fees and expenses are assessed acted arbitrarily,
vexatiously or not in good faith with respect to the rights provided by
NRS 92A.300
to
92A.500
, inclusive.
3. If
the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the subject corporation, the
court may award to those counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefited.
4. In
a proceeding commenced pursuant to
NRS
92A.460
, the court may assess the costs against the subject
corporation, except that the court may assess costs against all or some of the
dissenters who are parties to the proceeding, in amounts the court finds
equitable, to the extent the court finds that such parties did not act in good
faith in instituting the proceeding.
5. To
the extent the subject corporation fails to make a required payment pursuant to
NRS
92A.460
,
92A.470
or
92A.480
, the dissenter may bring a cause of action
directly for the amount owed and, to the extent the dissenter prevails, is
entitled to recover all expenses of the suit.
6. This
section does not preclude any party in a proceeding commenced pursuant to
NRS
92A.460
or
92A.490
from applying the provisions of
N.R.C.P. 68
. (Added to NRS by
1995, 2092
; A
2009,
1727
;
2015,
2566
)
182
INFORMATION NOT REQUIRED IN THE PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our directors and officers are indemnified as provided by the
Nevada Statutes and our Bylaws. We have agreed to indemnify each of our
directors and certain officers against certain liabilities, including
liabilities under the Securities Act of 1933. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to our
directors, officers and controlling persons pursuant to the provisions described
above, or otherwise, we have been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than our
payment of expenses incurred or paid by our director, officer or controlling
person 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, we will, unless in the opinion of our 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.
We have been advised that in the opinion of the Securities and
Exchange Commission indemnification for liabilities arising under the Securities
Act 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 is asserted by one of our directors, officers, or controlling
persons in connection with the securities being registered, we will, unless in
the opinion of our legal counsel the matter has been settled by controlling
precedent, submit the question of whether such indemnification is against public
policy to a court of appropriate jurisdiction. We will then be governed by the
courts decision.
183
EXHIBITS
Exhibit
|
|
Number
|
Description
|
(2)
|
Plan of Acquisition,
Reorganization, Arrangement, Liquidation or Succession
|
2.1*
|
Plan of Conversion (included as Schedule A to
the proxy statement/prospectus)
|
(3)
|
Articles of Incorporation and
Bylaws
|
3.1
|
Articles of Incorporation (incorporated by
reference to exhibit 3.1 of our registration statement on Form SB-2 filed
on January 10, 2006)
|
3.2
|
Bylaws (incorporated by
reference to exhibit 3.2 of our registration statement on Form SB-2 filed
on January 10, 2006)
|
(4)
|
Instruments Defining the Rights of Security
Holders, including Indentures
|
4.1
|
2014 Stock Option Plan (incorporated by reference to exhibit 4.1 of our Registration Statement on Form S-4 filed January 5, 2018)
|
(5)
|
Opinion regarding Legality
|
5.1*
|
Opinion of Macdonald Tuskey
regarding the legality of the securities being registered
|
(8)
|
Opinions regarding Tax Matters
|
8.1*
|
Opinion of Dale Matheson
Carr-Hilton Labonte LLP regarding U.S. tax matters
|
8.2*
|
Opinion of Dale Matheson Carr-Hilton Labonte
LLP regarding Canadian tax matters
|
(10)
|
Material Contracts
|
10.1
|
Membership Purchase Agreement dated October 23,
2017 with Marian Washington and Michele Reillo (incorporated by reference
to exhibit 10.1 of our Current Report on Form 8-K filed November 2, 2017)
|
|
|
10.3
|
Management Services Agreement dated June 19,
2017 with Dr. Phil Ainslie (incorporated by reference to exhibit 10.3 of our Registration Statement on Form S-4 filed January 5, 2018)
|
10.4
|
Management Services Agreement
dated June 1, 2017 with M&E Services Ltd. (Spissinger) (incorporated by reference to exhibit 10.4 of our Registration Statement on Form S-4 filed January 5, 2018)
|
10.5
|
Marketing Agreement dated March 24, 2017 with
Dig Media Inc. (incorporated by reference to exhibit 10.5 of our Registration Statement on Form S-4 filed January 5, 2018)
|
10.6
|
Management Services Agreement
dated March 1, 2017 with Docherty Management Ltd. (incorporated by reference to exhibit 10.6 of our Registration Statement on Form S-4 filed January 5, 2018)
|
10.7
|
Collaborative Research Agreement dated February
6, 2017 with National Research Counsel (incorporated by reference to exhibit 10.7 of our Registration Statement on Form S-4 filed January 5, 2018)
|
10.8
|
Services Agreement dated
January 1, 2017 with Correlation Capital Inc. (incorporated by reference to exhibit 10.8 of our Registration Statement on Form S-4 filed January 5, 2018)
|
10.9
|
Joint Venture Agreement dated April 6, 2017
with NeutriSci International Inc. (incorporated by reference to exhibit 10.9 of our Registration Statement on Form S-4 filed January 5, 2018)
|
10.10
|
Management Services Agreement
dated December 1, 2016 with CAB Financial Services ltd. (incorporated by reference to exhibit 10.10 of our Registration Statement on Form S-4 filed January 5, 2018)
|
10.11
|
Private Label Agreement dated September 5, 2016
with Timeless Herbal Care Limited (incorporated by reference to exhibit 10.11 of our Registration Statement on Form S-4 filed January 5, 2018)
|
184
10.12
|
Intellectual Property License
Agreement dated September 3, 2016 with Timeless Herbal Care Limited
|
10.13
|
Private Placement Subscription
Agreement dated July 5, 2016 (incorporated by reference to exhibit 10.1 of
our Current Report on Form 8-K filed August 16, 2016)
|
10.14
|
Loan agreement dated July 25,
2016 with CAB Financial Services Ltd. (incorporated by reference to
exhibit 10.1 of our Current Report on Form 8-K filed July 26, 2016)
|
10.15
|
Form of subscription agreement
for Private Placement closed on June 6, 2016 (incorporated by reference to
exhibit 10.1 of our Current Report on Form 8-K filed June 8, 2016)
|
10.16
|
Form of warrant agreement dated
June 6, 2016(incorporated by reference to exhibit 10.2 of our Current
Report on Form 8-K filed June 8, 2016)
|
10.17
|
Form of Stock Option Agreement
(incorporated by reference to exhibit 10.3 of our Current Report on Form
8-K filed June 8, 2016)
|
10.18
|
Consulting Agreement dated June
3, 2016 with Frontier Merchant Capital Group (incorporated by reference to
exhibit 10.4 of our Current Report on Form 8-K filed June 8, 2016)
|
10.19
|
Licensing Agreement dated May
14, 2016 of Lexaria Bioscience Corp. (incorporated by reference to exhibit
10.1 of our Current Report on Form 8-K filed May 20, 2016)
|
10.20
|
License Agreement dated August
11, 2015 with PoViva Tea LLC (incorporated by reference to exhibit 10.1 of
Current Report on Form 8-K filed August 12, 2015)
|
10.21
|
Share Purchase Agreement dated
June 24, 2015 with Shaxon Enterprises Ltd. (incorporated by reference to
exhibit 10.1 of Current Report on Form 8-K filed June 26, 2015)
|
10.22
|
Letter of Intent dated June 10,
2014 with Shaxon Enterprises (incorporated by reference to exhibit 10.1 of
Current Report on Form 8-K filed June 12, 2015)
|
10.23
|
Form of Subscription Agreement
(1) for Private Placement closed on May 15, 2015 (incorporated by
reference to exhibit 10.1 of Current Report on Form 8-K filed May 5, 2015)
|
10.24
|
Form of Warrant Agreements (1)
dated May 15, 2015 incorporated by reference to exhibit 10.2 of Current
Report on Form 8-K filed May 5, 2015)
|
10.25
|
Form of Broker Warrant
Agreement (1) dated May 15, 2015 incorporated by reference to exhibit 10.3
of Current Report on Form 8-K filed May 5, 2015)
|
10.26
|
Consulting Agreement with
Docherty Management Limited dated March 26, 2015 (incorporated by
reference to exhibit 10.2 of Current Report on Form 8-K filed March 26,
2015)
|
10.27
|
Purchase and Sale Agreement
dated November 26, 2014 with Cloudstream Belmont Lake, LP (incorporated by
reference to exhibit 10.1 of our Current Report on Form 8-K filed December
1, 2014
)
|
185
10.28
|
Operating Agreement dated
November 11, 2014 with Poppys Teas LLC (incorporated by reference to
exhibit 10.1 of our Current Report on Form 8-K filed November 12, 2014)
|
10.29
|
Preliminary Lease Agreement and
Extension of LOI dated July 22, 2014 with Enertopia Corp., ff Paikin, and
1475714 Ontario Inc. ( incorporated by reference to exhibit 10.1 of our
Current Report on Form 8-K filed August 5, 2014)
|
10.30
|
Joint Venture Agreement dated
May 27, 2014 with Lexaria (incorporated by reference to exhibit 10.1 of
our Current Report on Form 8-K filed May 29, 2014)
|
10.31
|
Letter of Intent with Lexaria
Corp. dated May 26, 2014 ((incorporated by reference to exhibit 10.1 of
our Current Report on Form 8-K filed May 27, 2014)
|
10.32
|
Joint Venture Agreement dated
March 5, 2014 with Enertopia Corp. et al. (incorporated by reference to
exhibit 10.1 of our Current Report on Form 8-K filed March 5, 2014)
|
10.33
|
Amendment Agreements dated
November 22, 2017 with CAB Financial Services Ltd. et al. (incorporated by
reference to exhibit 10.1 of our Current Report on Form 8-K filed November
23, 2012)
|
10.34
|
Loan Agreement dated July 20,
2012 with Chris Bunka (incorporated by reference to exhibit 10.1 of our
Current Report on Form 8-K filed July 23, 2012)
|
10.35
|
Technology License Agreement dated January 25, 2018 with Cannfections Group Inc. (incorporated by reference to exhibit 10.1 of our Currrent Report on Form 8-K filed January 30, 2018)
|
10.36
|
Services Agreement with JGRNT Capital Corp dated January 17, 2018 (incorporated by reference to exhibit 10.1 of our Current Report on Form 8-K filed January 22, 2018)
|
(21)
|
Subsidiaries
|
21.1
|
Lexaria Canpharm Corp., a
Canadian federal company
|
21.2
|
Poviva Tea LLC, a Nevada
corporation
|
(23)
|
Consents of Experts and Counsel
|
23.1*
|
Consent of Macdonald Tuskey
(Included in Exhibit 5.1)
|
23.2*
|
Consent of Dale Matheson
Carr-Hilton Labonte LLP (Included in Exhibit 8.1 and Exhibit 8.2)
|
23.3*
|
Consent of Davidson &
Company LLP, Chartered Professional Accountants
|
23.4*
|
Consent of MNP LLP, Chartered
Accountants
|
*Filed herewith.
186
UNDERTAKINGS
The undersigned 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 of 1933;
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 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 Securities and Exchange Commission 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
any liability under the Securities Act of 1933, each such 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;
4. That, for the purpose of determining
liability under the Securities Act of 1933 to any purchaser, each prospectus
filed pursuant to Rule 424(b) as part of a registration statement relating to an
offering, other than registration statements relying on 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;
5. That prior to any public reoffering
of the securities registered hereunder through use of a prospectus which is a
part of this registration statement, by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c), the issuer undertakes that
such reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who may be
deemed underwriters, in addition to the information called for by the other
items of the applicable form;
6. That every prospectus (i) that is
filed pursuant to paragraph (5) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Securities Act of 1933 and is
used in connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such 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;
187
7. To respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of this registration statement through
the date of responding to the request; and
8. To supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this registration statement when it became effective.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 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 Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 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 of 1933 and will be governed by the final adjudication of such
issue.
188
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Kelowna,
Province of British Columbia, Canada, on March 1, 2018.
Lexaria Bioscience Corp.
By:
|
|
|
/s/ Chris
Bunka
|
Chris Bunka
|
Chief Executive Officer,Director, Chairman
|
(Principal Executive Officer)
|
Pursuant to the requirements of the Securities Act of 1933,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Chris Bunka
|
Chief Executive Officer,Director, Chairman
|
(Principal Executive Officer)
|
Date: March 1 , 2018
|
|
/s/ John
Docherty
|
John Docherty
|
President and Director
|
Date: March 1 , 2018
|
|
|
/s/Allan
Spissinger
|
Allan Spissinger
|
Chief Financial Officer
|
(Principal Financial Officer and Principal Accounting
Officer)
|
Date: March 1 , 2018
|
|
/s/Nicholas Baxter
|
Nicholas Baxter
|
Director
|
Date: March 1 , 2018
|
|
/s/Ted
McKechnie
|
Ted McKechnie
|
Director
|
Date: March 1 , 2018
|
189