Item 1. Financial Statements
LEXARIA BIOSCIENCE CORP.
|
CONSOLIDATED BALANCE SHEET
|
(Expressed in U.S. Dollars)
|
|
|
November 30
|
|
|
August 31
|
|
|
|
2019
|
|
|
2019
|
|
ASSETS
|
|
(UnAudited)
|
|
|
(Audited)
|
|
Current
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,333,321
|
|
|
$
|
1,285,147
|
|
Marketable Securities (Note 19)
|
|
|
22,640
|
|
|
|
64,214
|
|
Accounts receivable (Note 7)
|
|
|
325,901
|
|
|
|
273,145
|
|
Inventory (Note 8)
|
|
|
133,556
|
|
|
|
127,396
|
|
Prepaid expenses and deposit (Note 18)
|
|
|
96,067
|
|
|
|
68,927
|
|
Total Current Assets
|
|
|
1,911,485
|
|
|
|
1,818,829
|
|
|
|
|
|
|
|
|
|
|
Capital assets, net
|
|
|
|
|
|
|
|
|
Patent (Note 9)
|
|
|
269,416
|
|
|
|
265,127
|
|
Property & Equipment (Note 10)
|
|
|
565,172
|
|
|
|
591,263
|
|
|
|
|
834,588
|
|
|
|
856,390
|
|
TOTAL ASSETS
|
|
$
|
2,746,073
|
|
|
$
|
2,675,219
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities (Note 11)
|
|
$
|
93,029
|
|
|
$
|
136,411
|
|
Due to a related party (Note 15)
|
|
|
37,200
|
|
|
|
48,096
|
|
Total Current Liabilities
|
|
|
130,229
|
|
|
|
184,507
|
|
TOTAL LIABILITIES
|
|
|
130,229
|
|
|
|
184,507
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Share Capital (Note 12)
|
|
|
|
|
|
|
|
|
Authorized:
|
|
|
|
|
|
|
|
|
220,000,000 common voting shares with a par value of $0.001 per share Issued and outstanding: 80,610,879 common shares at November 30, 2019 and 78,787,134 common shares at August 31, 2019
|
|
|
80,611
|
|
|
|
78,787
|
|
Additional paid-in capital (Note 12, 13)
|
|
|
27,220,524
|
|
|
|
26,172,453
|
|
Deficit
|
|
|
(24,775,515
|
)
|
|
|
(23,868,202
|
)
|
Equity attributable to shareholders of the Company
|
|
|
2,525,620
|
|
|
|
2,383,038
|
|
Non-Controlling Interest
|
|
|
90,224
|
|
|
|
107,674
|
|
Total Stockholders' Equity
|
|
|
2,615,844
|
|
|
|
2,490,712
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
2,746,073
|
|
|
$
|
2,675,219
|
|
The accompanying notes are an integral party of these consolidated financial statements.
LEXARIA BIOSCIENCE CORP.
|
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
|
(Expressed in U.S. Dollars, except number of shares)
|
|
|
|
THREE MONTHS ENDED
|
|
|
|
|
November 30
|
|
|
November 30
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Revenue (Note 14)
|
|
|
$
|
62,082
|
|
|
$
|
22,209
|
|
Cost of Goods Sold
|
|
|
|
7,853
|
|
|
|
2,158
|
|
Gross profit
|
|
|
|
54,229
|
|
|
|
20,051
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Accounting and audit
|
|
|
|
19,036
|
|
|
|
9,572
|
|
Depreciation and Amortization (Note 8, 9, 10)
|
|
|
|
27,512
|
|
|
|
1,603
|
|
Advertising and promotions
|
|
|
|
46,268
|
|
|
|
171,913
|
|
Consulting (Notes 12, 13, 15)
|
|
|
|
483,796
|
|
|
|
242,991
|
|
Investor relations
|
|
|
|
17,515
|
|
|
|
-
|
|
Legal and professional
|
|
|
|
52,355
|
|
|
|
96,652
|
|
Office and miscellaneous
|
|
|
|
74,027
|
|
|
|
72,902
|
|
Research and development
|
|
|
|
107,463
|
|
|
|
96,973
|
|
Travel
|
|
|
|
21,853
|
|
|
|
19,206
|
|
Wages & Salaries
|
|
|
|
87,593
|
|
|
|
-
|
|
Unrealized Loss on marketable securities (Note 19)
|
|
|
|
41,574
|
|
|
|
9,630
|
|
|
|
|
|
978,992
|
|
|
|
721,442
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) and comprehensive loss for the period
|
|
|
$
|
(924,763
|
)
|
|
$
|
(701,391
|
)
|
Net (loss) and comprehensive loss attributable to:
|
|
|
|
|
|
|
|
|
|
Common Shareholders
|
|
|
$
|
(907,313
|
)
|
|
$
|
(701,391
|
)
|
Non-Controlling Interest
|
|
|
$
|
(17,450
|
)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (loss) per share
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
|
|
|
|
|
|
|
-Basic and diluted
|
|
|
|
79,097,349
|
|
|
|
76,226,802
|
|
The accompanying notes are an integral party of these consolidated financial statements.
LEXARIA BIOSCIENCE CORP.
|
CONSOLIDATED STATEMENT OF CASH FLOWS
|
(Expressed in U.S. Dollars)
|
|
|
THREE MONTHS ENDED
|
|
|
|
November 30
|
|
|
November 30
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Cash flows used in operating activities
|
|
|
|
|
|
|
Net loss and comprehensive loss
|
|
$
|
(924,763
|
)
|
|
$
|
(701,391
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Consulting - Stock based compensation
|
|
|
162,414
|
|
|
|
64,044
|
|
Depreciation and amortization
|
|
|
27,512
|
|
|
|
1,603
|
|
Unrealized loss on marketable securities
|
|
|
41,574
|
|
|
|
9,630
|
|
Warrants issued for services
|
|
|
70,752
|
|
|
|
-
|
|
Change in working capital
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
57,269
|
|
|
|
(5,365
|
)
|
Inventory
|
|
|
(6,160
|
)
|
|
|
(29,435
|
)
|
Prepaid expenses and deposits
|
|
|
(27,140
|
)
|
|
|
10,302
|
|
Accounts payable and accrued liabilities
|
|
|
(43,382
|
)
|
|
|
72,499
|
|
Due to related parties
|
|
|
(10,896
|
)
|
|
|
13,799
|
|
Net cash used in operating activities
|
|
$
|
(652,820
|
)
|
|
$
|
(564,314
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows used in investing activities
|
|
|
|
|
|
|
|
|
Patent
|
|
|
(5,710
|
)
|
|
|
(44,368
|
)
|
Property & Equipment
|
|
|
-
|
|
|
|
(122,832
|
)
|
Net cash used in investing activities
|
|
$
|
(5,710
|
)
|
|
$
|
(167,200
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from issuance of equity
|
|
|
706,704
|
|
|
|
1,649,190
|
|
Net cash from financing activities
|
|
$
|
706,704
|
|
|
$
|
1,649,190
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
|
48,174
|
|
|
|
917,676
|
|
Cash and cash equivalents, beginning of quarter
|
|
|
1,285,147
|
|
|
|
1,727,184
|
|
Cash and cash equivalents, end of quarter
|
|
$
|
1,333,321
|
|
|
$
|
2,644,860
|
|
|
|
|
|
|
|
|
|
|
Supplemental information of cash flows:
|
|
|
|
|
|
|
|
|
Income taxes paid in cash
|
|
$
|
957
|
|
|
$
|
-
|
|
Subscription Receivable
|
|
$
|
110,025
|
|
|
$
|
-
|
|
The accompanying notes are an integral part of these audited consolidated financial statements.
LEXARIA BIOSCIENCE CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Expressed in U.S. Dollars)
|
|
|
COMMON STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHARES
|
|
|
AMOUNT
$
|
|
|
ADDITIONAL
PAID-IN
CAPITAL $
|
|
|
DEFICIT
$
|
|
|
NCI
$
|
|
|
AOCI
$
|
|
|
STOCKHOLDERS’
EQUITY
$
|
|
Balance August 31, 2017
|
|
|
67,975761
|
|
|
|
67,976
|
|
|
|
16,108,270
|
|
|
|
(13,169,939
|
)
|
|
|
(238,476
|
)
|
|
|
-
|
|
|
|
2,767,831
|
|
Non-controlling interest
|
|
|
-
|
|
|
|
-
|
|
|
|
(318,820
|
)
|
|
|
-
|
|
|
|
248,820
|
|
|
|
-
|
|
|
|
(70,000
|
)
|
Shares issued for services
|
|
|
647,690
|
|
|
|
648
|
|
|
|
780,408
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
781,056
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
2,602,239
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,602,239
|
|
Warrants issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
1,063,270
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,063,270
|
|
Exercise of stock options
|
|
|
545,875
|
|
|
|
546
|
|
|
|
93,156
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
93,702
|
|
Exercise of warrants
|
|
|
6,364,145
|
|
|
|
6,363
|
|
|
|
1,767,159
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,773,522
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,598,843
|
)
|
|
|
(10,344
|
)
|
|
|
-
|
|
|
|
(6,609,187
|
)
|
Other comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(14,247
|
)
|
|
|
(14,247
|
)
|
Balance August 31, 2018
|
|
|
75,533,471
|
|
|
|
75,533
|
|
|
|
22,095,682
|
|
|
|
(19,768,782
|
)
|
|
|
-
|
|
|
|
(14,247
|
)
|
|
|
2,388,186
|
|
Shares issued for services
|
|
|
250,000
|
|
|
|
250
|
|
|
|
234,250
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
234,500
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
626,692
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
626,692
|
|
Warrants issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
52,817
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
52,817
|
|
Exercise of stock options
|
|
|
430,000
|
|
|
|
430
|
|
|
|
65,820
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
66,250
|
|
Exercise of warrants
|
|
|
1,626,513
|
|
|
|
1,627
|
|
|
|
794,496
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
796,123
|
|
Private Placement
|
|
|
947,150
|
|
|
|
947
|
|
|
|
1,469,363
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,470,310
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,099,420
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,099,420
|
)
|
Non-controlling interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(58,993
|
)
|
|
|
-
|
|
|
|
(58,993
|
)
|
Other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,247
|
|
|
|
14,247
|
|
Subsidiary Investment
|
|
|
-
|
|
|
|
-
|
|
|
|
833,333
|
|
|
|
-
|
|
|
|
166,667
|
|
|
|
-
|
|
|
|
1,000,000
|
|
Balance August 31, 2019
|
|
|
78,787,134
|
|
|
|
78,787
|
|
|
|
26,172,453
|
|
|
|
(23,868,202
|
)
|
|
|
107,674
|
|
|
|
-
|
|
|
|
2,490,712
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
162,414
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
162,414
|
|
Warrants issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
70,752
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
70,752
|
|
Private Placement
|
|
|
1,579,245
|
|
|
|
1,579
|
|
|
|
705,125
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
706,704
|
|
Subscription Receivable
|
|
|
244,500
|
|
|
|
245
|
|
|
|
109,780
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
110,025
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(907,313
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(907,313
|
)
|
Non-controlling interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(17,450
|
)
|
|
|
-
|
|
|
|
(17,450
|
)
|
Balance November 30, 2019
|
|
|
80,610,879
|
|
|
|
80,611
|
|
|
|
27,220,524
|
|
|
|
(24,775,515
|
)
|
|
|
90,224
|
|
|
|
-
|
|
|
|
2,615,844
|
|
The accompanying notes are an integral part of these audited consolidated financial statements.
LEXARIA BIOSCIENCE CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2019
(Expressed in U.S. Dollars)
1. Organization, Business and Going Concern
Lexaria Bioscience Corp. (“Lexaria”, or the “Company”) was formed on December 9, 2004 under the laws of the State of Nevada. In March of 2014, the Company began its entry into the bioscience and alternative health and wellness business and in May 2016, the Company commenced out-licensing its patented DehydraTECH™ technology (the “Technology”) for improved delivery of bioactive compounds that promotes healthy ingestion methods, lower overall dosing and higher effectiveness in active molecule delivery. The Company has its office in Kelowna, BC, Canada.
The Company’s unaudited interim consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with United States generally accepted accounting principles (US GAAP) have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of results for a full year.
These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated annual financial statements and notes thereto included in our annual report filed on Form 10-K for the year ended August 31, 2019.
The Company’s unaudited interim consolidated financial statements have been prepared in accordance with US GAAP applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The recurring losses from operations and net capital deficiency raise substantial doubt about the Company’s ability to continue as a going concern.
The Company requires additional funds or revenues to maintain its operations and developments. Management’s plans in this regard are to raise equity and debt financing as required, but there is no certainty that such financing will be available or that it will be available at acceptable terms. 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 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.
Lexaria and its subsidiaries are not involved directly or indirectly in the production or sale of any products containing nicotine. Products containing nicotine have historically been involved in litigation in the USA. Lexaria’s corporate licensee may introduce products containing nicotine that utilize Lexaria’s Technology to the US consumer market, which could therefore introduce third-party risks to Lexaria.
3. Significant Accounting Policies
The significant accounting policies of the Company are consistent with those of our audited financial statements on Form 10-K for the year ended August 31, 2019.
4. Basis of Consolidation
These consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries; Lexaria CanPharm ULC, PoViva Corp., Lexaria Hemp Corp., Kelowna Management Services Corp. and Lexaria Pharmaceutical Corp., and our 83.333% subsidiary Lexaria Nicotine LLC (16.667% Altria Ventures Inc., an indirect wholly owned subsidiary of Altria Group, Inc.). All significant intercompany balances and transactions have been eliminated.
5. Estimates and Judgments
The preparation of financial statements in conformity with U.S GAAP requires us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Some of the Company’s accounting policies require us to make subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. These accounting policies involve critical accounting estimates because they are particularly dependent on estimates and assumptions made by management about matters that are highly uncertain at the time the accounting estimates are made. Although we have used our best estimates based on facts and circumstances available to us at the time, different estimates reasonably could have been used. Changes in the accounting estimates used by the Company are reasonably likely to occur from time to time, which may have a material effect on the presentation of financial condition and results of operations.
The Company reviews these estimates, judgments and assumptions periodically and reflect the effects of revisions in the period in which they are deemed to be necessary. We believe that these estimates are reasonable; however, actual results could differ from these estimates.
In preparing these unaudited interim consolidated financial statements, the significant judgments made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements for the year ended August 31, 2019.
6. Recent Accounting Guidance
In February 2016 FASB issued ASU No. 201602, 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. In November 2019 FASB issued ASU No 201910 revised the effective date based on updated criteria with the effective date for fiscal years beginning after December 15, 2020. 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 broader range of reasonable and supportable information to inform credit loss estimates. For trade and other receivables, loans and other financial instruments, the Company will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable. Credit losses relating to available for sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. In November 2019 FASB issued ASU No 201910 revised the effective date based on updated criteria with the effective date for fiscal years beginning after December 15, 2022. Application of the amendments is through a cumulative effect adjustment to deficit as of the effective date. The Company is currently assessing the impact of the standard on its consolidated financial statements.
In February 2018, the FASB issued ASU No. 201802, Income Statement–Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act enacted by the U.S. federal government on December 22, 2017 (the “2017 Tax Act”). Consequently, the amendments eliminate the stranded tax effects resulting from the 2017 Tax Act and will improve the usefulness of information reported to financial statement users. The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period, (1) for public business entities for reporting periods for which financial statements have not yet been issued and (2) for all other entities for reporting periods for which financial statements have not yet been made available for issuance. The Company adopted the ASU on September 1, 2019 for a $NIL effect.
In June 2018, the FASB issued ASU No. 201807, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share Based Payment Accounting. This is a simplification that involves several aspects of accounting for nonemployee share-based payments resulting from expanding the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The Company adopted the ASU on September 1, 2019 for a $NIL effect.
7. Accounts and Other Receivables
|
|
November 30
|
|
|
August 31
|
|
|
|
2019
|
|
|
2019
|
|
|
|
$
|
|
|
$
|
|
Trade and deposits receivable
|
|
|
5,458
|
|
|
|
5,727
|
|
Territory license fee receivable
|
|
|
124,324
|
|
|
|
106,000
|
|
Sales tax receivable
|
|
|
86,094
|
|
|
|
161,418
|
|
Subscription receivable
|
|
|
110,025
|
|
|
|
-
|
|
|
|
|
325,901
|
|
|
|
273,145
|
|
8. Inventory
|
|
November 30
|
|
|
August 31
|
|
|
|
2019
|
|
|
2019
|
|
|
|
$
|
|
|
$
|
|
Raw materials
|
|
|
58,806
|
|
|
|
45,068
|
|
Finished goods
|
|
|
74,750
|
|
|
|
82,328
|
|
|
|
|
133,556
|
|
|
|
127,396
|
|
During the period ended November 30, 2019, the Company wrote down $NIL (2019 - $7,182) of inventory to reflect its net realisable value.
9. Intellectual Property
The following is a list of US capitalized patents held by the Company
Issued Patent #
|
Patent Issuance Date
|
Patent Family
|
US 9,474,725 B1
|
10/25/2016
|
Food and Beverage Compositions Infused With
Lipophilic Active Agents and Methods of Use Thereof
|
US 9,839,612 B2
|
12/12/2017
|
US 9,972,680 B2
|
05/15/2018
|
US 9,974,739 B2
|
05/22/2018
|
US 10,084,044 B2
|
09/25/2018
|
US 10,103,225 B2
|
10/16/2018
|
US 10,381,440
|
08/13/2019
|
US 10,374,036
|
08/06/2019
|
The Company also holds non-capitalized patents outside the US. A continuity schedule for capitalized patents is presented below:
|
|
November 30
|
|
|
August 31
|
|
|
|
2019
|
|
|
2019
|
|
|
|
$
|
|
|
$
|
|
Balance – beginning
|
|
|
265,127
|
|
|
|
146,538
|
|
Addition
|
|
|
5,710
|
|
|
|
122,982
|
|
Amortization*
|
|
|
(1,421
|
)
|
|
|
(4,393
|
)
|
Balance – ending
|
|
|
269,416
|
|
|
|
265,127
|
|
*The patents are amortized over their legal life of 20 years.
10. Property & Equipment
|
|
|
|
|
|
|
|
|
|
|
Net Balance
|
|
Year Ended August 31, 2019
|
|
Cost
|
|
|
Period
Amortization
|
|
|
Accumulated
Amortization
|
|
|
August 31,
2019
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Leasehold improvements
|
|
|
259,981
|
|
|
|
(33,342
|
)
|
|
|
(33,342
|
)
|
|
|
226,639
|
|
Computers
|
|
|
63,964
|
|
|
|
(12,187
|
)
|
|
|
(12,187
|
)
|
|
|
51,777
|
|
Furniture fixtures equipment
|
|
|
34,220
|
|
|
|
(4,205
|
)
|
|
|
(6,062
|
)
|
|
|
28,158
|
|
Lab equipment
|
|
|
291,235
|
|
|
|
(6,546
|
)
|
|
|
(6,546
|
)
|
|
|
284,689
|
|
|
|
|
649,400
|
|
|
|
(56,281
|
)
|
|
|
(58,137
|
)
|
|
|
591,263
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Balance
|
|
Quarter Ended November 30, 2019
|
|
Cost
|
|
|
Amortization
Period
|
|
|
Accumulated
Amortization
|
|
|
November 30,
2019
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Leasehold improvements
|
|
|
259,981
|
|
|
|
(12,740
|
)
|
|
|
(46,082
|
)
|
|
|
213,899
|
|
Computers
|
|
|
63,964
|
|
|
|
(4,920
|
)
|
|
|
(17,107
|
)
|
|
|
46,857
|
|
Furniture fixtures equipment
|
|
|
34,220
|
|
|
|
(1,759
|
)
|
|
|
(7,821
|
)
|
|
|
26,399
|
|
Lab equipment
|
|
|
291,235
|
|
|
|
(6,672
|
)
|
|
|
(13,218
|
)
|
|
|
278,017
|
|
|
|
|
649,400
|
|
|
|
(26,091
|
)
|
|
|
(84,228
|
)
|
|
|
565,172
|
|
11. Accounts Payable and Accrued Liabilities
|
|
November 30
|
|
|
August 31
|
|
|
|
2019
|
|
|
2019
|
|
|
|
$
|
|
|
$
|
|
Accounts Payable
|
|
|
|
|
|
|
Trades payable
|
|
|
89,254
|
|
|
|
31,463
|
|
Sales tax payable
|
|
|
-
|
|
|
|
63,616
|
|
Accrued Liabilities
|
|
|
|
|
|
|
|
|
Trades payable
|
|
|
3,775
|
|
|
|
41,332
|
|
Balance – Ending
|
|
|
93,029
|
|
|
|
136,411
|
|
12. Common Shares and Warrants
Fiscal 2020 Activity
During the period ended November 30, 2019 the Company closed, pursuant to two tranches, a non-brokered private placement for an aggregate total of 1,823,745 Units priced at $0.45 each. Each Unit consists of one common share and one Share purchase warrant. Each warrant shall entitle the holder to acquire one common share of the Company for a period of two years at a price of $0.80 per Share until the first anniversary of issuance for a period of 12 months, and thereafter at a price of $1.20 for an additional 12 months until November 13, 2021 until the second anniversary of issuance. The Company paid $3,937.50 and issued 8,750 broker warrants. The broker warrants have a term of 24 months and are each exercisable into one common share of the Company at a price of $0.80 per Share until the first anniversary of issuance, and thereafter at a price of $1.20 until the second anniversary of issuance. The fair value of these broker warrants was determined to be $1,850, which were recorded as a share issuance cost within additional paid in capital for a net effect of $Nil.
During the period ended November 30, 2019 the Company recognized $70,752 in consulting expense for warrants granted to a consultant on vesting.
A summary of share issuance relating to option and warrant exercises, agreement requirements and debt settlement is presented below:
Type of Issuance
|
|
Number of
Shares
|
|
|
Total
Value
|
|
Private placement
|
|
|
1,823,745
|
|
|
$
|
820,685
|
|
|
|
|
1,823,745
|
|
|
$
|
820,685
|
|
A continuity schedule for warrants is presented below:
|
|
Number of
Warrants
|
|
|
Weighted Average Exercise Price
$
|
|
Balance August 31, 2018
|
|
|
3,286,274
|
|
|
|
0.72
|
|
Cancelled/Expired
|
|
|
(17,498
|
)
|
|
|
0.59
|
|
Exercised
|
|
|
(1,626,513
|
)
|
|
|
0.49
|
|
Issued
|
|
|
1,183,062
|
|
|
|
1.99
|
|
Balance August 31, 2019
|
|
|
2,825,325
|
|
|
|
1.38
|
|
Issued
|
|
|
2,057,495
|
|
|
|
0.80
|
|
Balance November 30, 2019
|
|
|
4,882,820
|
|
|
|
1.14
|
|
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:
|
|
November 30
2019
|
|
Expected volatility
|
|
|
91
|
%
|
Risk-free interest rate
|
|
|
2.87
|
%
|
Expected life
|
|
|
2 years
|
|
Dividend yield
|
|
|
0.00
|
%
|
Estimated fair value per warrant
|
|
$
|
0.28-$0.43
|
|
A summary of warrants outstanding as of November 30, 2019 is presented below:
# of Warrants
|
|
Weighted Average Remaining
Contractual Life
|
|
Weighted Average
Exercise Price $
|
250,000
|
|
0.01 years
|
|
0.83
|
500,000
|
|
0.13 years
|
|
1.83
|
975,325
|
|
0.92 years
|
|
2.25
|
100,000
|
|
1.48 years
|
|
0.96
|
250,000
|
|
1.48 years
|
|
1.55
|
750,000
|
|
1.86 years
|
|
0.14
|
225,000
|
|
2.00 years
|
|
0.80
|
1,832,495
|
|
2.00 years
|
|
0.80
|
4,882,820
|
|
1.46 years
|
|
1.14
|
13. Stock Options
The Company has established its 2007 Equity Incentive Plan, whereby the board of directors may grant up to 412,500 stock options to eligible employees and directors, the 2010 Stock Option Plan whereby the board of directors may, from time to time, grant up to 1,512,500 stock options to officers and employees; the 2014 Stock Option Plan whereby the board of directors may, from time to time, grant up to 2,107,500 stock options to directors, officers, employees, and consultants; and the 2019 Equity Incentive Plan whereby the board of directors may, from time to time, grant up to 7,838,713 stock options to directors, officers, employees, and consultants. Stock options granted must be exercised no later than five years from the date of grant or such lesser period as determined by the Company’s board of directors. The exercise price of an option is equal to or greater than the closing market price of the Company’s common shares on the day preceding the date of grant. The vesting terms of each grant are set by the board of directors.
Fiscal 2020 Activity
The Company granted in the period ending November 30, 2019:
Quantity
|
|
Exercise Price $
|
|
Life (Years)
|
500,000(1)
|
|
0.55
|
|
5
|
500,000(2)
|
|
0.55
|
|
5
|
1,000,000
|
|
0.55
|
|
|
__________
(1) Options granted vest 50,000 on grant and the remainder based on contracted milestones
(2) Options granted vest 250,000 on grant and the remainder based on contracted milestones
A continuity schedule for stock options is presented below:
|
|
Options
|
|
|
Weighted
Average
Exercise Price
$
|
|
|
Weighted
Average
Remaining Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic Value
$
|
|
Balance August 31, 2018
|
|
|
4,800,000
|
|
|
|
0.71
|
|
|
|
|
|
|
|
Expired/cancelled
|
|
|
(1,415,000
|
)
|
|
|
0.66
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(430,000
|
)
|
|
|
0.15
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,048,000
|
|
|
|
1.00
|
|
|
|
|
|
|
|
|
|
Balance August 31, 2019
|
|
|
5,003,000
|
|
|
|
0.89
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,000,000
|
|
|
|
0.55
|
|
|
|
|
|
|
|
|
|
Balance November 30, 2019 (Outstanding)
|
|
|
6,003,000
|
|
|
|
0.84
|
|
|
|
3.41
|
|
|
|
931,800
|
|
Balance November 30, 2019 (Exercisable)
|
|
|
4,261,341
|
|
|
|
0.88
|
|
|
|
2.94
|
|
|
|
794,300
|
|
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:
|
|
November 30
2019
|
|
Expected volatility
|
|
|
96
|
%
|
Risk-free interest rate
|
|
|
1.66
|
%
|
Expected life
|
|
|
5 years
|
|
Dividend yield
|
|
|
0.00
|
%
|
Estimated fair value per option
|
|
$
|
0.39
|
|
14. Revenues
|
|
November 30
2019
$
|
|
|
November 30
2018
$
|
|
Product sales
|
|
|
10,015
|
|
|
|
2,257
|
|
Licensing revenue
|
|
|
51,750
|
|
|
|
19,902
|
|
Freight revenue
|
|
|
317
|
|
|
|
50
|
|
|
|
|
62,082
|
|
|
|
22,209
|
|
During the period ended November 30, 2019, the Company recognized $37,750 of Intellectual Property Licensing fees and $18,000 of Usage Fees (November 2018 - $Nil and $19,902). Licensing revenues are significantly concentrated on a single customer.
There was an increase in product sales in the current year compared to the previous years as the Company was able to solve some payment processing issues late in fiscal 2019, allowing for improved ability to conduct retail transactions. The Licensing fees consist of IP licensing fees for transfer of the Technology with the signing of definitive agreements for the DehydraTECH technology and usage fees. The Licensing fees include payments due upon transfer of the Technology and installment payments that are receivable within 12 months (Note 7).
15. Related Party Transactions
|
|
Nov 30
2019
Total
$
|
|
|
Nov 30
2018
Total
$
|
|
Management, consulting and accounting services
|
|
|
|
|
|
|
C.A.B Financial Services(1)
|
|
|
65,757
|
|
|
|
36,000
|
|
M&E Services Ltd.(1)
|
|
|
29,382
|
|
|
|
27,422
|
|
Docherty Management Limited(1)
|
|
|
56,730
|
|
|
|
34,278
|
|
Directors
|
|
|
16,717
|
|
|
|
-
|
|
|
|
|
168,586
|
|
|
|
97,700
|
|
(1) C.A.B. Financial Services is owned by the CEO of the Company, M&E Services Ltd. is owned by the CFO of the Company, and Docherty Management Limited is owned by the President of the Company.
Due to related parties:
As at November 30, 2019, $37,200 (August 31, 2019 - $48,096) 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.
16. Segment Information
The Company’s 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 one licensee.
|
|
IP Licensing
|
|
|
Consumer
Products
|
|
|
Corporate
|
|
|
Consolidated
Total
|
|
External revenue
|
|
$
|
51,750
|
|
|
$
|
10,332
|
|
|
$
|
-
|
|
|
$
|
62,082
|
|
CoGS
|
|
$
|
-
|
|
|
$
|
(7,853
|
)
|
|
$
|
-
|
|
|
$
|
(7,853
|
)
|
Operating expenses
|
|
$
|
(104,678
|
)
|
|
$
|
(42,020
|
)
|
|
$
|
(832,294
|
)
|
|
$
|
(978,992
|
)
|
Segment loss
|
|
$
|
(52,928
|
)
|
|
$
|
(39,541
|
)
|
|
$
|
(832,294
|
)
|
|
$
|
(924,763
|
)
|
Total assets
|
|
$
|
678,429
|
|
|
$
|
133,556
|
|
|
$
|
1,934,088
|
|
|
$
|
2,746,073
|
|
17. Commitments, Significant Contracts and Contingencies
Management and Service Agreements:
As at November 30, 2019, the Company is party to the following contractual commitments:
Party
|
|
Monthly Commitment
|
|
Expiry Date
|
C.A.B Financial Services
|
|
CAD $29,167
|
|
January 1, 2022
|
Docherty Management Ltd.
|
|
CAD $25,000
|
|
January 1, 2022
|
M&E Services Ltd.
|
|
CAD $12,960
|
|
June 1, 2021
|
Corporate development
|
|
CAD $1,000
|
|
Month to Month
|
Corporate development
|
|
CAD $8,000
|
|
Month to Month
|
Investor relations and communications – Alex Blanchard Capital
|
|
CAD $7,500
|
|
Month to Month
|
Office management
|
|
CAD $10,000
|
|
August 15, 2022
|
Research & development
|
|
CAD $3,854
|
|
Month to Month
|
Office rent(1)
|
|
CAD $4,823
|
|
November 15, 2023
|
Corporate Offices:
(1) Corporate office and R&D lab space leased in Kelowna, British Columbia, Canada until November 15, 2023 with an option to extend an additional five years.
18. Prepaid Expenses
Prepaid expenses consist of the following at November 30, 2019 and August 31, 2019:
|
|
November 30
2019
$
|
|
|
August 31
2019
$
|
|
Advertising & Conferences
|
|
|
54,587
|
|
|
|
39,143
|
|
Office & Insurance
|
|
|
41,480
|
|
|
|
29784
|
|
|
|
|
96,067
|
|
|
|
68,927
|
|
19. Marketable Securities
The components of Marketable Securities were as follows:
|
|
Cost Basis
$
|
|
|
Unrealized
Gains
$
|
|
|
Unrealized
Losses
$
|
|
|
Total
$
|
|
August 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
81,250
|
|
|
|
9,335
|
|
|
|
(12,124
|
)
|
|
|
|
Total
|
|
|
81,250
|
|
|
|
9,335
|
|
|
|
(26,973
|
)
|
|
|
63,612
|
|
November 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
81,250
|
|
|
|
9,335
|
|
|
|
(40,972
|
)
|
|
|
|
|
Total
|
|
|
81,250
|
|
|
|
9,335
|
|
|
|
(67,945
|
)
|
|
|
22,640
|
|
Unrealized losses from common stock are due to market price movements. Management does not believe any remaining unrealized losses represent other-than-temporary impairments based on our evaluation of available evidence.
20. Subsequent Events
a) Subsequent to November 30, 2019, 110,000 options were exercised for a total of $11,000.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Note Regarding Forward-Looking Statements
This quarterly report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not statements of historical fact may be forward-looking statements. These statements relate to future events or our future financial performance. Any forward-looking statements are based on our present beliefs and assumptions as well as the information currently available to us. In some cases, you can identify forward-looking statements by terminology such as "may", “will”, "should", “could”, “targets”, “goal”, "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors" set forth in Item 1(A) in our annual report on Form 10-K, as filed with the Securities and Exchange Commission on November 14, 2019, that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We caution you not to place undue reliance on any forward-looking statements as they speak only as of the date on which such statements were made, and we undertake no obligation to update any forward-looking statement or to reflect the occurrence of an unanticipated event. New factors may emerge and it is not possible to predict all factors that may affect our business and prospects. Further, management cannot assess the impact of each factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Our unaudited interim consolidated financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles (US GAAP). The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report.
In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars. All references to "C$" or "CDN$" refer to Canadian dollars and all references to "common shares" and "shares" refer to the common shares in our capital stock, unless otherwise indicated. The terms "Lexaria" "we", "us", "our" and "Company" mean Company and/or our subsidiaries, unless otherwise indicated.
Company and Business Overview
We are a bioscience intellectual property (IP) research, development and licensing company for our patented lipid nutrient infusion DehydraTECH™ technology (the “Technology”) and were incorporated in 2004 in Nevada. Our Technology improves delivery of bioactive compounds that promotes healthy ingestion methods, lower overall dosing and higher effectiveness in active molecule delivery.
The Company’s food sciences activities include the development of our proprietary nutrient infusion technologies for the production of functional foods, and the production of enhanced food products under our consumer product brands, ViPova™, Lexaria Energy™, TurboCBD™ and ChrgD+™. The Company’s Technology is believed to improve taste, rapidity and delivery of bioactive compounds that include cannabinoids, vitamins, Non-Steroidal Anti-Inflammatory Drugs (NSAIDs), nicotine and other molecules compared to what is possible without lipophilic enhancement technology. All of Lexaria’s consumer product goods are made with commonly available food grade ingredients and are sold through e-commerce platforms and fulfillment centers.
Lexaria hopes to reduce other common, but less healthy administration methods such as smoking, as industry segments embrace the benefits of our technology for public health. The Company is aggressively pursuing patent protection in national jurisdictions around the world and has more than 50 patent applications pending worldwide. Due to the complexity of pursuing patent protection, the quantity of patent applications will vary continuously as each application advances or stalls. Lexaria is also filing new patent applications for novel new discoveries that arise from the Company’s R&D programs and, due to the inherent unpredictability of scientific discovery, it is not possible to predict if or how often such new applications might be filed.
As at November 30, 2019, we have identified two reportable operating segments: Intellectual Property Licensing and Consumer Products.
Our Current Business
Our Company’s business plan is currently focused on the development of strategic partnerships with licensees for our patented Technology in exchange for up front and/or staged licensing fees over time. Secondarily and more generally, we continue to investigate national and international opportunities for development and distribution of the Company’s enhanced functional food and supplement product offerings; to investigate expansions and additions to our intellectual property portfolio; and to search for additional opportunities in alternative health sectors. This includes the acquisition or development of intellectual property if and when we believe it is advisable to do so.
Our current patent portfolio includes patent family grants relating to: Infused Food and Beverage Compositions and Methods of Use Thereof, pertaining to Lexaria’s method of improving bioavailability and taste, and the use of the Technology as a delivery platform for a wide variety of Active Pharmaceutical Ingredients (“APIs”) encompassing all cannabinoids including CBD and THC, fat soluble vitamins, non-steroidal anti-inflammatory pain medications (“NSAIDs”); and nicotine.
To date, the following patents have been awarded:
Issued Patent #
|
Patent Issuance Date
|
Patent Family
|
US 9,474,725 B1
|
10/25/2016
|
Food and Beverage Compositions Infused With
Lipophilic Active Agents and Methods of Use Thereof
|
US 9,839,612 B2
|
12/12/2017
|
US 9,972,680 B2
|
5/15/2018
|
US 9,974,739 B2
|
5/22/2018
|
US 10,084,044 B2
|
9/25/2018
|
US 10,103,225 B2
|
10/16/2017
|
US 10,381,440
|
8/13/19
|
US 10,374,036
|
8/06/19
|
AUS 2015274698
|
6/15/2017
|
AUS 2017203054
|
8/30/2018
|
AUS 2018202562
|
8/30/2018
|
AUS 2018202583
|
8/30/2018
|
AUS 2018202584
|
1/10/2019
|
AUS 2018220067
|
7/30/2019
|
AUS 2016367036
|
7/30/2019
|
Methods for Formulating Orally Ingestible Compositions Comprising Lipophilic Active Agents
|
AUS 2016367037
|
8/15/2019
|
Stable Ready-to-Drink Beverage Compositions Comprising Lipophilic Active Agents
|
We are seeking additional patent protection for what we believe to be a unique process for the nutritional delivery of certain molecules such as Cannabinoids, Nicotine, Non-Steroidal Anti-Inflammatory Drugs (NSAIDs), and Vitamins. To achieve sustainable and profitable growth, our Company intends to control the timing and costs of our projects wherever possible. We have filed for patent protection of our Technology for additional compounds such as phosphodiesterase inhibitors, human hormones such as estrogen and testosterone and more.
During the period ended November 30, 2019, and up to the date of this report, we experienced the following significant corporate developments:
The Company closed a non-brokered private placement of unregistered securities for a total of 1,823,745 Units priced at $0.45 each. Each Unit consists of one common share and one share purchase warrant. Each warrant shall entitle the holder to acquire one common share of the Company for a period of two years at a price of $0.80 per Share until the first anniversary of issuance, and thereafter at a price of $1.20 until the second anniversary of issuance. The Company paid $3,937.50 and issued 8,750 broker warrants. The broker warrants have a term of 24 months and are each exercisable into one common share of the Company at a price of $0.80 per Share until the first anniversary of issuance, and thereafter at a price of $1.20 until the second anniversary of issuance. The fair value of these broker warrants was determined to be $1,850, which were recorded as a share issuance cost within additional paid in capital for a net effect of $Nil.
The Units were issued pursuant to registration exemptions either by way of the investor being an accredited investor as evidenced by the completion of an accredited investor certification, pursuant to Regulation D, Rule 506 (b), or a person representing that he is not a US person or acting on behalf of a US Person, pursuant to Regulation S, Rule 903, who purchased the securities in an offshore transaction and will bear the required regulatory hold period legends.
Subsequent to November 30, 2019, 110,000 options were exercised for a total of $11,000.
Research and Development
Lexaria incurred $107,463 (2018 $96,973) in research and development expenditures during the period ending November 30, 2019. Specific R&D programs are in ongoing development and will be tightly related to our financial ability to undertake each research phase for each API. Due to our expanding portfolio coverage, we are continuing to examine accelerated timetable options for testing, research and development of each API.
The Company’s plans to include in vitro absorption tests of our patented technology of molecules such as: Vitamin E, Ibuprofen, and Nicotine allowed us to perform testing on Nicotine with positive results. Our plan to conduct our first ever in vivo absorption tests on CBD also yielded positive results. Ongoing testing plans are proceeding to further define molecular compatibility, absorption rates, timing and viable formats of delivery.
The Company continually focuses on new R&D programs to investigate the potential of additional commercial applications for its technology. These include, but are not limited to ongoing programs to explore methods to integrate nanoemulsification chemistry techniques together with its technology and to further enhance intestinal bioabsorption rates with its technology, as well as ongoing programs to expand the types and breadth of product form factors into which its technology can be applied. Depending on how many of these tests are undertaken, R&D budgets are expected to vary significantly. It is in our best interests to remain flexible at this early stage of our R&D efforts in order to capitalize on potential novel findings from early-stage tests and thus re-direct research into specific avenues that offer the most reward.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Critical Accounting Estimates
Our consolidated financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles used in the United States (US GAAP). Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financials.
Capital Assets
Capital assets are stated at cost less accumulated depreciation and depreciated using the straight-line method over their useful lives or by units of production.
Patents
Capitalized patent costs represent legal costs incurred to establish patents. When patents reach a mature stage, any associated legal costs are comprised mostly of maintenance fees and are expensed as incurred. Capitalized patent costs are amortized on a straight-line basis over the remaining life of the patent.
Revenue Recognition
Product Revenue
Revenue from the sale of alternative health products is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured, which typically occurs upon shipment. The Company reports its sales net of the amount of actual sales returns. Sales tax collected from customers is excluded from net sales.
Licensing Revenue from Intellectual Property
We recognize revenue for license fees at a point in time following the transfer of our intellectual property, our patented lipid nutrient infusion technology DehydraTECH for infusing APIs, to the licensee, which typically occurs on delivery of documentation.
Usage Fees from Intellectual Property
We recognize revenue for usage fees when usage of our DehydraTECH intellectual property occurs by licensees infusing an API into one or more of their product lines for sale.
Going Concern
We have suffered recurring losses from operations. The continuation of our Company as a going concern is dependent upon our Company attaining and maintaining profitable operations and/or raising additional capital. The financial statements do not include any adjustment relating to the recovery and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should our Company discontinue operations. The recurring losses from operations and net capital deficiency raise substantial doubt about the Company’s ability to continue as a going concern.
Results of Operations for our Period Ended November 30, 2019 and November 30, 2018
Our net loss and comprehensive loss and the changes between those periods for the respective items are summarized as follows:
|
|
PERIOD ENDED
|
|
|
PERIOD ENDED
|
|
|
|
|
|
|
November 30
|
|
|
November 30
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Change
|
|
Revenue
|
|
$
|
62,082
|
|
|
$
|
22,209
|
|
|
$
|
39,873
|
|
General and administrative
|
|
|
978,992
|
|
|
|
721,442
|
|
|
|
257,550
|
|
Consulting fees & Employees
|
|
|
571,389
|
|
|
|
242,991
|
|
|
|
328,398
|
|
Legal and professional
|
|
|
52,355
|
|
|
|
96,652
|
|
|
|
(44,297
|
)
|
Net Loss
|
|
$
|
(924,763
|
)
|
|
$
|
(701,391
|
)
|
|
$
|
(223,372
|
)
|
Revenue
Licensing revenues of $51,750 represent the majority of revenues during the period ended November 30, 2019 and reflect delays in usage fee revenues from existing licensees in Canada waiting for product approval from Health Canada on products, and other licensees initiating or ramping up their production. Licensing revenue was primarily based on expanded licence agreements entered into recognising the IP Territory Licensing fee, and existing licenses generating usage fees. Increasing ongoing usage fees are expected as licensees begin or ramp up products or when contracted minimum requirements become due.
Increases in revenues are expected during the 2020 calendar year.
Our licensing revenues consist of IP licensing fees for the transfer of the Technology at the signing of definitive agreements for the Technology. The additional licensing fees include payments due upon transfer of the Technology and installment payments that are receivable within 12 months (Note 7).
During the period ended November 30, 2019, our revenues were derived within the following categories: $51,750 (November 2018 $19,902) of intellectual property licensing revenue and $10,332 (2018 $2,307) in product and other revenues.
General and Administrative
Our general and administrative expenses increased by $223,372 during the period ended November 30, 2019. The increase was primarily due to non-cash expenses related to valuation of grants for service and share-based payments required by contracts totaling $233,166, but also reflect contracts entered into during fiscal 2019. Increases included the new staff members as of January 2019, amortization of equipment and unrealized losses on marketable securities. Offsetting reductions included reduced advertising and patent filing costs.
Interest Expense
Interest expense for the period ended November 30, 2019 was $Nil (2018 $Nil). The Company has no debt at this time other than month-to-month receivables.
Consulting fees
Our consulting fees increased by $242,991, almost entirely due to the non-cash share-based payments for services of $233,166 but also reflect the contracts entered into with officers in fiscal 2019 and business development contracts.
Legal and Professional Fees
Our professional fees decreased by $44,297 during the period primarily due to reduced patent and trademark filings, and fewer other advisory services utilized during the period. We recognize certain legal fees, tax advice fees, and accounting services all as “Professional Fees.”
Liquidity and Financial Condition
Working Capital
|
|
November 30
2019
|
|
|
August 31
2019
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
1,911,485
|
|
|
$
|
1,818,829
|
|
Current liabilities
|
|
$
|
(130,229
|
)
|
|
$
|
(184,507
|
)
|
Net Working Capital
|
|
$
|
1,781,256
|
|
|
$
|
1,634,322
|
|
The Company’s working capital balance decrease during the year was limited due to exercises of outstanding options and warrants and the private placement (Note 12) completed during the year. The Company maintained a positive and relatively strong working capital position throughout the period.
|
|
November 30
|
|
|
November 30
|
|
Cash Flows
|
|
2019
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
Cash flows (used in) provided by operating activities
|
|
$
|
(762,845
|
)
|
|
$
|
(564,314
|
)
|
Cash flows (used in) provided by investing activities
|
|
$
|
(5,710
|
)
|
|
$
|
(167,200
|
)
|
Cash flows provided by financing activities
|
|
$
|
816,729
|
|
|
$
|
1,649,190
|
|
Decrease in cash
|
|
$
|
48,174
|
|
|
$
|
917,676
|
|
Operating Activities
Net cash used in operating activities was $762,845 for the period compared with cash used in operating activities of $564,314 during the same period in 2018. This difference was largely due to the increased costs pertaining to consulting and staff wages.
Investing Activities
Net cash used in investing activities was $5,710 (2018 $167,200) for the period due to the Company having incurred significant capital asset acquisition costs during fiscal 2019 and the patent and trademark filings in period relating to maintaining our portfolio.
Financing Activities
Net cash provided from financing activities was $706,704 during the period ended November 30, 2019 compared to net cash provided of $1,649,190 during the same period in 2018.
Liquidity and Capital Resources
We have accumulated a large deficit since inception that has primarily resulted from executing our business plan including research and development expenditures we have made in seeking to identify and develop our intellectual property patents for licensing and product creation. We expect to continue to incur losses for at least the short term.
To date, we have obtained cash and funded our operations primarily through equity financings and limited amounts from revenue generation while our licensees ramp up production and expansions. We expect to continue to evaluate various funding alternatives on an ongoing basis as needed to maintain operations, to continue our research programs and to expand our patent portfolio. If we determine it is advisable to raise additional funds, there is no assurance that adequate funding will be available to us or, if available, that such funding will be available on terms that we or our stockholders view as favorable.
Short Term Liquidity
At November 30, 2019 we had $1.3 million in cash and cash equivalents. We believe our cash resources are sufficient to allow us to continue operations for at least the next six months from the date of this Quarterly Report.
Long Term Liquidity
It will require substantial cash to achieve our objectives for developing and patenting our intellectual property across all applicable market and industry segments. This process typically takes many years and potentially millions of dollars for each segment. We will need to obtain significant funding from existing or new relationships, such as our research program with the Altria Group, increasing revenue streams or from other sources of liquidity such as the sale of equity, issuance of debt or other transactions.
The exact requirements will vary depending on the results of research programs and the requirements of each industry segment that we pursue. Pursuit of each segment will be prosecuted or curtailed based on available sources of cash with which to execute individual segment business plans. The requirements will also be affected by transactions with existing or new relationships and the depth of regulatory requirements in each segment for compliance required to approve our IP, to market and license it. These changes to requirements and transactions may impact our liquidity as well as affect our expenses if, for example, regulatory requirements necessitated additional testing incurring additional research time and costs and potentially delaying licensing our IP for a segment.