lxrp_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 2021

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from [ ] to [ ]

Commission file number

LEXARIA BIOSCIENCE CORP.

(Exact name of registrant as specified in its charter)

Nevada		20-2000871
State or other jurisdiction of incorporation or organization		(I.R.S. Employer Identification No.)

#100 - 740 McCurdy Road, Kelowna BC Canada		V1X 2P7
(Address of principal executive offices)		(Zip Code)

Registrant’s Telephone number, including area code: 250-765-6424

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Name of Each Exchange On Which Registered
N/A		N/A

Securities registered pursuant to Section 12(g) of the Act:

Title of Class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, Par Value $0.001	LEXX	NASDAQ
Warrants	LEXXW	NASDAQ

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the last 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by a check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date.

5,104,332 common shares as of July 15, 2021

DOCUMENTS INCORPORATED BY REFERENCE

None.

TABLE OF CONTENTS

PART I-FINANCIAL INFORMATION		3

Item 1.	Financial Statements	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Controls and Procedures	29

PART II-OTHER INFORMATION		30

Item 1.	Legal Proceedings	30

Item 1A.	Risk Factors	30

Item 2.	Exhibits	30

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PART I-FINANCIAL INFORMATION

LEXARIA BIOSCIENCE CORP.
CONSOLIDATED BALANCE SHEET
(Expressed in U.S. Dollars)
	May 31			August 31
	2021			2020
ASSETS	(Unaudited)			(Audited)
Current
Cash	$	8,108,512		$	1,293,749
Marketable securities (Note 21)		400,744			19,321
Accounts receivable (Note 9)		954,097			208,925
Inventory (Note 10)		51,738			116,871
Prepaid expenses and deposit (Note 20)		170,439			182,095
Current assets from discontinued operations (Note 22)		-			105,250
Total Current Assets		9,685,560			1,926,211

Non-current assets, net
Lease right of use (Note 19)		100,256			126,920
Intellectual property (Note 11)		366,340			292,000
Property & equipment (Note 12)		395,397			483,357
Total Non-current Assets		861,993			902,277
TOTAL ASSETS	$	10,547,553		$	2,828,488

LIABILITIES
Current
Accounts payable and accrued liabilities (Note 13)	$	173,901		$	86,920
Deferred revenue		-			44,255
Due to a related party (Note 17)		1,324			58,704
Loan payable		7,507			-
Lease payable (Note 19)		38,485			36,038
Current liabilities from discontinued operations (Note 22)		-			250
Total Current Liabilities		221,217			226,167

Long Term
Lease payable (Note 19)		60,164			89,393
Loan payable		-			30,670
Total Long Term Liabilities		60,164			120,063
TOTAL LIABILITIES		281,381			346,230

STOCKHOLDERS' EQUITY
Share Capital (Note 14) Authorized: 220,000,000 common voting shares with a par value of $0.001 per share Issued and outstanding: 5,104,332 common shares at May 31, 2021 and 3,001,476 common shares at August 31, 2020		5,104			3,001
Additional paid-in capital (Notes 14, 15)		40,989,692			30,324,398
Deficit		(30,651,112	)		(27,802,198	)
Equity attributable to shareholders of the Company		10,343,684			2,525,201
Non-controlling Interest		(77,512	)		(42,943	)
Total Stockholders' Equity		10,266,172			2,482,258
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	10,547,553		$	2,828,488

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

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LEXARIA BIOSCIENCE CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Expressed in U.S. Dollars, except number of shares)

THREE MONTHS ENDED

NINE MONTHS ENDED

May 31

2021

2020

2021

2020

(Unaudited)

Revenue (Notes 16, 18)

204,055

36,423

691,717

250,804

Cost of Goods Sold

59,989

20,319

155,037

86,278

Gross profit

144,066

16,104

536,680

164,526

Expenses

Accounting and audit

6,472

17,113

64,382

43,642

Depreciation and amortization (Notes 10, 11, 12)

27,929

28,081

83,788

83,875

Advertising and promotions

325,500

48,124

410,273

128,295

Bad debt

25,000

37,000

25,000

Consulting (Notes 14, 15)

1,268,668

944,210

1,960,468

1,949,234

Investor relations

134,540

212,691

21,277

Legal and professional

120,434

149,257

529,776

289,614

Office and miscellaneous

106,621

55,402

365,433

193,857

Research and development

454,443

24,557

823,102

318,577

Travel

2,566

850

46,178

Wages and salaries

196,153

125,274

343,812

303,635

Gain on disposal of assets (Note 22)

18,198

(1,522,704

)

18,198

Unrealized (gain)/loss on marketable securities (Note 21)

69,858

(19,654

)

86,810

20,937

Inventory write-off (Note 10)

8,240

2,482

8,240

2,710,618

1,426,368

3,398,368

3,450,559

Net loss from continuing operations

(2,566,552

)

(1,410,264

)

(2,861,483

)

(3,286,033

)

Discontinued operations

Income (loss) from discontinued operations (Note 22)

19,611

(22,000

)

83,795

Net loss and comprehensive loss for the period

(2,566,552

)

(1,390,653

)

(2,883,483

)

(3,202,238

)

Net loss and comprehensive loss attributable to:

Common shareholders

(2,556,997

)

(1,361,381

)

(2,848,914

)

(3,108,368

)

Non-controlling interest

(9,555

)

(29,272

)

(34,569

)

(93,870

)

Basic and diluted income (loss) per share

Continuing operations

(0.40

)

(0.50

)

(0.70

)

(1.19

)

Discontinued operations

(0.01

)

(0.01

)

(0.03

)

Total

(0.50

)

(0.50

)

(0.71

)

(1.23

)

Weighted average number of common shares outstanding

Basic and diluted

5,104,332

2,769,488

4,056,755

2,698,763

The accompanying notes are an integral part of these condensed consolidated financial statements.

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LEXARIA BIOSCIENCE CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Expressed in U.S. Dollars)
	NINE MONTHS ENDED
	May 31			May 31
	2021			2020
	(Unaudited)			(Unaudited)
Cash flows used in operating activities
Net loss and comprehensive loss	$	(2,861,483	)	$	(3,286,033	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock based compensation		410,007			1,139,270
Depreciation and amortization		83,788			83,875
Inventory write-off		2,482			8,240
Bad debt expense		37,000			25,000
Noncash right of use lease expense		26,664			-
Gain on asset disposal		(1,522,704	)		-
Realized loss on disposal of investment		-			18,198
Unrealized loss on marketable securities		86,810			20,937
Warrants issued for services		785,895			168,833
Change in working capital
Accounts receivable		(1,106	)		(30,815	)
Inventory		71,976			(13,396	)
Prepaid expenses and deposits		11,656			(20,013	)
Accounts payable and accrued liabilities		86,981			(81,284	)
Due to related parties		(57,380	)		(18,501	)
Operating lease liability		(26,782	)		-
Deferred revenue		(44,255	)		6,250
Net cash (used in) by operating activities	$	(2,910,451	)	$	(1,979,439	)

Cash flows used in investing activities
Sale of marketable securities		-			6,802
Intellectual property		(79,493	)		(20,007	)
Disposal of assets		273,375			-
Net cash provided by (used in) investing activities	$	193,882		$	(13,205	)

Cash flows from financing activities
Repayment of loan payable		(23,163	)		28,756
Proceeds from issuance of equity		9,471,495			2,714,627
Net cash from financing Activities	$	9,448,332		$	2,743,383

Net cash from discontinued operations	$	83,000		$	(1,875	)

Net change in cash for the period		6,814,763			748,864
Cash at beginning of period		1,293,749			1,285,147
Cash at end of period	$	8,108,512		$	2,034,011

Supplemental information of cash flows:
Income taxes paid in cash	$	3,540		$	(10,459	)
Non-cash consideration on asset disposal	$	1,171,599		$	-

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

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LEXARIA BIOSCIENCE CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Expressed in U.S. Dollars)

	COMMON STOCK				ADDITIONAL PAID-IN									TOTAL STOCKHOLDERS'
	SHARES		AMOUNT		CAPITAL			DEFICIT			NCI			EQUITY
			$		$			$			$			$
Balance As At August 31, 2019		2,626,236		2,626		26,248,614			(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		60,792		61		815,959									816,020
Net loss		-		-		-			(907,313	)		-			(907,313	)
Non-controlling interest		-		-		-			-			(17,450	)		(17,450	)
Balance As At November 30, 2019		2,687,028		2,687		27,297,739			(24,775,515	)		90,224			2,615,135
Stock based compensation		-		-		294,293			-			-			294,293
Exercise of stock options		3,667		4		10,996			-			-			11,000
Net loss		-		-		-			(950,344	)		-			(950,344	)
Non-controlling interest		-		-		-			-			(47,148	)		(47,148	)
Balance As At February 29, 2020		2,690,695		2,691		27,603,028			(25,725,859	)		43,076			1,922,936
Stock based compensation		-		-		682,563			-			-			682,563
Warrants issued for services		-		-		98,081			-			-			98,081
Private placement		295,540		296		1,887,310			-			-			1,887,606
Net loss		-		-		-			(1,361,381	)		-			(1,361,381	)
Non-controlling interest		-		-		-			-			(29,272	)		(29,272	)
Balance As At May 31, 2020		2,986,235		2,986		30,270,983			(27,087,240	)		13,804			3,200,533
Exercise of stock options		3,667		4		19,026			-			-			19,030
Shares issued for service		11,574		12		99,988			-			-			100,000
Private placement		-		-		(65,600	)		-			-			(65,600	)
Net loss		-		-		-			(714,958	)		-			(714,958	)
Non-controlling interest		-		-		-			-			(56,747	)		(56,747	)
Balance As At August 31, 2020		3,001,476		3,001		30,324,398			(27,802,198	)		(42,943	)		2,482,258
Stock based compensation		-		-		48,887			-			-			48,887
Net loss		-		-		-			(696,028	)		-			(696,028	)
Non-controlling interest		-		-		-			-			(14,093	)		(14,093	)
Balance As At November 30, 2020		3,001,476		3,001		30,373,285			(28,498,226	)		(57,036	)		1,821,024
Stock based compensation		-		-		17,154			-			-			17,154
Brokered placement		2,102,856		2,103		9,469,392			-			-			9,471,495
Net Income		-		-		-			404,111			-			404,111
Non-controlling interest		-		-		-			-			(10,921	)		(10,921	)
Balance As At February 28, 2021		5,104,332		5,104		39,859,831			(28,094,115	)		(67,957	)		11,702,863
Stock based compensation		-		-		343,966			-			-			343,966
Warrants issued for services		-		-		785,895			-			-			785,985
Net loss		-		-		-			(2,556,997	)		-			(2,378,420	)
Non-controlling interest		-		-		-			-			(9,555	)		(9,555	)
Balance As At May 28, 2021		5,104,332		5,104		40,989,692			(30,651,112	)		(77,512	)		10,266,172

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

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LEXARIA BIOSCIENCE CORP.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2021

(Expressed in U.S. Dollars)

Organization and Description of Business

Lexaria Bioscience Corp. (“Lexaria”, “we”, “our” or “the “Company”) was incorporated in the State of Nevada on December 9, 2004. In March 2014, the Company began work in the field of enhanced delivery of active ingredients and drugs. In May 2016, the Company commenced out-licensing its patented DehydraTECH™ technology (the “Technology”) for improved delivery of bioactive compounds that promotes healthy ingestion methods, lower overall dosing and higher effectiveness in active molecule delivery.

The Company is headquartered in Kelowna, British Columbia, Canada. The corporate website is www.lexaribioscience.com

On December 9, 2020, the Company completed the sale of the business assets underlying its Lexaria CanPharm ULC THC related segment. As a result, the related financial results are reflected in our consolidated statement of operations, retrospectively, as discontinued operations beginning in the first quarter of fiscal 2021. The assets and liabilities associated with the discontinued operations in the prior year consolidated balance sheet are classified as discontinued operations. See “Note 22 - Discontinued Operations” for additional information.

On January 11, 2021, the Company effected a 30:1 reverse stock split with no fractional shares issued. All share and per share information within these condensed interim consolidated financial statements have been retroactively restated accordingly.

On January 12, 2021, the Company closed an underwritten public offering for net proceeds of $9,471,495 and issued 2,102,856 common shares. (Note 2)

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Liquidity and Uncertainties

The unaudited interim consolidated financial statements have been prepared in accordance with US GAAP applicable to a going concern, which assumes the Company will have sufficient funds to pay it operational and capital expenditures for a period of at least 12 months from the date this financial report was issued.

Since inception, we have incurred significant operating and net losses. Our net losses were $3.9 million, $4.1 million and $6.6 million for the years ended August 31, 2020, 2019 and 2018, respectively. As of May 31, 2021, we had an accumulated deficit of $30.6 million. We expect to continue to incur significant expenses and operating and net losses in upcoming 12 months. Our net losses may fluctuate significantly from quarter to quarter and year to year, depending on the stage and complexity of our R&D studies, the receipt of additional milestone payments, if any, the receipt of payments under any current or future collaborations we may enter into, and our expenditures on other R&D activities.

In the second quarter of 2021, the Company completed an underwritten public offering of common stock for net proceeds of approximately $9.5 million (the “Offering”). As of May 31, 2021, working capital was approximately $9.5 million, an increase of approximately $7.8 million from August 2020. The Company has evaluated whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern. With the Offering, the Company is reasonably certain it has sufficient liquidity to support operations in the upcoming 12 months. We may offer additional securities for sale during our fiscal year 2021 or thereafter in response to market conditions or other circumstances if we believe such a plan of financing is required to advance the Company’s business plans and is in the best interests of our stockholders.


3.	COVID-19

	The emergence of the COVID-19 pandemic in January of 2020 continues to present uncertainty and unforecastable new risks to the Company and its business plan. Restrictions on national and international travel and required business closures present challenges in carrying out normal business activities related to corporate finance efforts and the pursuit of new customers throughout North America who might otherwise access the retail products of our licensees. As a result, the pandemic has increased the risk of lower revenues and higher losses. We have made modifications to our normal operations including requiring team members to work remotely on a rotational basis. To the extent possible, we are conducting business as usual, with necessary or advisable modifications to employee travel. At this time, these measures will continue in force for the near term. We will continue to actively monitor the rapidly evolving situation related to COVID-19 and may take further actions that alter our operations, including those that may be required by federal, state, provincial, or local authorities, or that we determine are in the best interests of our employees and other third parties with which we do business. We do not know when, or if, it will become practical to relax or eliminate some or all these measures entirely.


4.	Significant Accounting Policies

	The significant accounting policies of the Company are consistent with those of our audited financial statements on Form 10-K for the year ended August 31, 2020.

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5.	Basis of Consolidation

	These interim consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries; Lexaria CanPharm ULC, PoViva Corp., Lexaria Hemp Corp., Kelowna Management Services Corp., and Lexaria Pharmaceutical Corp., and our 83.333% owned 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.


6.	Basis of Presentation

	The Company’s unaudited interim consolidated financial statements 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 or any subsequent period. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated annual financial statements and notes thereto included in our annual report filed on Form 10-K for the year ended August 31, 2020.


7.	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. Although we believe that these estimates are reasonable actual results could differ. In preparing these unaudited interim consolidated financial statements, the significant judgments made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those applied to the audited consolidated financial statements for the year ended August 31, 2020, with the addition of discontinued operations. (Note 22)

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8.	Recent Accounting Guidance

	In June 2016, the FASB issued a new standard to replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For trade and other receivables, loans and other financial instruments, the Company will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects probable losses. 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.


9.	Accounts and Other Receivables

	May 31		August 31
	2021		2020
	$		$
Trade and deposits receivable		784,859		82,492
Intellectual property fees		113,905		38,250
Sales tax receivable		55,333		88,183
		954,097		208,925

Trade and deposits receivable includes $781,067 from the asset sale (Note 22).

10.

Inventory

	May 31		August 31
	2021		2020
		$		$
Raw materials		51,738		51,404
Work in progress		-		15,705
Finished goods		-		49,762
		51,738		116,871

During the period ended May 31, 2021, the Company wrote down $44,851 in finished goods and allocated the amount to advertising and promotion as the goods were donated to charity. A further $2,482 (2020 - $8,240 full year) of finished goods inventory was write-off to reflect its net realisable value.

SEC Form 10-Q filed by Lexaria Bioscience Corp.