Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Note Regarding Forward-Looking Statements
This quarterly report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not statements of historical fact may be forward-looking statements. These statements relate to future events or our future financial performance. Any forward-looking statements are based on our present beliefs and assumptions as well as the information currently available to us. In some cases, forward-looking statements are identified by terminology such as "may", “will”, "should", “could”, “targets”, “goal”, "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors" set forth in Item 1(A) in our annual report on Form 10-K, as filed with the Securities and Exchange Commission on October 14, 2020, that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We caution you not to place undue reliance on any forward-looking statements as they speak only as of the date on which such statements were made, and we undertake no obligation to update any forward-looking statement or to reflect the occurrence of an unanticipated event. New factors may emerge and it is not possible to predict all factors that may affect our business and prospects. Further, management cannot assess the impact of each factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Our unaudited interim consolidated financial statements are stated in United States Dollars (“US$”) and are prepared in accordance with United States Generally Accepted Accounting Principles (“US GAAP”). The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report.
In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars. All references to "C$" or "CDN$" refer to Canadian dollars and all references to "common shares" and "shares" refer to the common shares in our capital stock, unless otherwise indicated. The terms "Lexaria" "we", "us", "our" and "Company" mean Company and/or our subsidiaries, unless otherwise indicated.
Company and Business Overview
We are a biotechnology R&D company incorporated in 2004 in Nevada and focused on developing and out licensing our patented DehydraTECH™ Technology. DehydraTECH improves delivery orally and topically of active ingredients and drugs. The Company is focusing its capital and management time on its pursuit of intellectual property, technology licensing opportunities, and an expanding portfolio of patent pending applications.
The Company developed a variety of demonstration products throughout 2015 to demonstrate the potential uses for DehydraTECH to both consumers and potential licensees. The Company subsequently developed additional demonstration products including powder filled capsules and mix and serve powders for beverage incorporation also utilizing DehydraTECH for the more palatable and efficient delivery of bioactive molecules. The Company gained extensive experience and knowledge from the formulation and production of these demonstration products that facilitates assisting our licensees with the integration of DehydraTECH in their products.
In the manufacturing of our intermediate ingredients for Consumer Packaged Goods (“CPG”) companies to use, each raw material, intermediate stage and completed product is assessed for compliance with all applicable regulations. The inputs and the finished ingredients meet all applicable legal and quality standards including and as it relates to content; molds and mildews; heavy metals; and other additional components.
Lexaria hopes to reduce other common but less healthy administration methods, such as smoking, as manufacturers embrace the benefits of DehydraTECH for public health. The Company is aggressively pursuing patent protection in national jurisdictions around the world. The Company currently has more than 60 patent applications pending worldwide and, due to the complexity of pursuing patent protection, the quantity of patent applications will vary continuously as each application advances or stalls. Lexaria is also filing new patent applications for new discoveries that arise from the Company’s R&D programs and, due to the inherent unpredictability of scientific discovery, it is not possible to predict if or how often such new applications might be filed.
As at February 28, 2021, we have identified two reportable operating segments: Intellectual Property and Products.
The following discussion should be read in conjunction with our condensed financial statements and accompanying notes in this quarterly report on Form 10-Q, our audited financial statements with notes in our annual report on Form 10-K for the year ended August 31, 2020.
Our Current Business
Our business plan is currently focused on the development of strategic partnerships with licensees for our patented DehydraTECH technology in exchange for up front and/or staged licensing fees and/or royalty payments over time. We continue to investigate national and international opportunities to investigate expansions and additions to our intellectual property portfolio. We plan to perform additional human clinical investigations in 2021 related to enhanced DehyraTECH formulations of cannabidiol in pre- and mildly-hypertensive middle-aged subjects to gather additional information on blood pressure reduction potential. The Company also plans to conduct during calendar 2021 evaluations of DehydraTECH’s ability to improve the oral delivery characteristics and pharmacological performance of certain anti-viral drugs. We will continue to seek beneficial acquisitions of intellectual property if and when we believe it is advisable to do so.
Our current patent portfolio includes patent family applications or grants pertaining to our method of improving bioavailability and taste, and the use of DehydraTECH as a delivery platform for a wide variety of Active Pharmaceutical Ingredients (“APIs”) including, but not limited to, fat soluble vitamins; NSAIDs pain medications; and nicotine and its analogs.
The Company hopes to reduce common but less healthy administration methods, such as smoking cigarettes as a delivery method for nicotine, by way of enabling development of safer and effective oral nicotine dosage forms through licensing arrangements with major tobacco companies. The Company is aggressively pursuing patent protection in jurisdictions around the world. The Company currently has over 50 patent applications pending worldwide, with 18 patents granted to date. Due to the complexity of pursuing patent protection, the quantity of patent applications will vary continuously as each application advances or stalls. The Company is also filing new patent applications for new discoveries that arise from the Company’s R&D programs and, due to the inherent unpredictability of scientific discovery, it is not possible to predict if or how often such new applications might be filed.
To date, the following patents have been awarded in the United States, Australia and Europe:
Issued Patent #
|
Patent Certificate Grant Date
|
Patent Family
|
US 9,474,725 B1
|
10/25/2016
|
Food and Beverage Compositions Infused With
Lipophilic Active Agents and Methods of Use Thereof
|
US 9,839,612 B2
|
12/12/2017
|
US 9,972,680 B2
|
05/15/2018
|
US 9,974,739 B2
|
05/22/2018
|
US 10,084,044 B2
|
09/25/2018
|
US 10,103,225 B2
|
10/16/2018
|
US 10,381,440
|
08/13/2019
|
US 10,374,036
|
08/06/2019
|
US 10,756,180
|
08/25/2020
|
AUS 2015274698
|
06/15/2017
|
AUS 2017203054
|
08/30/2018
|
AUS 2018202562
|
08/30/2018
|
AUS 2018202583
|
08/30/2018
|
AUS 2018202584
|
01/10/2019
|
AUS 2018220067
|
07/30/2019
|
EP 3164141
|
11/11/2020
|
AUS 2016367036
|
07/30/2019
|
Methods for Formulating Orally Ingestible Compositions Comprising Lipophilic Active Agents
|
AUS 2016367037
|
08/15/2019
|
Stable Ready-to-Drink Beverage Compositions Comprising Lipophilic Active Agents
|
We are seeking additional patent protection for what we believe to be a unique process for oral delivery of certain molecules such as Cannabinoids, Nicotine, NSAIDs, and Vitamins. To achieve sustainable and profitable growth, our Company intends to control the timing and costs of our projects wherever possible. We have filed for patent protection of DehydraTECH for additional compounds such as phosphodiesterase inhibitors, human hormones such as estrogen and testosterone, antivirals and more. We are investigating other compounds and molecules for potential patent protection pursuit.
During the quarter ended February 28, 2021, and up to the date of this report, we experienced the following significant corporate developments:
On December 2, 2020, the Company announced that its DehydraTECH technology significantly improved delivery in study animals of representative drugs from two classes of antiviral therapies (a Protease Inhibitor and a Reverse Transcriptase Inhibitor) under investigation against SARS-CoV-2/COVID-19 and already in use against HIV/AIDS. The study animals were not infected with or treated for any diseases. These are the first two of a series of antiviral drugs to be tested using Lexaria’s DehydraTECH technology.
Drug
|
Drug Class
|
AUClast* Delivery &
Improvement
(hr∙ng/mL)
|
Control
(hr∙ng/mL)
|
AUC∞** Delivery &
Improvement
(hr∙ng/mL)
|
Control
(hr∙ng/mL)
|
Darunavir
|
Protease Inhibitor
|
721 ± 332
54%
(p=0.036)
|
469 ± 252
|
726 ± 211
35%
(p=0.062)
|
536 ± 223
|
Efavirenz
|
Non-nucleoside Reverse Transcriptase Inhibitor
|
752 ± 203
16%
(p=0.11)
|
650 ± 148
|
1072 ±40
42%
(p=0.028)
|
757 ±103
|
On February 11, 2021, the Company announced the addition of two new human clinical studies to its hypertension research and development program. The first study, HYPER-H21-2 has been added to the Lexaria hypertension program due to the increasing importance that this work could have on Company’s commercial prospects. The results of this study will contribute to the understanding of the effectiveness of patented DehydraTECH-processed CBD as a potential novel anti-hypertensive agent through the course of a full day of monitoring, which is expected to be complementary to the shorter-term monitoring in its previously announced HYPER-H21-1 study. The second study, HYPER-H21-3 is also a double-blinded, placebo controlled, randomized human clinical study that has been added to the Company’s hypertension program to complement the data set the Company intends to build. Data from this study may demonstrate utility of DehydraTECH-CBD for blood pressure reduction in circumstances where pulmonary edema/hypertension results as occurs, for instance, when people travel to high altitude regions of the world.
Reverse Stock Split
On June 23, 2020, our stockholders approved a reverse stock split within the range of 1-for-2 to 1-for-30 of our issued and outstanding shares of common stock and authorized the Board, in its discretion, to determine the final ratio, effective date, and date of filing of the certificate of amendment to our articles of incorporation in connection with the reverse stock split.
On January 11, 2021, the Company filed an amendment and restatement of its articles of incorporation, effective 4:30 P.M. Eastern time, to effectuate a 1-for-30 reverse split of the issued and outstanding shares of common stock of the Company. The purpose of the reverse stock split was to meet Nasdaq’s minimum stock price requirement. The reverse stock split did not change the number of authorized shares of common stock, which remains at 220,000,000 shares.
Amendment to Bylaws
Effective January 12, 2021, the Company amended its amended and restated bylaws to increase the quorum for holding shareholder meetings from 10% to 33 1/3% of shares issued.
Public Offering and Listing on Nasdaq
On January 12, 2021, the Company conducted an underwritten public offering (the “Offering”) of 1,828,571 shares (the “Initial Shares”) of the Company’s common stock, par value $0.001 per share, at a public offering price of $5.25 per share, less underwriting discounts and commissions. Each Initial Share was sold with one five-year warrant (each an “Initial Warrant”) to purchase one share of common stock at an exercise price of $6.58. On January 13, 2021, the representative of the underwriters for the Offering exercised its over-allotment option to purchase an additional 274,285 shares of common stock (the “Option Shares” and, together with the Initial Shares, the “Shares”) at a public offering price of $5.25 per share, less underwriting discounts and commissions. Each Option Share was sold with one five-year warrant (each an “Option Warrant”) to purchase one share of common stock at an exercise price of $6.58. The Initial Warrants and Option Warrants are immediately exercisable. The Offering closed on January 14, 2021.
The Company agreed to pay the underwriters an underwriting discount equal to 8% of the gross proceeds of the offering and a management fee equal to 1% of the gross proceeds of the offering, reimbursement for a non-accountable expense allowance of $50,000, up to $100,000 in legal fees and up to $12,900 for clearing expenses. Additionally, as partial compensation for the underwriter’s services as underwriter in the Offering, the Company also issued to the underwriter five-year warrants (the “Representative Warrants” and together with the Initial Warrants and Option Warrants, the “Warrants”) to purchase 166,781 shares of common stock with an exercise price of $6.58 per share.
The net proceeds to the Company from the Offering, including proceeds received upon exercise of the over-allotment option and after deducting the underwriting discount and the underwriters’ fees and expenses, were approximately $9,629,490. The Company plans to use approximately $3,700,000 of the net proceeds for research and development studies and the patent and legal costs associated thereto, with the remaining net proceeds to be used for general working capital purposes.
Effective as of the opening of market trading on January 12, 2021, the Company’s common stock and the Warrants began trading on the Nasdaq Capital Market under the symbols LEXX and LEXXW, respectively.
The Shares and Warrants were offered by the Company pursuant to a registration statement on Form S-1, as amended (File No. 333-250326), filed with the Securities and Exchange Commission (the “Commission”), which was declared effective by the Commission on January 11, 2021, and a registration statement on Form S-1 (File No. 333-252031) filed with the Commission on January 11, 2021 pursuant to Rule 462(b) and immediately declared effective.
Because certain investors in the Company’s May 2020 financing participated in the Offering, the Company paid 8% of the gross proceeds received from these investors in the Offering to the placement agent for the May 2020 financing and issued to the placement agent restricted warrants to purchase shares of common stock equal to 8% of the shares issued to those investors in the Offering.
Asset Sale
On December 10, 2020 the Company announced that it closed the sale of its non-pharmaceutical THC-related assets (“the Assets”) held within Lexaria Canpharm ULC to Hill Street Beverage Company Inc. Lexaria received C$350,000 in cash, 6,031,363 restricted common shares of Hill Street at a deemed price of C$0.0829 per share as the first required equity-based payment, a promissory note having a principal amount of C$2,000,000 and bearing interest at the rate of 10% per annum, and a limited license to use the DehydraTECH technology outside of Canada and the US for certain non-pharmaceutical, therapeutic and medicinal products that contain 0.3% or greater THC which are not classified by a national regulator as drug, pharmaceutical or biopharmaceutical product. Pursuant to the terms of the transaction, Lexaria will receive another C$1,000,000 worth of common shares of Hill Street over a period sixteen months in C$500,000 issuances eight months and sixteen months after the closing date.
Impact of COVID-19
The emergence of COVID-19 beginning in January of 2020, now in over 220 countries and territories around the world, presents significant and unforecastable new risks to the Company and its business plan. Restrictions on national and international travel, and required business closures, have made it increasingly difficult to carry out normal business activities related to corporate finance efforts, to the pursuit of new customers, and to retail customers throughout North America who might otherwise access the products of our business partners and licensees. As a result, the COVID-19 pandemic will almost certainly increase risks of lower revenues and higher losses. We are monitoring our licensees and are working with them, where possible, to prevent default and contract terminations. In some cases, we have issued termination of contract notices in accordance to provisions within our contracts.
As a result of COVID-19, the Company is encountering significant challenges in executing its business plan and normal business operations and does not have sufficient resources to withstand a protracted term during which most business activities are curtailed. In addition, we have implemented cost containment initiatives to reduce operating expenses and preserve cash such as the dismissal of one employee, termination of contracts with two consultants and reduction of compensation payable to certain other consultants. The Company currently has six (6) employees and/or independent contractors who dedicate all or a majority of their time to the business of the Company and eight (8) consultants. We may need to dismiss additional employees or terminate services contracts to preserve resources. We have not had to close operations or locations as our contractors and staff can work remotely and our third-party facilities continue to operate. To date, we have not directly had to quarantine contractors or staff, however we have implemented additional safety precautions and measures for their protection. Due to our historic and current geographic diversity of our contractors and employees, we have long established and ongoing experience in remote work and collaboration. Our procedures and controls have been built over time to address remote working requirements.
We have not experienced any significant impacts on our material supply chains but have noted increased timelines from some third-party research facilities regarding their ability to conduct research and testing. To date, this has not significantly impacted our R&D programs, but we cannot predict whether our R&D programs will be impacted in the future.
The Company is simultaneously investigating emerging opportunities related to the COVID-19 crisis in relation to its patented DehydraTECH technology that has been tested for its superior delivery of other compounds and drugs, and whether any of these characteristics might be applicable to compounds or drugs used to treat symptoms caused by the Coronavirus. It is unknown at this time whether there is any such applicability.
On March 19, 2020 the Company announced that it intended to commence a program to conduct tests to research the benefits of DehydraTECH in connection with enhancing the delivery of certain antiviral drugs.
The tests are intended to include a pilot human pharmacokinetic exploratory study in healthy volunteers of two antiviral drugs that had previously been studied against other coronavirus strains, comparing DehydraTECH formulations to controls without DehydraTECH. The Company intends to conduct the study at a leading Canadian university where a study design and plan was submitted and ethics board approval was received. The study is subject to further government regulatory approval. The Company is currently in the process of pursuing the necessary steps to file for study approval from Canadian federal regulators.
In parallel, the Company launched a separate rodent antiviral study to evaluate pharmacokinetic benefits from the use of DehydraTECH in the delivery of representative drugs from two classes of antiviral drugs under investigation for treatment of COVID-19. The results of that animal study were released on December 1, 2020 whereby the DehydraTECH enhanced antiviral drug formulations demonstrated increased delivery effectiveness of the antiviral drugs into the bloodstream of the animals. The results of this animal study have encouraged the Company to conduct expanded investigations into antiviral drug delivery enhancement, with such investigations including remdesivir (a nucleotide reverse transcriptase inhibitor); as well as three additional drugs known to target the main protease associated with SARS-CoV-2 infection. The Company intends to make its research results available to researchers throughout the world looking to maximize the effectiveness of their own drug investigations. The Company’s business model relies on performing early stage studies like these to help support its efforts to form commercial relationships with more established companies.
The Company continues to monitor governmental programs being released to assist with the COVID-19 pandemic. To date, we have received a CDN$40,000 Canada Emergency Business Account (“CEBA”) for our subsidiary Kelowna Management Services Corp. This required CDN$30,000 portion of the loan was repaid during February 2021 and we are waiting confirmation for the CDN$10,000 forgivable portion of the loan from the Canadian government. We have also received $30,732 (CDN$42,076) from the Canada Emergency Wage Subsidy (“CEWS”) program for the employees in our subsidiary KMSC that reduced costs therein.
Subsequent to February 28, 2021
On March 15, 2021, the Company announced progress studies focused on the performance of DehydraTECH CBD as a treatment for hypertension.
|
·
|
The HYPER-A21-1 study dosing is complete and sample analysis is underway in this animal study. No observed behavioural tolerability issues were noted during or after dosing with results expected in the first half of May. This study is evaluating the rate of absorption and speed with which various new enhanced DehydraTECH experimental formulations deliver CBD to the bloodstream and brain.
|
|
·
|
The HYPER-A21-2 study dosing is expected to be completed in this animal study by March 30, with results expected in the first half of June. This study is also evaluating the rate of absorption and speed with which additional enhanced DehydraTECH formulations deliver CBD to the bloodstream and brain.
|
|
·
|
The HYPER-H21-1 study has received regulatory importation clearance for the clinical test articles for this human study which have arrived at the European research site. The volunteer human dosing is targeted for completion by May and final reporting on this study is expected in early September. This study examines time series blood pressure and heart rate analyses. Secondary objectives include speed and rate of absorption of the CBD and its main metabolites (pharmacokinetics or “PK” assessments), as well as evaluation of inflammatory markers associated with cardiovascular disease and gold-standard biomarkers of nitric oxide.
|
|
·
|
The HYPER-H21-2 study has received formal hospital and ethics board approval and test articles have been sent. Results are anticipated to be reported in late September. The primary objectives of this study are blood pressure and heart rate evaluation, while the secondary objectives include central arterial stiffness, physical activity and sleep quality.
|
|
·
|
The HYPER-H21-3 study has received formal hospital and ethics board approval and test articles have been sent. The primary objective of this study is to evaluate the effect of DehydraTECH CBD on pulmonary vascular function in normotensive individuals exposed to hypoxia. The magnitude of HPV, blood pressure, heart rate, blood samples and pulmonary gas exchange. Details will be furnished at a future date on the likely timing of reporting from this study once recruitment has begun.
|
On March 16, 2021, the Company announced progress in two of its antiviral drug studies in its 2021 applied research and development (R&D) program, comprised of one SARS-CoV-2 infected human cell culture study (VIRAL-C21-3) and one animal research pharmacokinetic study (VIRAL-A20-2). The VIRAL-A20-2 study has commenced dosing of the animals and is anticipated to be completed by late March. Results should be reported in or around the second half of May. The VIRAL-C21-3 study has all contract agreements in place with the third-party laboratory that will be conducting this study, and dosing is expected to commence in April with results anticipated around the first half of June.
On March 24, 2021, the Company announced positive results from its extended stability testing. The tested beverages maintained their CBD content which was verified at 93.4% of target potency one year after production, evidenced excellent microbial purity over this period, and demonstrated less than 1% variability in CBD potency in fractions sampled from the top, middle and bottom of the beverage formulation without physical mixing or agitation.
Research and Development
During the quarter ended February 28, 2021, Lexaria incurred $368,659 (February 2020 $294,020) in research and development expenditures. Specific R&D programs are in ongoing development and will be tightly related to our financial ability to undertake each research phase for each API. Due to our expanding portfolio coverage, we are continuing to examine accelerated timetable options for testing, research and development (“R&D”) of each API.
The Company’s historic plans to include in vitro and in vivo absorption tests of our patented technology of molecules such as: cannabidiol (“CBD”), ibuprofen, and nicotine supplied us knowledge and understanding to perform subsequent testing on Nicotine and CBD with generally positive results, all of which has supported early-stage commercial revenue generation during the most recent six months. Our work during 2018 wherein we conducted our first ever human clinical absorption tests on CBD also yielded positive results and we discovered that DehydraTECH-processed CBD was effective in lowering human blood pressure, leading to expanded plans to evaluate DehydraTECH-processed CBD during 2021 for potential blood pressure reduction outcomes. In our first tests of representative drugs from two classes of antiviral therapies we had positive results which we announced in December of 2020. Ongoing testing plans are proceeding to further define molecular compatibility, absorption rates, timing and viable formats of delivery. Our R&D is conducted with the goal of further defining DehydraTECH’s value with the goal of commercialization and revenue generation.
The Company continually focuses on new R&D programs to investigate the potential of additional commercial applications for its Technology. These include, but are not limited to, ongoing programs to explore methods to integrate nanoemulsification chemistry techniques together with its technology and to further enhance intestinal bioabsorption rates with its technology, as well as ongoing programs to expand the types and breadth of product form factors into which its technology can be applied. Depending on how many of these tests are undertaken, R&D budgets are expected to vary significantly. It is in our best interests to remain flexible at this early stage of our R&D efforts in order to capitalize on potential novel findings from early-stage tests and thus re-direct research into specific avenues that offer the most rapid path to and/or highest likelihood of commercial revenue generation.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Critical Accounting Estimates
Our consolidated financial statements and accompanying notes are prepared in accordance with US GAAP. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financials.
Capital Assets
Capital assets are stated at cost less accumulated depreciation and depreciated using the straight-line method over their useful lives or by units of production.
Patents
Capitalized patent costs represent legal costs incurred to establish patents. When patents reach a mature stage, any associated legal costs are comprised mostly of maintenance fees and are expensed as incurred. Capitalized patent costs are amortized on a straight-line basis over the remaining life of the patent.
Revenue Recognition
Product Revenue
Revenue from the sale of products is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured, which typically occurs upon shipment. The Company reports its sales net of the amount of actual sales returns. Sales tax collected from customers is excluded from net sales.
Licensing Revenue from Intellectual Property
We recognize revenue for license fees at a point in time following the transfer of our intellectual property, our patented lipid nutrient infusion technology DehydraTECH for infusing APIs, to the licensee, which typically occurs on delivery of documentation.
Usage Fees from Intellectual Property
We recognize revenue for usage fees when usage of our DehydraTECH intellectual property occurs by licensees infusing an API into one or more of their product lines for sale.
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.
On January 12, 2021 the Company closed an underwritten public offering for net proceeds of $9,471,495 (Note 12). The net raised proceeds, based on our current research and development programs, are projected to fund the Company’s operations for at least the next twelve months from the date of this Quarterly Report.
Results of Operations for our Period Ended February 28, 2021 and February 29, 2020
Our net loss and comprehensive loss and the changes between those periods for the respective items are summarized as follows:
|
|
SIX MONTHS ENDED
|
|
|
|
|
|
|
February 28
|
|
|
February 29
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Revenue
|
|
|
487,662
|
|
|
|
99,631
|
|
|
|
388,031
|
|
Consulting fees & employees
|
|
|
839,459
|
|
|
|
1,183,385
|
|
|
|
(343,926
|
)
|
Legal and professional
|
|
|
409,342
|
|
|
|
140,357
|
|
|
|
268,985
|
|
Other general and administrative
|
|
|
(561,256
|
)
|
|
|
696,369
|
|
|
|
(1,257,625
|
)
|
Discontinued operations
|
|
|
(22,000
|
)
|
|
|
64,184
|
|
|
|
(86,184
|
)
|
Net Loss
|
|
|
(316,931
|
)
|
|
|
(1,922,255
|
)
|
|
|
1,605,324
|
|
Revenue
Product revenues of $231,718 and licensing usage fees of $255,844 represent significant increases in intermediate product sales and related licensing usage fees during period ended February 28, 2021, that almost exclusively consist of sales to business customers. Intermediate products we produce are typically a DehydraTECH processed powder which easily allows consumer product third party companies to include it in their product’s manufacturing process for their existing products, have simplified and enhanced the adoption of our Technology for manufacturers. The majority of our revenue was based on one licensee of our intermediate products ramping up their production and product distribution.
A significant number of our licensees are experiencing suspended business activities due to the impact of COVID-19 on markets and consumer spending; however, this phenomenon was substantially mitigated following the sale of our THC-related business division that closed on December 9, 2020. The abilities of other licensees to generate ongoing sales, thereby increasing usage fees are expected to continue to be impacted by the pandemic. We are working with our licensees to assist them and prevent further license terminations. We have continued interest in our intermediate products but cannot predict how long the pandemic will affect purchasing decisions of retail customers that will affect the consumer product manufacturers that utilize our intermediate products or when recovery of the general economy will translate into increasing licensing or usage revenues.
Our licensing revenues consist of IP licensing fees for the transfer of the Technology and usage fees that occur over time. IP licensing fees are due at the signing of definitive agreements for the Technology and can include payments due upon transfer of the Technology and installment payments that are receivable within 12 months (Note 7).
During the period ended February 28, 2021, our revenues were derived within the following categories: $231,718 (2020: $64,184 in discontinued operations) of intellectual property licensing revenue and $255,844 (2020: $99,191) in product revenues (Note 14, 16).
General and Administrative
Our total general and administrative expenses (consisting of consulting & wages, legal & professions, and all other) increased by $134,582 during the period ended February 28, 2021 excluding the gain from the asset sale over the same period last year. The increase is primarily comprised of increases to outreach programs, patent filings and contracted incentive payments offset by reductions in consulting expense, travel and wages due to staffing decreases.
Interest Expense
Interest expense for the period ended February 28, 2021 was $Nil (2019: $Nil). The Company has a C$40,000 noninterest-bearing loan until January 2023 (Note 19) that it has repaid the required C$30,000 portion and is awaiting clearance from the Canadian government for the forgivable portion of C$10,000.
Consulting Fees
Our consulting fees decreased by $82,199, which is primarily due to non-cash stock-based compensation included in 2020 of $233,166 that was not incurred in the current period.
Legal and Professional Fees
Our professional fees increased by $72,645 during the period primarily compared to the same period in the prior year due to increased patent and trademark filings, the uplist to the Nasdaq Capital Markets, and additional advisory services utilized. We recognize certain legal fees, tax advice fees, and accounting services all as “Professional Fees.”
Liquidity and Financial Condition
Working Capital
|
|
February 28
|
|
|
August 31
|
|
|
|
2021
|
|
|
2020
|
|
|
|
$
|
|
|
$
|
|
Current assets
|
|
|
10,958,888
|
|
|
|
1,926,211
|
|
Current liabilities
|
|
|
(399,389
|
)
|
|
|
(226,167
|
)
|
Net Working Capital
|
|
|
10,559,499
|
|
|
|
1,700,044
|
|
The Company’s working capital balance increased significantly during the period due to the underwritten public offering that closed January 12, 2021, and Net Working Capital is now the highest in the Company’s history.
|
|
February 28
|
|
|
February 29
|
|
Cash Flows
|
|
2021
|
|
|
2020
|
|
|
|
$
|
|
|
$
|
|
Cash flows (used in) provided by continuing activities
|
|
|
(1,742,757
|
)
|
|
|
(1,308,963
|
)
|
Cash flows (used in) provided by investing activities
|
|
|
264,609
|
|
|
|
(5,711
|
)
|
Cash flows (used in) provided by financing activities
|
|
|
9,448,332
|
|
|
|
827,020
|
|
Net cash flows (used in) discontinued operations
|
|
|
83,000
|
|
|
|
(57,508
|
)
|
Increase (decrease) in cash
|
|
|
8,053,184
|
|
|
|
(545,162
|
)
|
Operating Activities
Net cash used in continuing activities was $1,742,757 for the period compared with cash used in operating activities of $1,308,963 during the same period in 2020. This difference was largely due to the increased costs pertaining to professional fees, listing on the NASDAQ, outreach programs and other costs related to required filings.
Investing Activities
Net cash from investing activities was $264,609 (2020 $(5,711)) for the period from the disposition of assets and to support capitalized patent filings.
Financing Activities
Net cash provided from financing activities was $9,448,322 during the period ended February 28, 2021 primarily relating to the underwritten public offering that closed January 12, 2021.
Liquidity and Capital Resources
We have accumulated a large deficit since inception that has primarily resulted from executing our business plan including research and development expenditures we have made in seeking to identify and develop our intellectual property patents for licensing and product creation. We expect to continue to incur losses for at least the short term.
To date, we have obtained cash and funded our operations primarily through equity financings and limited amounts from revenue generation while our licensees ramp up production and expansions. We expect to continue to evaluate various funding alternatives on an ongoing basis as needed to maintain operations, to continue our research programs and to expand our patent portfolio. If we determine it is advisable to raise additional funds, there is no assurance that adequate funding will be available to us or, if available, that such funding will be available on terms that we or our stockholders view as favorable. Market volatility and concerns over a global recession may have a significant impact on the availability of funding sources and the terms at which any funding may be available.
Short Term Liquidity
On January 12, 2021 we closed an underwritten public offering for net proceeds of $9,471,495, issuing 1,828,571 units consisting of one common share and one warrant for $5.25. On February 28, 2021 we had $9,346,933 in cash and cash equivalents and working capital of $10,559,499. Based on our current research and development programs, we project cash resources are sufficient to allow us to continue operations for at least the next twelve months from the date of this Quarterly Report.
Long Term Liquidity
It will require substantial cash to achieve our objectives for developing and patenting our intellectual property across all applicable market and industry segments. This process typically takes many years and potentially millions of dollars for each segment. If we pursue full commercial exploitation of all applicable market and industry segment opportunities, we will need to obtain significant funding from existing or new relationships, increasing revenue streams or from other sources of liquidity such as the sale of equity, issuance of debt or other transactions.
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.