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 February 28, 2022

☐ 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: 1.250.765.6424

Securities registered pursuant to Section 12(b) 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.

5,950,998 common shares as of April 11, 2022

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.	19

Item 3.	Controls and Procedures.	28

PART II—OTHER INFORMATION.		30

Item 1	Legal Proceedings.	30

Item 1 A.	Risk Factors.	30

Item 2.	Exhibits.	31

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

LEXARIA BIOSCIENCE CORP.
CONSOLIDATED BALANCE SHEET
(Expressed in U.S. Dollars)
	February 28,			August 31,
	2022			2021
ASSETS	(Unaudited)			(Audited)
Current
Cash	$	8,359,374		$	10,917,797
Marketable securities		552,317			833,841
Accounts receivable		506,622			342,401
Inventory		31,927			29,648
Prepaid expenses and deposit		1,121,961			319,253
Total Current Assets		10,572,202			12,442,940

Non-current assets, net
Lease right of use		72,099			91,041
Intellectual property		411,452			364,623
Property & equipment		358,811			368,213
Total Non-current Assets		842,362			823,877
TOTAL ASSETS	$	11,414,564		$	13,266,817

LIABILITIES
Current
Accounts payable and accrued liabilities	$	116,592		$	100,723
Due to a related party		-			5,223
Loan payable		7,875			7,926
Lease payable		41,076			39,404
Total Current Liabilities		165,543			153,276

Long Term
Lease payable		29,080			49,989
Total Long Term Liabilities		29,080			49,989
TOTAL LIABILITIES		194,623			203,265

STOCKHOLDERS' EQUITY
Share Capital
Authorized:
220,000,000 common voting shares with a par value of $0.001 per share Issued and outstanding: 5,950,998 common shares at February 28, 2022 and 5,726,699 common shares at August 31, 2021		5,951			5,727
Additional paid-in capital		46,697,434			45,089,114
Deficit		(35,248,137	)		(31,829,204	)
Equity attributable to shareholders of the Company		11,455,248			13,265,637
Non-controlling Interest		(235,307	)		(202,085	)
Total Stockholders' Equity		11,219,941			13,063,552
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	11,414,564		$	13,266,817

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

SIX MONTHS ENDED

February 28

2022

2021

2022

2021

(Unaudited)

Revenue

30,650

192,006

44,530

487,662

Cost of goods sold

6,387

30,570

11,957

95,048

Gross profit

24,263

161,436

32,573

392,614

Expenses

Research and development

275,686

176,398

734,395

368,659

General and administrative

1,197,250

1,089,552

2,750,333

1,841,590

Total operating expenses

1,472,936

1,265,950

3,484,728

2,210,249

Loss from operations

(1,448,673

)

(1,104,514

)

(3,452,155

)

(1,817,635

)

Gain on disposal of assets

1,522,704

Discontinued operations

(25,000

)

(22,000

)

Net and comprehensive income (loss) for the period

(1,448,673

)

393,190

(3,452,155

)

(316,931

)

Net and comprehensive income (loss) attributable to:

Common shareholders

(1,425,776

)

404,111

(3,418,933

)

(291,917

)

Non-controlling interest

(22,897

)

(10,921

)

(33,222

)

(25,014

)

Basic and diluted income (loss) per share

Continuing operations

(0.25

)

0.10

(0.59

)

(0.08

)

Discontinued operations

(0.01

)

(0.01

)

(0.25

)

0.09

(0.59

)

(0.09

)

Weighted average number of common shares outstanding

- Basic and diluted

5,911,123

4,052,904

5,818,401

3,524,286

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

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LEXARIA BIOSCIENCE CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Expressed in U.S. Dollars)

	SIX MONTHS ENDED
	February 28,
	2022			2021
	(Unaudited)
Cash flows used in operating activities
Net loss and comprehensive loss	$	(3,452,154	)	$	(294,931	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock based compensation		408,544			66,041
Depreciation and amortization		54,093			55,859
Inventory write-off		-			2,482
Bad debt expense		-			37,000
Non-cash right of use lease expense		18,942			17,614
Gain on disposal of assets		-			(1,522,704	)
Unrealized loss on marketable securities		281,473			16,952
Shares issued for services		300,000			-
Lease accretion		2,954			4,282
Change in working capital
Accounts receivable		(164,221	)		(69,264	)
Inventory		(1,161	)		(16,883	)
Prepaid expenses and deposits		97,292			(181,651	)
Accounts payable and accrued liabilities		15,868			59,574
Due to related parties		(5,223	)		148,102
Deferred revenue		-			(43,255	)
Net cash used in by operating activities	$	(2,443,593	)	$	(1,720,782	)

Cash flows used in investing activities
Disposal (acquisition) of assets		(42,375	)		273,375
Intellectual property		(50,263	)		(8,766	)
Net cash (used in) provided by investing activities	$	(92,638	)	$	264,609

Cash flows from financing activities
Repayment of loan payable		-			(23,163	)
Lease payments		(22,191	)		(21,975	)
Proceeds from issuance of equity		-			9,471,495
Net cash provided by (used in) financing Activities	$	(22,191	)	$	9,426,357

Net cash provided by discontinued operations	$	-		$	83,000

Net change in cash for the period		(2,558,422	)		8,053,184
Cash at beginning of period		10,917,797			1,293,749
Cash at end of period	$	8,359,374		$	9,346,933

Supplemental information of cash flows:
Income taxes paid in cash	$	-		$	3,450
Non-cash consideration on asset disposal	$	-		$	1,171,599
Non-cash shares for services included in prepaid expenses	$	900,000		$	-

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)

					ADDITIONAL								TOTAL
	SHARE CAPITAL				PAID-IN								STOCKHOLDERS'
	SHARES		AMOUNT		CAPITAL		DEFICIT			NCI			EQUITY
			$		$		$			$			$
Balance August 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 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		2,104		9,469,393		-			-			9,471,497
Net Income		-		-		-		404,111			-			404,111
Non-controlling interest		-		-		-		-			(10,921	)		(10,921	)
Balance February 28, 2021		5,104,332		5,105		39,859,832		(28,094,115	)		(67,957	)		11,702,865
Stock based compensation		-		-		343,966		-			-			343,966
Warrants issued for services		-		-		785,895		-			-			785,895
Net loss		-		-		-		(2,556,997	)		-			(2,556,997	)
Non-controlling interest		-		-		-		-			(9,555	)		(9,555	)
Balance May 31, 2021		5,104,332		5,105		40,989,693		(30,651,112	)		(77,512	)		10,266,174
Exercise of warrants		610,189		610		4,014,433		-			-			4,015,043
Shares issued for services		12,178		12		84,988		-			-			85,000
Net loss		-		-		-		(1,178,092	)		-			(1,178,092	)
Non-controlling interest		-		-		-		-			(124,573	)		(124,573	)
Balance August 31, 2021		5,726,699		5,727		45,089,114		(31,829,204	)		(202,085	)		13,063,552
Stock based compensation		-		-		408,544		-			-			408,544
Net loss		-		-		-		(1,993,157	)		-			(1,993,157	)
Non-controlling interest		-		-		-		-			(10,325	)		(10,325	)
Balance November 30, 2021		5,726,699		5,727		45,497,658		(33,822,361	)		(212,410	)		11,468,614
Shares issued for services		224,299		224		1,199,776		-			-			1,200,000
Net loss		-		-		-		(1,425,777	)		-			(1,425,777	)
Non-controlling interest		-		-		-		-			(22,895	)		(22,895	)
Balance February 28, 2022		5,950,998		5,951		46,697,434		(35,248,138	)		(235,305	)		11,219,942

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

February 28, 2022

(Expressed in U.S. Dollars)

1.	Nature of Business

Lexaria Bioscience Corp. (“Lexaria”, “we”, “our” or the “Company”) is a biotechnology company pursuing the enhancement of the bioavailability of a diverse and broad range of active pharmaceutical ingredients (“APIs”) using our patented drug delivery technology DehydraTECH^TM. Through continued validation of our research and development our focus is on national and international application for DehydraTECH.

Revenues are primarily derived from licensing fees for the use of the Company’s patented technology to partners who pay either a fee to use DehydraTECH in the manufacturing of their own products or through the purchase of DehydraTECH manufactured products made to their specifications by Lexaria. The Company has relationships with several consumer products companies in the CBD and nutraceuticals spaces that use Lexaria’s technology in consumer goods being sold online and at retailers in the US and Canada.

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

Going Concern Analysis

The Company’s consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with accounting principles generally accepted in the United States (“US GAAP”) applicable to a going concern which assumes the Company will have sufficient funds to pay it operational, research and development and capital expenditures for a period of at least 12 months from the date this financial report.

Since inception, the Company has incurred significant operating and net losses. The losses attributable to common shareholders were $4.2m, $4.1m and $4.2m for the years ended August 31, 2021, 2020 and 2019, respectively. As of February 28, 2022, we had an accumulated deficit of $35.25m. We expect to continue to incur significant operational expenses and net losses in the 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 and related expenditures, the receipt of additional payments on the licencing of our technology, if any, and the receipt of payments under any current or future collaborations we may enter into.

On January 12, 2021, the Company closed an underwritten public offering for net proceeds of $9,471,497. In the fourth quarter of the year ended August 31, 2021, the Company received $4,015,043 from the exercise of warrants. We may offer additional securities for sale during fiscal year 2022 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.

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. As of February 28, 2022, the Company had cash of approximately $8.4m. We believe this is sufficient to enable the Company to fund its operating and R&D expenses and any capital expenditure requirements through one year from the issuance date of these unaudited consolidated financial statements.

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To date, we have obtained cash and funded our operations primarily through equity financings and license agreements. In order to continue the development of our drug candidates, at some point in the future we expect to pursue one or more capital transactions, whether through the sale of equity securities, debt financing, license agreements or entry into strategic partnerships. There can be no assurance that we will be able to continue to raise additional capital in the future.

COVID-19

Impacts of COVID-19 Pandemic

The emergence of the COVID-19 pandemic in 2020 continues to present uncertainty and unforecastable new risks to the Company and its business plans. As of February 28, 2022, there has been no material impact on the Company’s financial position as a direct result of the pandemic. However, the Company has experienced some supply chain disruptions and shortages in the timely procurement of ingredients and supplies used in both our R&D activities and production. Management views this situation as transitory but cannot predict the length of time it may take for these disruptions to dissipate or if there will be a significant economic effect on the Company’s operations. In the interim, it may cause delays in carrying out our research studies and in our production schedules.

Restrictions on international travel presents a challenge in carrying out normal business activities related to corporate finance efforts and the pursuit of new customers throughout North America who might otherwise access to our licensees’ retail products. As a result, the pandemic has increased the risk of lower revenues and higher losses.

During the year ended August 31, 2020, we were in receipt of C$30,732 in COVID relief under the Canada Emergency Wage Subsidy programs for employees which reduced our employment costs in that year. During fiscal 2020 we also received C$40,000 from the Canadian Government sponsored Emergency Business Account loan program. As specified by the terms of this program, we have repaid C$30,000 of the loan in fiscal 2021. The remaining 7,875 (C$10,000) of the loan payable is anticipated to be forgiven as directed under this program in the year ended August 31, 2023.

We continue to actively monitor the evolving effects of 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 third parties with which we do business. We do not know when it will become practical to relax or eliminate some or all these measures entirely. The economic effect of a prolonged pandemic is difficult to predict and could result in material financial impact in the Company’s future reporting periods.

2.	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, 2021.

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3.	Basis of Consolidation

These interim consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries; Lexaria CanPharm ULC, Lexaria CanPharm Holdings Corp., 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 upon consolidation.

4.	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, 2021.

5.	Estimates and Judgements

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, 2021.

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6.	Recent Accounting Guidance

Pronouncements Issued but Not Yet Adopted

In October of 2021, the FASB issued an update to Government Assistance (topic 832) to increase the transparency of government assistance and its disclosure in the notes to the financial statements. Amendments in this update take effect for annual periods beginning after December 31, 2021. Early application of the amendments is permitted. The Company does not expect the adoption of these standards to have a material impact on its consolidated financial statements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The FASB subsequently issued amendments to ASU 2016-13, which have the same effective date and transition date of January 1, 2023. These standards require that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used, and establishes additional disclosures related to credit risks. For available-for-sale debt securities with unrealized losses, these standards now require allowances to be recorded instead of reducing the amortized cost of the investment. These standards limit the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized credit losses if fair value increases. The Company does not currently expect the adoption of these standards to have a material impact on its consolidated financial statements.

7.	Accounts and Other Receivables

	February 28,		August 31,
	2022		2021
	$		$
Trade and deposits receivable		19,016		16,553
Sale of assets - shares receivable		278,107		287,107
Sales tax receivable		209,499		47,741
		506,622		342,401

8.	Inventory

	February 28,		August 31,
	2022		2021
	$		$
Raw materials		31,927		29,648
		31,927		29,648

During the period ended February 28, 2022, the Company wrote down $Nil (February 28, 2021-$2,482) in finished goods.

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9.	Intellectual Property

The following is a list of US capitalized patents held by the Company:

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

A continuity schedule for capitalized patents is presented below:

February 28,

2022

August 31,

SEC Form 10-Q filed by Lexaria Bioscience Corp.