Item 1. Financial Statements.
Lexaria Bioscience Corp.s (Lexaria or the Company)
unaudited interim consolidated financial statements for the nine month period
ended May 31, 2018, form part of this quarterly report. They are stated in
United States Dollars and are prepared in accordance with United States
generally accepted accounting principles.
LEXARIA BIOSCIENCE CORP.
|
CONSOLIDATED BALANCE SHEETS
|
(Expressed in U.S. Dollars)
|
|
|
May 31
|
|
|
August 31
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Cash and
cash equivalents
|
$
|
2,063,369
|
|
$
|
2,533,337
|
|
Marketable securities (Note 18)
|
|
17,617
|
|
|
-
|
|
Accounts
and other receivables (Note 7)
|
|
267,777
|
|
|
45,293
|
|
Inventory
(Note 8)
|
|
76,475
|
|
|
67,174
|
|
Prepaid
expenses (Note 17)
|
|
161,882
|
|
|
149,691
|
|
Total
Current Assets
|
|
2,587,120
|
|
|
2,795,495
|
|
Patents
(Note 9)
|
|
120,567
|
|
|
62,827
|
|
Equipment
|
|
1,392
|
|
|
1,856
|
|
|
|
121,959
|
|
|
64,683
|
|
TOTAL ASSETS
|
$
|
2,709,079
|
|
$
|
2,860,178
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
$
|
62,533
|
|
$
|
32,574
|
|
Unearned
revenue (Note 10)
|
|
-
|
|
|
17,083
|
|
Due to
related parties (Note 14)
|
|
9,110
|
|
|
42,690
|
|
Total Current
Liabilities
|
|
71,643
|
|
|
92,347
|
|
TOTAL LIABILITIES
|
|
71,643
|
|
|
92,347
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
Share Capital (Note
11)
|
|
|
|
|
|
|
Authorized:
220,000,000
common voting shares with a par value of $0.001 per
share
Issued and
outstanding:
72,397,305 common
shares at May 31, 2018 and 67,975,761 common shares at August 31, 2017
|
|
72,397
|
|
|
67,976
|
|
Shares to be issued (Note
11)
|
|
500
|
|
|
-
|
|
Additional paid-in
capital
|
|
21,123,864
|
|
|
16,108,270
|
|
Accumulated other
comprehensive income (Note 18)
|
|
(7,383
|
)
|
|
-
|
|
Deficit
|
|
(18,551,942
|
)
|
|
(13,169,939
|
)
|
Equity attributable to
shareholders of the Company
|
|
2,637,436
|
|
|
3,006,307
|
|
Non-Controlling Interest
(Note 9)
|
|
-
|
|
|
(238,476
|
)
|
Total Stockholders'
Equity
|
|
2,637,436
|
|
|
2,767,831
|
|
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
|
$
|
2,709,079
|
|
$
|
2,860,178
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
LEXARIA BIOSCIENCE CORP.
|
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
|
(Expressed in U.S. Dollars, except number of
shares)
|
|
|
THREE
MONTHS ENDED
|
|
|
NINE MONTHS
ENDED
|
|
|
|
May 31
|
|
|
May 31
|
|
|
May 31
|
|
|
May 31
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Revenue (Note 13)
|
$
|
140,340
|
|
$
|
29,253
|
|
$
|
336,933
|
|
$
|
51,080
|
|
Cost of Goods Sold
|
|
2,427
|
|
|
9,183
|
|
|
22,239
|
|
|
24,943
|
|
Gross profit
|
|
137,913
|
|
|
20,070
|
|
|
314,694
|
|
|
26,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounting and audit
|
|
14,773
|
|
|
5,260
|
|
|
48,942
|
|
|
27,119
|
|
Depreciation and Amortization (Note 9)
|
|
527
|
|
|
372
|
|
|
1,364
|
|
|
1,116
|
|
Advertising and promotions
|
|
175,770
|
|
|
73,271
|
|
|
432,494
|
|
|
124,080
|
|
Consulting (Note 11, 12, 14, 16)
|
|
3,115,389
|
|
|
128,537
|
|
|
4,455,808
|
|
|
685,558
|
|
Interest expense
|
|
-
|
|
|
1,584
|
|
|
-
|
|
|
4,890
|
|
Investor relations
|
|
-
|
|
|
41,002
|
|
|
188
|
|
|
91,681
|
|
Legal and professional
|
|
65,091
|
|
|
46,367
|
|
|
207,134
|
|
|
115,851
|
|
Office and miscellaneous
|
|
64,779
|
|
|
41,578
|
|
|
182,754
|
|
|
112,435
|
|
Research and development
|
|
93,067
|
|
|
8,240
|
|
|
279,221
|
|
|
23,279
|
|
Travel
|
|
29,804
|
|
|
17,219
|
|
|
80,181
|
|
|
45,098
|
|
Gain on disposal of assets
|
|
-
|
|
|
-
|
|
|
(3,998
|
)
|
|
-
|
|
Inventory write-off (Note 8)
|
|
3,625
|
|
|
726
|
|
|
12,609
|
|
|
4,651
|
|
|
|
3,562,825
|
|
|
364,156
|
|
|
5,696,697
|
|
|
1,235,758
|
|
Net loss for the
period
|
|
(3,424,912
|
)
|
|
(344,086
|
)
|
|
(5,382,003
|
)
|
|
(1,209,621
|
)
|
Net loss attributable
to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shareholders
|
|
(3,424,912
|
)
|
|
(339,130
|
)
|
|
(5,382,003
|
)
|
|
(1,182,357
|
)
|
Non-controlling interest
(Note 9)
|
|
-
|
|
|
(4,956
|
)
|
|
-
|
|
|
(27,264
|
)
|
Basic and diluted loss per
share
|
|
(0.05
|
)
|
|
(0.01
|
)
|
|
(0.08
|
)
|
|
(0.02
|
)
|
Weighted average number of common shares
outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic and diluted
|
|
71,042,049
|
|
|
60,635,704
|
|
|
70,239,898
|
|
|
55,968,504
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
LEXARIA BIOSCIENCE CORP.
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited)
|
(Expressed in U.S. Dollars)
|
|
|
THREE
MONTHS ENDED
|
|
|
NINE MONTHS
ENDED
|
|
|
|
May 31
|
|
|
May 31
|
|
|
May 31
|
|
|
May 31
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Net Loss
|
$
|
(3,424,912
|
)
|
$
|
(344,086
|
)
|
$
|
(5,382,003
|
)
|
$
|
(1,209,621
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on marketable securities
|
|
(7,383
|
)
|
|
-
|
|
|
(7,383
|
)
|
|
-
|
|
Comprehensive loss
|
|
(3,432,295
|
)
|
|
(344,086
|
)
|
|
(5,389,386
|
)
|
|
(1,209,621
|
)
|
The accompanying notes are an integral part of these
consolidated financial statements.
LEXARIA BIOSCIENCE CORP.
|
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
|
(Expressed in U.S. Dollars)
|
|
|
NINE MONTHS
ENDED
|
|
|
|
May 31
|
|
|
May 31
|
|
|
|
2018
|
|
|
2017
|
|
Cash flows used in
operating activities
|
|
|
|
|
|
|
Net loss for the period
|
$
|
(5,382,003
|
)
|
$
|
(1,209,621
|
)
|
Adjustments to reconcile net
loss to net cash used in operating activities:
|
|
|
|
|
|
|
Stock based compensation (Note 12)
|
|
2,102,704
|
|
|
36,642
|
|
Depreciation and amortization
|
|
1,364
|
|
|
1,116
|
|
Inventory write-off (Note 8)
|
|
12,609
|
|
|
4,651
|
|
Non-Cash Consideration for Licensing revenue
|
|
(25,000
|
)
|
|
-
|
|
Shares to be issued for services consulting
|
|
640,000
|
|
|
-
|
|
Shares issued for services consulting
|
|
183,426
|
|
|
71,760
|
|
Warrants issued for services consulting
|
|
1,063,270
|
|
|
220,528
|
|
Change in
working capital:
|
|
|
|
|
|
|
Accounts and other receivables
|
|
(222,484
|
)
|
|
(19,815
|
)
|
Inventory
|
|
(21,910
|
)
|
|
1,692
|
|
Prepaid expenses
|
|
(12,191
|
)
|
|
27,352
|
|
Accounts payable and accrued liabilities
|
|
29,959
|
|
|
(60,054
|
)
|
Due
to related parties
|
|
(33,580
|
)
|
|
(273,925
|
)
|
Unearned revenue
|
|
(17,083
|
)
|
|
7,100
|
|
Net cash used in operating activities
|
|
(1,680,919
|
)
|
|
(1,192,574
|
)
|
|
|
|
|
|
|
|
Cash flows used in investing
activities
|
|
|
|
|
|
|
Investment in Poviva
|
|
(70,000
|
)
|
|
-
|
|
Patent Costs
|
|
(58,640
|
)
|
|
(9,699
|
)
|
Net cash used in investing
activities
|
|
(128,640
|
)
|
|
(9,699
|
)
|
|
|
|
|
|
|
|
Cash flows from financing
activities
|
|
|
|
|
|
|
Repayment of loan to a
related party
|
|
-
|
|
|
(50,000
|
)
|
Proceeds
from issuance of equity
|
|
1,339,591
|
|
|
3,947,842
|
|
Net cash from financing activities
|
|
1,339,591
|
|
|
3,897,842
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
|
|
(469,968
|
)
|
|
2,695,569
|
|
Cash, beginning of
period
|
|
2,533,337
|
|
|
93,409
|
|
Cash, end of period
|
$
|
2,063,369
|
|
$
|
2,788,978
|
|
Supplemental information
on cash flows:
|
|
|
|
|
|
|
Interest paid in cash
|
$
|
-
|
|
$
|
4,890
|
|
Income
tax paid in cash
|
$
|
-
|
|
$
|
-
|
|
Common shares issued to
settle accounts payable (shares issued for services)
|
$
|
12,000
|
|
$
|
53,000
|
|
Stock
based compensation recognized in prepaid expenses
|
$
|
-
|
|
$
|
19,075
|
|
Reclassification of NCI
to additional paid-in capital on acquisition
|
$
|
238,476
|
|
$
|
-
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
LEXARIA BIOSCIENCE CORP.
|
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
|
(Expressed in U.S. Dollars)
|
|
|
COMMON STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADDITIONAL
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
PAID-IN
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS
|
|
|
|
SHARES
|
|
|
AMOUNT
|
|
|
CAPITAL
|
|
|
DEFICIT
|
|
|
NCI
|
|
|
AOCI
|
|
|
EQUITY
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Balance, August 31,
2016
|
|
51,288,477
|
|
|
51,288
|
|
|
11,515,419
|
|
|
(11,300,662
|
)
|
|
(178,288
|
)
|
|
-
|
|
|
87,757
|
|
Shares issued for services
|
|
939,354
|
|
|
938
|
|
|
223,722
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
224,660
|
|
Non-controlling Interest
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(60,188
|
)
|
|
-
|
|
|
(60,188
|
)
|
Stock based compensation (Note 12)
|
|
-
|
|
|
-
|
|
|
93,968
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
93,968
|
|
Private placement of shares,
net of issuance cost
|
|
4,104,280
|
|
|
4,105
|
|
|
1,537,637
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,541,742
|
|
Warrants issued for services
|
|
-
|
|
|
-
|
|
|
292,750
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
292,750
|
|
Exercise of stock options
|
|
1,014,125
|
|
|
1,015
|
|
|
176,247
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
177,262
|
|
Exercise of warrants
|
|
10,322,025
|
|
|
10,322
|
|
|
2,222,710
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,233,032
|
|
Conversion of debt
|
|
307,500
|
|
|
308
|
|
|
45,817
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
46,125
|
|
Net loss and comprehensive loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,869,277
|
)
|
|
-
|
|
|
-
|
|
|
(1,869,277
|
)
|
Balance August 31,
2017
|
|
67,975,761
|
|
|
67,976
|
|
|
16,108,270
|
|
|
(13,169,939
|
)
|
|
(238,476
|
)
|
|
-
|
|
|
2,767,831
|
|
Non-controlling Interest (Note 9)
|
|
-
|
|
|
-
|
|
|
(308,476
|
)
|
|
-
|
|
|
238,476
|
|
|
-
|
|
|
(70,000
|
)
|
Shares issued for services
|
|
223,690
|
|
|
224
|
|
|
183,202
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
183,426
|
|
Shares to be issued for services
|
|
500,000
|
|
|
500
|
|
|
639,500
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
640,000
|
|
Stock based compensation
(Note 12)
|
|
-
|
|
|
-
|
|
|
2,102,704
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,102,704
|
|
Warrants issued for services
|
|
-
|
|
|
-
|
|
|
1,063,270
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,063,270
|
|
Exercise of stock options
|
|
298,375
|
|
|
298
|
|
|
70,904
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
71,202
|
|
Exercise of warrants
|
|
3,899,479
|
|
|
3,899
|
|
|
1,264,490
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,268,389
|
|
Net loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(5,382,003
|
)
|
|
-
|
|
|
-
|
|
|
(5,382,003
|
)
|
Other Comprehensive income (loss)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(7,383
|
)
|
|
(7,383
|
)
|
Balance, May 31, 2018
(Unaudited)
|
|
72,897,305
|
|
|
72,897
|
|
|
21,123,864
|
|
|
(18,551,942
|
)
|
|
-
|
|
|
(7,383
|
)
|
|
2,637,436
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
LEXARIA BIOSCIENCE CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
May 31, 2018
|
(Expressed in U.S. Dollars)
|
|
(Unaudited)
|
|
The 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 have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included.
These unaudited interim consolidated
financial statements should be read in conjunction with the August 31, 2017
audited annual financial statements and notes thereto.
2.
|
Organization, Business and Going
Concern
|
Lexaria Biosciences Corp. (Lexaria,
or the Company) was formed on December 9, 2004 under the laws of the State of
Nevada as an independent oil and gas company engaged in the exploration,
development and acquisition of oil and gas properties in the United States and
Canada. In March of 2014, the Company began its entry into the bioscience and
alternative health and wellness business and discontinued its involvement in the
oil and gas business in November 2014. In May 2016, the Company also commenced
out-licensing its patented technology for improved delivery of bioactive
compounds that promotes healthy ingestion methods, lower overall dosing and
higher effectiveness in active molecule delivery. The Company has its office in
Kelowna, BC, Canada.
On November 2, 2017, the Company
announced it acquired 100% ownership interest in its majority owned subsidiary
PoViva Tea, LLC (Note 9). The Company previously owned a 51% interest in PoViva
Tea, LLC and acquired the remaining 49% interest. Compensation was $70,000, a
waiver on certain debts, and a 5%, 20-year royalty on net profits of ViPova
Tea
TM
tea, coffee, and hot chocolate sales. No Lexaria stock or
options were issued. The 20-year royalty was determined to have a $Nil fair
value as PoViva operates at a loss and future profitability is uncertain.
The Companys unaudited interim
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States applicable to a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities and commitments in the normal course of business.
The Company requires additional funds
to maintain its operations and developments. Managements plans in this regard
are to raise equity and debt financing as required, but there is no certainty
that such financing will be available or that it will be available at acceptable
terms. The outcome of these matters cannot be predicted at this time.
3.
|
Business Risk and
Liquidity
|
The Company is subject to several
categories of risk associated with its operating activities. The production and
sale of alternative health products is an emerging industry in which business
practices are not yet standardized and are subject to frequent scrutiny and
evaluation by federal, state, provincial, and municipal authorities, academics, and media outlets, among
others. Although we intend to develop our businesses in accordance with best
ethical practices, we may suffer negative publicity if we, our partners,
contractors, or customers are found to have engaged in any environmentally
insensitive practices or other business practices that are viewed as
unethical.
Our operations may require licenses and
permits from various governmental authorities. We believe that we will be able
to obtain all necessary licenses and permits under applicable laws and
regulations for our operations and believe we will be able to comply in all
material respects with the terms of such licenses and permits. However, such
licenses and permits are subject to change in various circumstances. There can
be no guarantee that we will be able to obtain or maintain all necessary
licenses and permits, and failing to obtain or retain required licenses could
have a materially adverse effect on the Company.
Lexaria and its subsidiaries are not
involved directly or indirectly in the cultivation, processing, distribution, or
utilization of Cannabis or Cannabis derived components. All of Lexarias
consumer products utilize legally sourced Hemp and Hemp components in their
production. Lexaria does have an ancillary involvement risk via out-licensing of
its patented technology to licensees that choose to utilize its technology to
manufacture products that contain locally or state approved but federally
regulated and controlled contents. There can be no guarantee that changes in the
regulatory framework and environment will not occur and such changes could have
a materially adverse effect on the Company. It is possible some jurisdictions
may even interpret Lexarias ancillary involvement as in contravention with
regulations.
4.
|
Basis of Consolidation
|
The unaudited interim consolidated
financial statements include the financial statements of the Company, its
wholly-owned subsidiary, Lexaria CanPharm Corp. which was incorporated on April
4, 2014 under the laws of Canada, and wholly-owned subsidiary PoViva Tea, LLC
(2017 - 51% owned) which was incorporated on December 12, 2014, under the laws
of the State of Nevada. All significant inter-company balances and transactions
have been eliminated.
5.
|
Estimates and Judgments
|
The preparation of financial statements
in conformity with U.S GAAP requires management to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenue, and expenses.
The estimates and the associated assumptions are based on historical experience
and various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making the judgments about
carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates.
In preparing these unaudited interim
consolidated financial statements, the significant judgments made by management
in applying the Companys accounting policies and the key sources of estimation
uncertainty were the same as those applied to the consolidated financial
statements for the year ended August 31, 2017, with the addition of:
Marketable Securities
All marketable securities have been
classified as available for sale and are carried at fair value. Unrealized
gains and losses, net of any related tax effects, are excluded from earnings and
are included in other comprehensive income (expense), net. The Company regularly
evaluates whether declines in the fair value of its investments below their cost
are other than temporary. The evaluation includes consideration of the cause of
the impairment, the number of securities in an unrealized loss position, the
severity and duration of the unrealized losses, whether the Company has the
intent to sell the securities, and whether it is more likely than not that the
Company will be required to sell the securities before their recovery. The
Company has not recorded any realized losses or declines in value judged to be
other than temporary on its marketable securities.
6.
|
Recent Accounting Guidance
|
Effective March 1, 2018, the Company
began recognizing revenue in accordance with FASB ASC Topic 606, Revenue from
Contracts with Customers (ASC 606). The Company adopted ASC 606 utilizing the
modified retrospective method, meaning the cumulative effect of applying the
standard was recognized to opening retained earnings as of September 1, 2017
with $NIL effect. ASC 606 provides for a five-step model that includes
identifying the contract with a customer, identifying the performance
obligations in the contract, determining the transaction price, allocating the
transaction price to the performance obligations, and recognizing revenue when,
or as, an entity satisfies a performance obligation.
In January 2016, FASB issued an ASU,
Subtopic 825-10, to amend certain aspects of recognition, measurement,
presentation, and disclosure of financial instruments. Most prominent among the
amendments is the requirement for changes in fair value of equity investments,
with certain exceptions, to be recognized through profit or loss rather than
other comprehensive income. The new standard will be effective for the Company
beginning September 1, 2018. We estimate an $8,000 impact on the Companys
financial statements upon implementation.
In February 2016 FASB issued ASU No.
2016-02, Leases (Topic 842) which supersedes FASB ASC Topic 840, Leases (Topic
840) and provides principles for the recognition, measurement, presentation, and
disclosure of leases for both lessees and the lessors. The new standard requires
the lessees to apply a dual approach, classifying leases as either finance or
operating leases based on the principle of whether or not the lease is
effectively a financed purchase by the lessee. The classification will determine
whether lease expense is recognized based on an effective interest method or on
a straight-line basis over the term of the lease, respectively. A lessee is also
required to record a right-of-use asset and a lease liability for all leases
with a term of greater than twelve months regardless of classification. Leases
with a term of twelve months or less will be accounted for similar to existing
guidance for operating leases. The standard is effective for annual and interim
periods beginning after December 15, 2018, with early adoption permitted upon
issuance. When adopted, the Company does not expect this guidance to have a
material impact on its consolidated financial statements.
In June 2016, the FASB issued an ASU No
2016-13 (Topic 326) to replace the incurred loss impairment methodology in
current U.S. GAAP with a methodology that reflects expected credit losses and
requires consideration of a broader range of reasonable and supportable
information to inform credit loss credit loss estimates. For trade and other
receivables, loans and other financial instruments, the Company will be required
to use a forward-looking expected loss model rather than the incurred loss model
for recognizing credit losses which reflects losses that are probable. Credit
losses relating to available for sale debt securities will also be recorded
through an allowance for credit losses rather than as a reduction in the
amortized cost basis of the securities. The new standard will be effective for
Lexaria beginning September 1, 2020, with early adoption permitted. Application
of the amendments is through a cumulative-effect adjustment to deficit as of the
effective date. The Company is currently assessing the impact of the standard on
its consolidated financial statements. However, to date the Company has not
recognized any credit losses.
In February 2018, the FASB issued ASU
No. 2018-02, Income StatementReporting 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 is currently evaluating the effect
this ASU will have on its consolidated financial statements and related
disclosures, but does not expect it to have a material impact on its
consolidated financial statements.
7.
|
Accounts and Other
Receivables
|
|
|
|
May 31
|
|
|
August 31
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
$
|
|
|
$
|
|
|
Trade and deposits receivable
|
|
1,556
|
|
|
1,778
|
|
|
Territory License Fees receivable (Note 13)
|
|
222,347
|
|
|
-
|
|
|
Sales tax receivable
|
|
43,874
|
|
|
43,515
|
|
|
|
|
267,777
|
|
|
45,293
|
|
|
|
|
May 31
|
|
|
August 31
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
$
|
|
|
$
|
|
|
Raw materials
|
|
18,870
|
|
|
14,220
|
|
|
Work in progress
|
|
41,044
|
|
|
10,688
|
|
|
Finished goods
|
|
16,561
|
|
|
42,266
|
|
|
|
|
76,475
|
|
|
67,174
|
|
During the nine month period ended May
31, 2018, the Company wrote down $12,609 (2017 - $4,651) of inventory to reflect
its estimated net realizable value.
9.
|
Alternative Health
Products
|
On November 12, 2014, the Company
signed an agreement with Poppys Teas LLC (PoViva) and acquired 51% of
ViPova. On November 2, 2017, Lexaria announced that it acquired a 100%
ownership interest in PoViva Tea, LLC, via cash compensation of $70,000, a
waiver on certain debts owed to Lexaria, and a 5%, 20-year royalty on net
profits of ViPova Tea
TM
tea, coffee, and hot chocolate sales. No
Lexaria stock or options were issued. The 20-year royalty was determined to have
a $Nil fair value as PoViva operates at a loss and future profitability is
uncertain.
On August 11, 2015, Lexaria signed a
license agreement with PoViva Tea LLC for $10,000, granting Lexaria a 35-year
non exclusive worldwide license to unencumbered use of PoViva Tea LLCs IP
Rights, including rights of resale. This license agreement ensured at that time
that Lexaria had full access to the underlying patent pending infusion
Technology (the Technology).
Patents
On December 12, 2017, Lexaria received
patent US 9,839,612 B2 from the United States Patent and Trademark Office
(USPTO) for the use of its technology as a delivery platform for all
cannabinoids including THC; fat soluble vitamins; non steroidal
anti-inflammatory pain medications (NSAIDs); and nicotine.
On March 22, 2018 the Company announced
it received a new Notice of Allowance from the USPTO providing for composition
of matter claims that protect the specific combination of substances which
enable improved taste and bioabsorption properties of its DehydraTECH
technology for the delivery of cannabinoids. On May 22, 2018 patent US 9,974,739
B2, Food and Beverage Compositions Infused With Lipophilic Active Agents and
Methods of Use Thereof was granted.
On April 11, 2018 the Company announced
it received a new Notice of Allowance from the USPTO providing claims that
protect processes for making specific compositions of matter for enhanced
cannabinoid delivery utilizing its DehydraTECH technology.
On May 15, 2018 patent US 9,972,680 B2, Food and Beverage Compositions Infused
With Lipophilic Active Agents and Methods of Use Thereof was granted.
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
|
A continuity schedule for patents is
presented below:
|
|
|
May 31
|
|
|
August 31
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
$
|
|
|
$
|
|
|
Balance Beginning
|
|
62,827
|
|
|
53,997
|
|
|
Additions
|
|
58,640
|
|
|
9,699
|
|
|
Amortization*
|
|
(900
|
)
|
|
(869
|
)
|
|
Balance Ending
|
|
120,567
|
|
|
62,827
|
|
* The patents are amortized over
their legal life of 20 years.
On May 14, 2016, the Company entered
into a licensing agreement (the Licensing Agreement) with an arms length
party (the Licensee) allowing the Licensee, for a two-year period, to utilize
the Companys Technology to create, test, manufacture, and sell
marijuana-infused consumable and/or topical products, in the state of Colorado,
with an option of extending the terms of the Licensing Agreement to Washington,
Oregon, and California (the Territorial License). In addition to the granting
of the license, the Company is required to provide support services to the
Licensee in connection with the use of the Companys Technology during the term
of the Licensing Agreement.
The Company determined that the
provision of the support services were a separate deliverable under the
licensing agreement. As the support services are not to be sold on a stand-alone
basis, the Company was unable to establish a vendor-specific objective evidence
of fair value of such services to be able to objectively allocate the Territory
License fee receipts between the license and the support services. Accordingly,
the Company recognized revenue on a pro-rated basis over the term of the
Licensing agreement. The Company has since determined that the support services
form an insignificant portion of the licensing contract as they are primarily
completed prior to delivery of the technology and that delivery of the license
is complete when the Technology is transferred to the Licensee. During the nine
month period ended May 31, 2018, the Company recognized $17,083 (Note 13), of
unearned revenue.
A continuity schedule of unearned
revenue is presented below:
|
|
|
May 31
|
|
|
August 31
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
$
|
|
|
$
|
|
|
Balance Beginning
|
|
17,083
|
|
|
12,500
|
|
|
Territorial License fees received
|
|
-
|
|
|
30,000
|
|
|
Advance payments on product
sales
|
|
-
|
|
|
4,900
|
|
|
Earned revenue
|
|
(17,083
|
)
|
|
(30,317
|
)
|
|
Balance - Ending
|
|
-
|
|
|
17,083
|
|
11.
|
Common Shares and Warrants
|
Fiscal 2018 Activity
On October 27, 2017 the Company
extended the expiration date of warrants originally issued on January 9, 2017,
with a one-year expiration date. The warrant quantity and exercise price remain
unchanged, 500,000 warrants exercisable at $0.44, will now expire on January 9,
2019. There was a $Nil effect on the modification of the warrants.
December 1, 2017, Lexaria issued 14,634
restricted common shares at a price of $0.82 per shares to settle $12,000 of
debt to a director of the Company (shares issued for services). The Company
awarded a total of 209,056 restricted common shares at an issuance price of
$0.82 for a value of $171,426 as required by intellectual property performance
thresholds within an existing management consulting contract with the Company
divided between three officers and three managers. Lexaria awarded 250,000
warrants with an exercise price of $0.83 and an expiration date of December 1,
2019 to a manager of the Company, pursuant to a management contract. The
warrants were valued at $124,476 and included in consulting expense.
January 17, 2018 the Company announced
that it has engaged JGRNT Capital Corp to provide strategic consulting services
to the Company for a one-year term and awarded 500,000 warrants, each valid to
purchase one common share at a price of $1.83 and valid for two years. The
warrants were valued at $567,647 and included in consulting expense.
May 28, 2018, the Company announced it
entered into a consulting contract granting 250,000 warrants with an exercise
price of $1.55 expiring three years after issuance. These warrants were valued
at $319,699 and included in consulting expense.
May 31, 2018, the Company accrued
500,000 shares to be issued, 250,000 shares at an issuance price of $1.24 and
250,000 shares at an issuance price of $1.32 for restricted common shares as
required by intellectual property performance thresholds within existing
management consulting contracts with the Company and $640,000 was included in
consulting expense.
During the period ended May 31, 2018
the Company recognized $51,488 in consulting expense for warrants previously
granted to a consultant upon vesting.
During the period ended May 31, 2018
the Company issued 35,913 warrants with an exercise price of $0.60 expiring
April 3, 2019. These warrants were valued at $21,646 and recorded as a share
issue cost within additional paid in capital for a net effect of $Nil.
A continuity schedule for warrants is
presented below:
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
Number of
|
|
|
Exercise Price
|
|
|
|
|
Warrants
|
|
|
$
|
|
|
Balance, August 31, 2016
|
|
12,136,241
|
|
|
0.18
|
|
|
Cancelled/Expired
|
|
(1,004,150
|
)
|
|
0.22
|
|
|
Exercised
|
|
(10,322,025
|
)
|
|
0.23
|
|
|
Issued
|
|
8,034,440
|
|
|
0.36
|
|
|
Balance, August 31, 2017
|
|
8,844,506
|
|
|
0.29
|
|
|
Cancelled/Expired
|
|
(55,000
|
)
|
|
0.27
|
|
|
Exercised
|
|
(3,899,479
|
)
|
|
0.33
|
|
|
Issued
|
|
1,035,913
|
|
|
1.48
|
|
|
Balance, May 31, 2018
|
|
5,925,940
|
|
|
0.49
|
|
The fair value of warrants granted as
compensation warrants was estimated as of the date of the grant by using the
Black-Scholes option pricing model with the following assumptions:
|
|
|
May 31
|
|
|
|
|
2018
|
|
|
Expected volatility
|
|
100% 154%
|
|
|
Risk-free interest rate
|
|
1.21%2.60%
|
|
|
Expected life
|
|
1.21 3.00
years
|
|
|
Dividend yield
|
|
0.00%
|
|
|
Estimated fair value per warrant
|
|
$0.40 $1.28
|
|
A summary of warrants outstanding as of
May 31, 2018 is presented below:
|
# of Warrants
|
Weighted
|
Weighted
|
|
|
Average
|
Average
|
|
|
Remaining
|
Exercise Price
|
|
|
Contractual Life
|
$
|
|
450,000
|
0.20 years
|
0.14
|
|
1,841,666
|
0.25 years
|
0.14
|
|
500,000
|
0.61 years
|
0.44
|
|
972,065
|
0.84 years
|
0.60
|
|
212,209
|
0.84 years
|
0.42
|
|
200,000
|
1.05 years
|
0.29
|
|
750,000
|
3.36 years
|
0.14
|
|
250,000
|
1.50 years
|
0.83
|
|
500,000
|
1.63 years
|
1.83
|
|
250,000
|
2.99 years
|
1.55
|
|
5,925,940
|
1.10 years
|
0.49
|
The Company has established its 2010
Stock Option Plan whereby the board of directors may, from time to time, grant
up to 1,980,000 stock options to officers and employees, and its 2014 Stock
Option Plan whereby the board of directors may grant up to 3,850,000 stock
options to directors, officers, employees, and consultants. Stock options
granted must be exercised no later than five years from the date of grant or
such lesser period as determined by the Companys board of directors. The
exercise price of an option is equal to or greater than the closing market price
of the Companys common shares on the day preceding the date of grant. The
vesting terms of each grant are set by the board of directors.
Fiscal 2018 Activity
On December 1, 2017, Lexaria granted
200,000 stock options with an exercise price of $0.83 and an expiration date of
December 1, 2022 to an officer of the Company, pursuant to an existing
management contract. The options were valued at $122,562 and included in
consulting expense.
On May 31, 2018, the Company announced
that that pursuant to existing stock option plans, it has granted stock options
to directors, officers, employees and consultants that enable the option holders
to purchase up to 1,725,000 common shares of the Company at a price of $1.53 for
a period of five years, vesting immediately. The options were valued at
$1,980,142 and included in consulting expense.
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:
|
|
May 31
|
|
|
2018
|
|
Expected volatility
|
100% - 101%
|
|
Risk-free interest rate
|
2.13% - 2.68%
|
|
Expected life
|
5.00 years
|
|
Dividend yield
|
0.00%
|
|
Estimated fair value per warrant
|
$0.61 - $1.15
|
A continuity schedule for stock options
is presented below:
|
|
|
|
|
|
Weighted
|
|
|
|
|
Options
|
|
|
Average Exercise
|
|
|
|
|
Outstanding
|
|
|
Price
|
|
|
|
|
|
|
|
$
|
|
|
Balance, August 31,
2016
|
|
3,485,000
|
|
|
0.15
|
|
|
Exercised
|
|
(1,014,125
|
)
|
|
0.17
|
|
|
Granted
|
|
850,000
|
|
|
0.14
|
|
|
Balance, August 31, 2017
|
|
3,320,875
|
|
|
0.15
|
|
|
Exercised
|
|
(298,375
|
)
|
|
0.24
|
|
|
Granted
|
|
1,925,000
|
|
|
1.46
|
|
|
Balance, May 31, 2018
|
|
4,947,500
|
|
|
0.65
|
|
A summary of the stock options as at
May 31, 2018, is presented below:
|
Number of Stock
|
Number of Stock
|
Weighted
|
Weighted
|
Aggregate
|
|
Options
|
Options
|
Average
|
Average
|
Intrinsic Value
|
|
|
Exercisable
|
Remaining
|
Exercise Price
|
|
|
|
|
Contractual Life
|
$
|
$
|
|
247,500
|
247,500
|
0.05 years
|
0.09
|
368,550
|
|
990,000
|
990,000
|
1.56 years
|
0.10
|
1,465,200
|
|
275,000
|
275,000
|
1.68 years
|
0.09
|
409,500
|
|
550,000
|
550,000
|
1.82 years
|
0.09
|
819,000
|
|
110,000
|
110,000
|
2.30 years
|
0.17
|
154,800
|
|
300,000
|
300,000
|
2.88 years
|
0.11
|
441,000
|
|
200,000
|
200,000
|
4.01 years
|
0.37
|
242,000
|
|
350,000
|
50,000
|
4.06 years
|
0.29
|
449,750
|
|
200,000
|
200,000
|
4.06 years
|
0.83
|
150,000
|
|
1,725,000
|
1,725,00
|
5.00 years
|
1.53
|
86,250
|
|
4,947,500
|
4,647,500
|
3.21 years
|
0.65
|
4,586,050
|
|
|
|
Nine Months
Ended
|
|
|
|
|
May 31
|
|
|
May 31
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
$
|
|
|
$
|
|
|
Product sales
|
|
14,188
|
|
|
12,932
|
|
|
Licensing revenue
|
|
321,683
|
|
|
37,392
|
|
|
Freight revenue
|
|
1,062
|
|
|
756
|
|
|
|
|
336,933
|
|
|
51,080
|
|
The Company recognized licensing
revenue on a pro-rated basis over the term of the Licensing Agreement (Note 10)
and additional licensing fees as they were earned. The Company has determined
that the support services form an insignificant portion of the licensing
contract as they are substantially completed prior to delivery of the Technology
and that delivery of the license is complete when the Technology is transferred
to the licensee. Additional licensing fees and royalties are recognized as they
are earned. During the period ended May 31, 2018, the Company recognized $17,083
of deferred revenue (Note 10) and $304,600 of additional Licensing fees (Note
7).
The additional Licensing fees consist
of IP licensing fees for transfer of the Technology with the signing of
definitive agreements for the DehydraTECH
TM
technology with: the
Cannfections Group Inc. for a 7-year term for infused chocolates and candies to
be developed and sold in Canada and internationally, NeutriSci International
Inc. for a 2-year term for the manufacturing and sale of CBD based products,
Biolog, Inc. for a 5-year term to manufacture food and beverage infused products
to be sold in the United States, GP Holdings LLC for infused beverages and
topical skin products for a 5-year term, and Nuka Enterprises LLC for their 1906
Chocolates for a 10 year term to include chocolate, candies, beverages, capsules
and pills, and topical creams, replacing their chocolate only 2 year contract.
The additional Licensing fees include payments due upon transfer of the
Technology and installment payments that are receivable within 12 months (Note
7).
14.
|
Related Party Transactions
|
For the period ended May 31, 2018 the
Company paid/accrued the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 31
|
|
|
|
|
Cash
|
|
|
|
|
|
Non-Cash
|
|
|
|
|
|
2018
|
|
|
Cash
|
|
|
|
|
|
Non-Cash
|
|
|
|
|
|
2017
|
|
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
Total $
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
Total $
|
|
|
Management, consulting and
accounting services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C.A.B Financial
Services
(1)
|
|
108,000
|
|
|
10%
|
|
|
1,002,705
|
|
|
90%
|
|
|
1,110,705
|
|
|
100,000
|
|
|
100%
|
|
|
-
|
|
|
0%
|
|
|
100,000
|
|
|
M&E Services
Ltd.
(1)
|
|
58,140
|
|
|
10%
|
|
|
501,101
|
|
|
90%
|
|
|
559,241
|
|
|
35,311
|
|
|
100%
|
|
|
-
|
|
|
0%
|
|
|
35,311
|
|
|
Docherty Management 106,067
Limited
(1)
|
|
|
|
|
10%
|
|
|
968,329
|
|
|
90%
|
|
|
1,074,396
|
|
|
89,854
|
|
|
68%
|
|
|
42,000
|
|
|
32%
|
|
|
131,854
|
|
|
Company
controlled by a director
|
|
12,000
|
|
|
17%
|
|
|
57,395
|
|
|
83%
|
|
|
69,395
|
|
|
36,000
|
|
|
100%
|
|
|
-
|
|
|
0%
|
|
|
36,000
|
|
|
Director
|
|
-
|
|
|
0%
|
|
|
57,395
|
|
|
100%
|
|
|
57,395
|
|
|
-
|
|
|
0%
|
|
|
-
|
|
|
0%
|
|
|
-
|
|
|
|
|
284,207
|
|
|
|
|
|
2,586,925
|
|
|
|
|
|
2,871,132
|
|
|
261,165
|
|
|
|
|
|
42,000
|
|
|
|
|
|
303,165
|
|
(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 (as of June 1 2017), and Docherty Management Limited is
owned by the President of the Company.
The Company granted a total of
1,700,000 incentive stock options to officers and directors of the Company with
a fair value of $1,844,425 and included in Consulting expense (Note 12).
Due to related parties:
As at May 31, 2018, $9,110 (August 31,
2017 - $42,690) was payable to related parties included in due to related
parties.
The related party transactions are
recorded at the exchange amount established and agreed to between the related
parties.
The Companys operations involve the
development and usage, including licensing, of its proprietary nutrient infusion
Technology. Lexaria is centrally managed and its chief operating decision
makers, being the president and the CEO, use the consolidated and
other financial information supplemented by revenue information by category of
alternative health consumer products and technology licensing to make
operational decisions and to assess the performance of the Company. The Company
has identified two reportable segments: Intellectual Property Licensing and
Consumer Products.
|
|
|
IP Licensing
|
|
|
Consumer Products
|
|
|
Corporate
|
|
|
Consolidated Total
|
|
|
External Revenue
|
$
|
321,683
|
|
$
|
15,250
|
|
|
|
|
$
|
336,933
|
|
|
Cost of Goods Sold
|
|
-
|
|
|
(22,239
|
)
|
|
-
|
|
|
(22,239
|
)
|
|
Operating Expenses
|
|
(1,712,237
|
)
|
|
(131,265
|
)
|
|
(3,853,195
|
)
|
|
(5,696,697
|
)
|
|
Segment Loss
|
|
(1,390,554
|
)
|
|
(138,254
|
)
|
|
(3,853,195
|
)
|
|
(5,382,003
|
)
|
|
Total Assets
|
|
120,567
|
|
|
77,867
|
|
|
2,510,645
|
|
|
2,709,079
|
|
16.
|
Commitments, Significant Contracts and
Contingencies
|
Management Agreements
As at May 31, 2018, the Company is
party to the following contractual commitments:
|
Party
|
Monthly Commitment
|
Expiry Date
|
|
C.A.B Financial Services (1)
(2)
|
$12,000
|
November 30,
2018
|
|
Docherty Management Ltd. (1) (2)
|
CAD $15,000
|
March 1, 2019
|
|
M&E Services Ltd. (1)
|
CAD $8,000
|
June 1, 2018
|
|
Corporate Development(3) (4)
|
CAD $4,000
|
Month to Month
|
|
Corporate Development(3) (4)
|
CAD $1,000
|
January 16,
2019
|
|
Advisory Agreement
|
CAD $4,000
|
Month to Month
|
|
Investor relations and
communications Alex Blanchard Capital(1)
|
CAD $7,500
|
Month to Month
|
|
Office Management (5) (6)
|
CAD $6,500
|
December 1, 2019
|
|
Research & Development
|
CAD $3,854
|
June 19, 2018
|
Revenue Incentive Milestones
(1)
100,000 common shares
issuable upon the Company achieving non-refundable revenues of $200,000 to any
single customer in any consecutive 60-day period for the first 12 months of the
contract, plus a further 50,000 common shares issuable upon achieving
non-refundable revenues of $200,000 to any single customer in any consecutive
60-day period, during the 13th - 24th months of the contract. If the Company
achieves non-refundable revenues of $500,000 in any fiscal quarter, a further
200,000 common shares may be issuable during the first 12 months of the contract
and 100,000 common shares during the 13th - 24th months of the contract.
Intellectual Property Milestones
(2)
During the term of the
agreement, for each provisional patent application substantively devised and
successfully created, written, and filed with the U.S. Patent Office for the
Companys Technology, 250,000 restricted common shares of the Company will be
issuable (Note 11).
Corporate Development
Milestones
(3)
For new customers
sourced by the Consultant for the first 12 months of the contract; for combined
Lexaria Energy and ViPova products and including all combined sales efforts
and/or technology licensing revenues, achieving non-refundable revenues of
$200,000 to any single customer in any consecutive 60-day period would result in
a restricted common share award of 100,000 Company shares (not achieved); and,
during the 13th - 24th months of the contract; a
restricted common share award of 50,000 Company shares may be achieved; this
clause is limited to one payment per customer during the 12-month period, but
payable on each customer that meets these sales/licensing thresholds.
(4)
For new customers
sourced by the Consultant for the first 12 months of the contract; for combined
Lexaria Energy and ViPova products and including all combined sales efforts
and/or technology licensing revenues, achieving non-refundable revenues of
$500,000 in any fiscal quarter would result in a restricted common share award
of 200,000 Company shares (not achieved); and, during the 13th - 24th months of
the contract; for combined Lexaria Energy and ViPova products and including all
sales efforts, achieving non-refundable revenues of $500,000 in any fiscal
quarter would result in a restricted common share award of 100,000 Company
shares; this clause is limited to one payment per fiscal quarter.
Office Management
Milestones
(5)
Until December 1, 2018
for combined Lexaria Energy and ViPova products and including all combined sales
efforts and/or technology licensing revenues, achieving non-refundable revenues
of $200,000 would result in a restricted common share award of 75,000 Company
shares; and from December 2, 2018, until December 1, 2019 for combined Lexaria
Energy and ViPova products and including all sales efforts, achieving
non-refundable revenues of $200,000 would result in a restricted common share
award of 40,000 Company shares; this clause limited to one payment per customer
during the 24-month period, but payable on each customer that meets these
sales/licensing thresholds;
(6)
Until December 1, 2018
for combined Lexaria Energy and ViPova products and including all combined sales
efforts and/or technology licensing revenues, achieving non-refundable revenues
of $500,000 in any fiscal quarter would result in a restricted common share
award of 150,000 Company shares; and, from December 2, 2018, until December 1,
2019 for combined Lexaria Energy and ViPova products and including all sales
efforts, achieving non-refundable revenues of $500,000 in any fiscal quarter
would result in a restricted common share award of 80,000 Company shares; this
clause limited to one payment per fiscal quarter;
Prepaid expenses consist of the
following at May 31, 2018 and August 31, 2017:
|
|
|
May 31
|
|
|
August 31
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
$
|
|
|
$
|
|
|
Advertising & Conferences
|
|
98,385
|
|
|
106,682
|
|
|
Consulting Fees
|
|
8,841
|
|
|
23,984
|
|
|
Office & Insurance
|
|
17,046
|
|
|
15,062
|
|
|
Legal Fees
|
|
37,610
|
|
|
3,963
|
|
|
|
|
161,882
|
|
|
149,691
|
|
18.
|
Marketable Securities
|
The components of Marketable Securities
were as follows:
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
Cost Basis
|
|
|
Unrealized Gains
|
|
|
Losses
|
|
|
Total
|
|
|
August 31, 2017 Common Stock
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
Total
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
May 31, 2018 Common Stock
|
|
25,000
|
|
|
-
|
|
|
(7,383
|
)
|
|
17,617
|
|
|
Total
|
$
|
25,000
|
|
$
|
-
|
|
|
($7,383
|
)
|
$
|
17,617
|
|
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.
|
a)
|
Subsequent to May 31, 2018, the Company issued 747,500
common shares from the exercise of 50,000 warrants at $0.60, 450,000
warrants at $0.14 and 247,500 stock options at $0.091 for a total of
$115,500.
|
|
b)
|
On June 28, 2018, the Company announced it filed a new
patent application with the United States Patent and Trademark Office for
innovation in treatment options related to central nervous system disease
or disorders titled: Enhancement of Delivery of Lipophilic Active Agents
Across the Blood- Brain Barrier and Methods for Treating Central Nervous
System Disorders under application number 62689096.
|
|
c)
|
Subsequent to May 31, 2018 the Company is forming new
wholly-owned US subsidiary companies. Four new subsidiary companies are
being created, one each for the market segments relating to
pharmaceutical, hemp, nicotine, and cannabis-related
applications.
|
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
Forward-Looking Statements
This quarterly report contains forward-looking statements as
that term is defined in the Private Securities Litigation Reform Act of 1995.
These statements relate to future events or our future financial performance. In
some cases, you can identify forward-looking statements by terminology such as
"may", "should", "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" 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. Except as required by
applicable law, including the securities laws of the United States, we do not
intend to update any of the forward-looking statements to conform these
statements to actual results.
Our unaudited interim consolidated financial statements are
stated in United States Dollars and are prepared in accordance with United
States Generally Accepted Accounting Principles. The following discussion should
be read in conjunction with our financial statements and the related notes that
appear elsewhere in this quarterly report. The following discussion contains
forward-looking statements that reflect our plans, estimates and beliefs. Our
actual results could differ materially from those discussed in the forward
looking statements. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed below and elsewhere in this
quarterly report, particularly in the section entitled "Risk Factors" of this
quarterly report.
In this quarterly report, unless otherwise specified, all
dollar amounts are expressed in United States dollars. All references to "CAD$"
refer to Canadian dollars and all references to "common shares" and "shares"
refer to the common shares in our capital stock, unless otherwise indicated.
As used in this quarterly report, the terms "Lexaria" "we",
"us", "our" and "Company" mean Company and/or our subsidiaries, unless otherwise
indicated.
General and Historical Overview of Our Business
The Company was formed on December 9, 2004 under the laws of
the State of Nevada as an independent oil and gas company engaged in the
exploration, development and acquisition of oil and gas properties in the United
States and Canada. In March of 2014, the Company began its entry into the
bioscience and alternative health and wellness business and discontinued its
involvement in the oil and gas business in November 2014. In May 2016, the
Company also commenced out-licensing its patented technology for improved
delivery of bioactive compounds that promotes healthy ingestion methods, lower
overall dosing and higher effectiveness in active molecule delivery. The Company
has its office in Kelowna, BC, Canada.
Effective at the opening of trading on October 28, 2009, our
shares of common stock began trading on the Canadian Securities Exchange
(formerly, Canadian National Stock Exchange) under the trading symbol LXX.
Our common stock is quoted on the OTCQX under the symbol "LXRP"
and on the Canadian Securities Exchange under the symbol LXX.
In 2014, the Company submitted an application to enter the
legal medical marijuana business in Canada and also launched a hemp oil-based
food supplement company in the USA.
The Company entered into a joint venture agreement with
Enertopia Corp for a prospective medical marijuana business under the Canadian
Marijuana for Medical Purposes Regulations (MMPR) for a 49% net ownership
interest in the business (Enertopia 51%) utilizing an identified location in
Burlington, Ontario.
On June 26, 2015, we entered into a definitive agreement with
Enertopia Corp. and Shaxon Enterprises Ltd. to sell our 49% interest in the
Burlington Joint Venture and the MMPR application number 10MMPR0610. Pursuant to
the agreement, the joint venture received a non-refundable $10,000 deposit and
is entitled to receive up to $1,500,000 in milestone payments upon the
Burlington facility becoming licensed under the MMPR. All payments made pursuant
to the agreement would be divided 51% to Enertopia Corp. and 49% to our Company.
Notwithstanding the foregoing, we can neither guarantee nor provide a meaningful
time estimate regarding the grant of a production license for the Burlington
facility.
The Companys food sciences activities include the development
of our proprietary nutrient infusion technologies for the production of
superfoods, and the production of enhanced food products under our two consumer
product brands, ViPova and Lexaria Energy. The Companys patented lipid
nutrient infusion technology DehydraTECH
TM
is believed to improve
taste, rapidity and delivery of bioactive compounds that include cannabinoids,
vitamins NSAIDs Nicotine and other molecules compared to what is possible
without lipophilic enhancement technology. This can allow for lower overall
dosing requirements and/or higher effectiveness in active molecule delivery.
Lexaria has caused to be filed many patent-pending applications
with the US Patent Office (USPTO), and also internationally under the Patent
Cooperation Treaty (PCT). On October 26, 2016, the USPTO issued U.S. Patent No.
9,474,725 B1 (granted June 15 2017 in Australia No. 2015274698), Cannabinoid
Infused Food and Beverage Compositions and Methods of Use Thereof, pertaining to
Lexarias method of improving bioavailability and taste of certain cannabinoid
lipophilic active agents in food products. On December 12, 2017, the USPTO
granted patent number US 9,839,612 B2 for the use of DehydraTECH
TM
technology as a delivery platform for a wide variety of Active Pharmaceutical
Ingredients (APIs) including all cannabinoids including THC; fat soluble
vitamins; non-steroidal anti-inflammatory pain medications (NSAIDs); and
nicotine. The title of the granted patent is Food and Beverage Compositions
Infused With Lipophilic Active Agents and Methods of Use Thereof. The USPTO
granted on May 15, 2018 patent US 9,972,680 B2 and on May 22, 2018 it granted
patent US 9,974,739 B2 within the same patent family.
Lexaria hopes to reduce other common but less healthy ingestion
methods, such as smoking, as it embraces the benefits of its technology for
public health. The Company is aggressively pursuing patent protection in
national jurisdictions around the world. The Company currently has more than 45
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 novel new discoveries that arise from the Companys 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.
On January 5, 2018 the Company filed Form S-4 Registration
Statement and the company plans to hold an annual and special meeting of
stockholders at the office of our law firm, Macdonald Tuskey located in North
Vancouver, British Columbia, Canada, to include as part of the proceedings the
approval of the plan of conversion whereby our corporate jurisdiction will be
changed from the State of Nevada to the Province of British Columbia, Canada by
means of a process called a conversion and a continuation. Important details
for stockholders related to the conversion and the associated risks for the
company and stockholders are included in the S-4 Registration Statement to be
released, as of the writing of this document. There are risks associated with
not proceeding with the conversion regarding the increasing complexity of
compliance with the regulatory framework and the associated increasing costs,
the restrictions on the promotion and sale of our stocks to US investors that
limit the potential liquidity of our stock, and an increasingly complex
environment that can negatively impact Lexaria even as an ancillary involved
company via technology licensing to entities in the state legal cannabidiol and
cannabis markets. Amendments to the S-4 as S-4/A and S-4/A No 2 were filed
February 7, 2018 and March 1, 2018. The meeting was held June 13, 2018.
The Company has received expert tax advice that suggests a
particular class of shareholder may be exposed to punitive taxes immediately
upon conversion of the Company from Nevada to Canada. As a result of this
punitive tax treatment the Company has placed on indefinite hold the
redomiciling of the Company from the USA to Canada, until such time as a remedy
can be discovered. Subsequent to May 31, 2018, shareholder approval was obtained
to effect the corporate conversion and thus, if and when the inequitable tax
treatment problem can be solved, the conversion process can potentially then
occur without additional delay.
On March 22, 2018, Lexaria received a Notice of Allowance from
the USPTO for the delivery of both psychoactive and non-psychoactive
cannabinoids as lipophilic active agents formulated together with the edible
fatty acids that enable the bioavailability and taste enhancing properties of
the DehydraTECH technology. The patent application number is 15/225,802 Food
and Beverage Compositions Infused With Lipophilic Active Agents and Methods of
Use Thereof. On May 22, 2018, the USPTO granted patent US 9,974,739 B2.
On April 11, 2018 the Company announced it received a new
Notice of Allowance from the USPTO providing claims that protect processes for
making specific compositions of matter for enhanced cannabinoid delivery
utilizing its DehydraTECH technology. On May 15, 2018, the USPTO granted patent
US 9,972,680 B2.
As at May 31, 2018, we have identified two reportable segments:
Intellectual Property Licensing and Consumer Products.
We maintain our registered agent's office and our U.S. business
office at Nevada Agency and Transfer Company, 50 West Liberty, Suite 880, Reno,
Nevada 89501. Our telephone number is (755) 322-0626.
The address of our principal executive office is 156 Valleyview
Rd, Kelowna BC Canada V1X3M4. We have administrative functions located in
Langley, British Columbia and Phoenix, Arizona.
Our common stock is quoted on the OTCQX under the symbol "LXRP"
and on the Canadian Securities Exchange under the symbol LXX.
Due to the implementation of British Columbia Instrument 51-509
on September 30, 2008, by the British Columbia Securities Commission, we have
been deemed to be a British Columbia based reporting issuer. As such, we are
required to file certain information and documents at
www.sedar.com
.
Our Current Business
Our companys 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 Companys 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 advisable to do
so. We announced issuance of our first patent by the U.S. Patent and Trademark
Office (USPTO) on October 26, 2016 and have received a Notice of Acceptance from
the Australian Patent Office with related patent issuance date June 15 2017 No.
2015274698. On December 12, 2017 of patent number US 9,839,612 B2 was issued for
the delivery of additional molecules such as psychoactive cannabinoids,
vitamins, non-steroidal anti-inflammatories, and nicotine all utilizing our
DehydraTECH
TM
delivery technology. On March 22, 2018, we received a
Notice of Allowance from the USPTO for the delivery of both psychoactive and
non-psychoactive cannabinoids as lipophilic active agents formulated together
with the edible fatty acids that enable the bioavailability and taste enhancing
properties of the DehydraTECH technology. On May 22, 2018 patent US 9,974,739
B2, Food and Beverage Compositions Infused With Lipophilic Active Agents and
Methods of Use Thereof was granted. On April 11, 2018 the Company announced it
received a new Notice of Allowance from the USPTO providing claims that protect
processes for making specific compositions of matter for enhanced cannabinoid
delivery utilizing its DehydraTECH technology. On May 15, 2018 patent US
9,972,680 B2, Food and Beverage Compositions Infused With Lipophilic Active
Agents and Methods of Use Thereof was granted.
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.
During the nine month period ended May 31, 2018, and up to the
date of this report, we experienced the following significant corporate
developments:
On October 27, 2017, the Company announced it extended the
expiration date of warrants originally issued on January 9, 2017 with a one-year
expiration date. The warrant quantity and exercise price remain unchanged. Those
same 500,000 warrants remain exercisable at $0.44 but will now expire on January
9, 2019.
On October 31, 2017, the Company announced it received a Notice
of Allowance from the United States Patent and Trademark Office (USPTO) for
the use of its technology as a delivery platform for all cannabinoids including
THC; fat soluble vitamins; non steroidal anti-inflammatory pain medications
(NSAIDs); and nicotine. The patent application number is 15/225,799, Food and
Beverage Compositions Infused With Lipophilic Active Agents and Methods of Use
Thereof and on December 12, 2017, the USPTO granted patent number US 9,839,612
B2 for the use of DehydraTECH
TM
technology as a delivery
platform.
On November 2, 2017, the Company announced it acquired 100%
ownership interest in its majority owned subsidiary Poviva Tea, LLC. The Company
previously owned a 51% interest in Poviva Tea, LLC and acquired the remaining
49% interest. Compensation was $70,000, a waiver on certain debts, and a 5%,
20-year royalty on net profits of ViPova Tea
TM
tea, coffee, and hot
chocolate sales. No Lexaria stock or options were issued. The 20-year royalty
was determined to have a $Nil fair value as PoViva operates at a loss and future
profitability is uncertain.
On November 9, 2017, the Company announced it filed a new
patent application with the US Patent and Trademark Office utilizing the Lexaria
DehydraTECH
TM
technology for delivery of phosphodiesterase type 5
(PDE5) inhibitors - trade names of existing well-known products include
Viagra
®
(sildenafil) and Cialis
®
(tadalafil).
On November 27, 2017, the Company announced filing its annual
Form 10-K including financial statements.
On December 1, 2017, the Company issued 14,634 restricted
common shares at a price of $0.82 per shares to settle $12,000 of debt to a
director of the Company. Lexaria awarded a total of 209,056 restricted common
shares at an issuance price of $0.82 as required by intellectual property
performance thresholds within an existing management consulting contract with
the Company divided between three officers and three managers. Lexaria awarded
250,000 warrants with an exercise price of $0.83 and an expiration date of
December 1, 2019 to a manager of the Company, pursuant to a management contract.
The warrants were valued at $124,476 and included in consulting expense.
On December 1, 2017, Lexaria granted 200,000 stock options with
an exercise price of $0.83 and an expiration date of December 1, 2022, to an
officer of the Company, pursuant to an existing management contract. The options
were valued at $122,562 and included in consulting expense.
On December 29, 2017, the Company announced it filed a S4
prospectus with the US Securities and Exchange Commission (SEC) intending to
re-domicile out of the USA and into Canada. The process of changing legal
jurisdiction involves a number of steps including seeking and obtaining
shareholder approval. The meeting was held June 13, 2018, wherein all motions on
the proxy were approved.
January 4, 2018, the Company announced it qualified for and
began trading on the OTCQX Best Market, operated by OTC Markets Group.
January 17, 2018, the Company announced that it has engaged
JGRNT Capital Corp to provide strategic consulting services to the Company for a
one-year term and awarded 500,000 warrants, each valid to purchase one common
share at a price of $1.83 and valid for two years. The warrants
were valued at $567,647 and included in consulting expense.
January 25, 2018, the Company announced it entered a definitive
technology licensing agreement with a 7-year term with Cannfections Group Inc.
whereby Lexaria is providing its patented DehydraTECH
TM
technology to
empower next-generation performance in cannabis infused chocolates and candies
to be developed and sold in Canada and internationally.
February 26, 2018, the Company announced it entered an
agreement with NeutriSci International Inc. ("NeutriSci") (TSX-V: NU, OTCQB:
NRXCF) such that NeutriSci now owns 100% of Ambarii Trade Corporation and
Lexaria has granted to NeutriSci an Intellectual Property License and Supply
Agreement for the manufacturing and sale of CBD based products.
February 27, 2018, the Company announced it entered a
definitive technology licensing agreement with a 5-year term with Los
Angeles-based, privately-held Biolog, Inc. (Biolog) whereby Lexaria is
providing its patented DehydraTECH
TM
technology to empower a unique
set of next-generation food and beverage cannabis infusion products to be sold
in the United States.
March 20, 2018, the Company announced it filed a new patent
application with the United States Patent and Trademark Office for use of
DehydraTECH
TM
to improve the speed and quantity of absorption of
active pharmaceutical ingredients through the skin. In the patent application,
Lexaria has applied for patent protection for the delivery of all of the active
ingredient classes already identified in its other issued and pending patent
applications including cannabinoids, terpenes and terpenoids, NSAIDs, vitamins,
nicotine and phosphodiesterase inhibitors, as well as a broad range of
additional active ingredients commonly found in topical products today that may
benefit from enhanced skin permeability performance in concert with the
DehydraTECH
TM
technology.
On March 22, 2018, Lexaria received a Notice of Allowance from
the USPTO for the delivery of both psychoactive and non-psychoactive
cannabinoids as lipophilic active agents formulated together with the edible
fatty acids that enable the bioavailability and taste enhancing properties of
the DehydraTECH technology. The patent application number is 15/225,802 Food
and Beverage Compositions Infused With Lipophilic Active Agents and Methods of
Use Thereof.
In March 2018, the Company received $244,500 from the exercise
of 675,000 warrants previously granted with exercise prices of $0.14 and $0.44.
On April 25, 2018, the Company announced that it entered a
definitive technology licensing agreement with GP Holdings LLC, whereby Lexaria
provided its patented DehydraTECH
TM
technology for cannabis infused
beverages and topical skin products in California. GP acquired a 5-year
semi-exclusive right.
On April 30, 2018, the Company announced a new 10-year
licensing agreement with Nuka Enterprises LLC, maker of 1906 brand cannabis
chocolates and other edible products. The new agreement provides Nuka
Enterprises LLC with semi-exclusive ability to utilize the
DehydraTECH
TM
technology across the US. Nuka also acquired an option
to expand its products and brand to Canada, including using Lexarias existing
chocolate and confections contract manufacturer licensee Cannfections Group Inc.
The agreement incorporates new rights in product categories in addition to the
original chocolate formats, which include candies, beverages, capsules and
pills, and topical creams.
May 28, 2018, the Company announced it entered into a
consulting contract granting 250,000 warrants with an exercise price of $1.55
expiring three years after issuance. These warrants were valued at $319,699 and
included in consulting expense.
On May 31, 2018, the Company announced that pursuant to
existing stock option plans, it has granted stock options to directors,
officers, employees and consultants that enable the option holders to purchase
up to 1,725,000 common shares of the Company at a price of US$1.53 for a period
of five years, vesting immediately.
During the period ended May 31, 2018 the Company issued 35,913
compensation warrants with an exercise price of $0.60 expiring April 3, 2019.
These warrants were valued at $21,646 and recorded as a share issue cost within
additional paid in capital for a net effect of $Nil. Within the period a total
of $1,339,591 was received for the exercises of warrants and options.
On June 19, 2018, the Company announced it received $115,500
from the exercise of 500,000 warrants with exercise prices of $0.60 and $0.14
and 247,500 stock options with an exercise price of $0.091 previously granted.
On June 28, 2018, the Company announced it filed a new patent
application with the USPTO for innovation in treatment options related to
central nervous system disease or disorders titled: Enhancement of Delivery of
Lipophilic Active Agents Across the Blood-Brain Barrier and Methods for Treating
Central Nervous System Disorders. Lexarias application requests patent
protection for the delivery of cannabinoids, terpenes and terpenoids,
non-steroidal anti-inflammatory drugs (i.e., NSAIDs), vitamins, nicotine,
phosphodiesterase type 5 (PDE5) inhibitors, estrogen, progestin, testosterone,
scopolamine and more, utilizing Lexarias already-patented
DehydraTECH
TM
methodology combined with any of a wide variety of
emulsifiers, starches, oils, flavorings and foods.
Food Science and Technology
Lexaria is a Biotechnology and food science company focused on
developing and out-licensing its proprietary technology for improved taste,
rapidity, and delivery of bioactive compounds in foods and other ingestible
products Lexaria is focusing its capital and management time on its pursuit of
intellectual property, technology licensing opportunities, an expanding
portfolio of patent pending applications, and functional food and supplement
formulations.
On November 11, 2014, our Company acquired 51% of PoViva Tea
LLC and executed an operating agreement to develop a business of legally
producing, manufacturing, importing/exporting, testing, researching and
developing, a line of hemp oil with cannabidiol-infused teas, drinks and foods.
On November 2, 2017, we announced that we acquired 100% of PoViva Tea LLC.
The Company introduced an expanding variety of hemp fortified
consumer food products throughout 2015 to demonstrate Lexarias
DehydraTECH
TM
technology to both consumers and potential licensees.
From January 2015 to December 2015, seven (7) flavors of teas; hot chocolate;
coffee, and two (2) flavors of protein energy bars were introduced all
utilizing Lexarias patented technology DehydraTECH
TM
for the more
palatable and efficient delivery of bioactive molecules infused within those
food products.
In the production of the products, for each raw material to be
used in ViPova-branded products, the Company assesses if the product inputs and
the completed products comply with all applicable food and drug laws, and that
the inputs and the finished products meet all applicable legal and quality
standards including and as it relates to hemp oil content; THC content; molds
and mildews; heavy metals; and may measure additional components.
The US Federal government, through the US Department of Health
and Human Services, owns US Patent #6630507, which among other things, claims
that
Cannabinoids have been found to have antioxidant
properties, unrelated to NMDA receptor antagonism.
This new found
property makes cannabinoids useful in the treatment and prophylaxis of
wide variety of
oxidation associated diseases, such as ischemic,
age-related, inflammatory and autoimmune diseases. The
cannabinoids
are found to have particular application as neuroprotectants, for example
in limiting
neurological damage following ischemic insults, such as
stroke and trauma, or in the treatment of
neurodegenerative
diseases, such as Alzheimer's disease, Parkinson's disease and HIV
dementia.
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For reference, cannabinoids are compounds that affect
cannabinoid receptors located on many human cells. CB1 receptors are widely
found within the human brain; and CB2 receptors are found with the human immune
system and have been linked to anti-inflammatory and other responses.
Despite independent scientific findings in many locations
around the world, some regulatory agencies do not officially recognize that a
human endocannabinoid system exists.
Over one hundred different cannabinoids have been isolated from
the cannabis plant, most of which do not have psychoactive properties. One that
does have psychoactive properties is tetrahydrocannabinol (THC).
Endocannabinoids are produced naturally in the human body while
phytocannabinoids are produced in several plant species, most abundantly in the
Cannabis plant.
Cannabidiol (CBD) is one of the major phytocannabinoid forms
of cannabinoids and is not psychoactive, often contributing more than 35% of the
extracts from the cannabis plant resin. Cannabidiol occurs naturally in other
plant species beyond cannabis. For example, the most widely acknowledged
alternative source of phytocannabinoid is in the better understood Echinacea
species, in widespread use as a dietary supplement. Most phytocannabinoids are
virtually insoluble in water but are soluble in lipids and alcohol. The World
Anti Doping Agency (WADA) has exempted CBD from its 2018 list of banned
substances.
The Alternative Health sector is large and growing. A long term
Medical Expenditure Panel Survey was conducted from 2002 until 2008 with at
least 29,370 subjects asked repeatedly if they had seen any kind of health care
practitioner in the previous six months. The survey recorded whether the health
care provider was a complementary and alternative medicine care professional,
including homeopathic, naturopathic, or herbalist.
Between 5.3% and 5.8% of the survey group at any one time
reported that they had seen a complementary or alternative medicine provider.
Based on the US population of ~323,000,000, this suggests between 17.1 million
and 18.7 million Americans are seeking an alternative health care professional
at any given time.
Meanwhile the Centers for Disease Control and Prevention, in an
April 2011 NCHS Data Brief, reported that more than 50% of the population uses
dietary supplements of one kind or another. Detailed findings from that report
included:
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Use of dietary supplements is common among the
U.S. adult population. Over 40% used supplements in 19881994, and over
one-half in 20032006.
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Multivitamins/multiminerals are the most
commonly used dietary supplements, with approximately 40% of men and women
reporting use during 20032006.
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Use of supplemental calcium increased from 28%
during 19881994 to 61% during 20032006 among women aged 60 and over.
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Status of Operations; Consumer product development and sales
More than 150 million Americans drink tea every day, amounting
to some 79 billion servings of tea in America every year. Our launch of ViPova
Tea brand is meant to tap into this existing demand. Part of our corporate
strategy is to build national brands through products that large groups of
potential customers are already familiar and comfortable with.
PoViva Tea LLC has filed patents pending, and has received four
granted patents , to bind active hemp oil ingredients with a lipid, potentially
allowing for more efficient and comforting delivery of the CBD.
Lexaria began producing cash flows from its products in January
2015; focused on the immediate opportunities in the hemp-oil-sectors that are
federally legal. Cannabinoids have been found by many researchers to have
antioxidant properties and Lexaria plans to use the DehydraTECH
TM
patented process to infuse hemp oils into a number of popular food and
beverages.
Lexaria has launched a line of premium products, always relying
on our DehydraTECH
TM
patented infusion process, to bring hemp oil
into the mainstream. Because hemp oil does not have psychoactive properties we
expect our products to appeal to the widest possible customer base. To
date we will focus our sales efforts across the continental USA. Some studies
have found that 3% of the Canadian population regularly consumes hemp food
products, while 1% of the American population regularly consumes hemp food
products. We believe the consumption of hemp based food products offers
exceptional growth possibilities.
According to Nutrition Business Journal, the Organic Food
sector was a $246 billion industry in the USA during 2014, while Dietary
Supplements was a $34.6 billion industry. According to Arcview, Legal Cannabis
was a $4.7 billion US industry in 2015 and expected to grow to over a $20
billion sector before 2025 but is clearly a much smaller industry sector than
the more established food sectors. Lexaria has not yet determined whether our
hemp oil-infused products will be accepted into any or all three of these
particular sectors.
Lexaria has a main corporate website as well as smaller
e-commerce focused websites devoted to consumer products. The majority of
product sales have taken place through the e-commerce websites. A contracted
national distribution center ensures rapid and accurate fulfillment of all
orders. A 1-800 ordering center has also been placed into operation.
Lexaria had previously launched the Lexaria Energy brand that
is 100% owned by the Company. Under this brand, the Company plans to develop
hemp oil-infused food products for people with active lifestyles, such as
protein bars, protein shakes and other similar products. On November 3, 2015,
Lexaria Energy10 protein bars became available for retail sales with two
flavors. The original contract manufacturer of these protein bars was unable to
fulfill additional orders and we have not currently been able to locate and
contract an alternative location to manufacture this more complicated food
product, with the result that the product is temporarily discontinued while we
search for a suitable manufacturing location.
Through the November 2014 acquisition of 51% of Poviva Tea LLC,
and the November 2, 2017, announcement of the 100% acquisition, Lexaria acquired
control of certain patents pending with the United States Patent Office. Lexaria
has worked to broaden the patents and extend their utility to molecules other
than those originally named.
On June 11, 2015, Lexaria initiated the simultaneous filing of
a U.S. utility patent application and an International patent application under
the Patent Cooperation Treaty (PCT) procedure, both at the U.S. Patent and
Trademark Office (USPTO). These applications follow the Companys 2014 and
2015 family of provisional patent application filings in the U.S. and serve two
additional broad purposes:
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1)
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Lexaria is seeking protection of its intellectual
property under international treaties. To this end Lexaria has filed for
PCT patent application protection. There are 148 countries that are
signatories to the Patent Cooperation Treaty, including such major markets
as Canada, China, India, much of Europe and the Middle East, the United
Kingdom and Japan among others.
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2)
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Lexaria believes its lipid infusion technology has
applications beyond the delivery of just cannabinoids. Based on further
formulation testing, Lexaria has included additional lipophilic molecules
that may be delivered via food and beverage formats utilizing its
technology, widely encompassing three major new market opportunities for
the Company: Nicotine; Nonsteroidal Anti-Inflammatories (NSAIDs); and
Vitamins.
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In December 2015, the Company filed two further provisional
patent applications in the U.S. These new applications served to further broaden
the variety and applicability of base compounds that can be used when
formulating the Companys lipid based technology. The first of these
applications identify compounds like edible starches (e.g., tapioca starch) that
are commonly used in food products today and could, therefore, serve as a base
for formulating and incorporating the Companys Technology into a wide variety
of every day food products. The second of these applications identify emulsifier
compounds like gum Arabic that are commonly used in beverage products today in
order to facilitate similar flexibility for formulating the Companys Technology
in every day, shelf-stable beverages.
On October 26, 2016, the USPTO issued U.S Patent No. 9474725,
Cannabinoid Infused Food and Beverage Compositions and Methods of Use Thereof,
pertaining to our method of improving bioavailability and taste of certain
cannabinoid lipophilic active agents in food products. This is the Companys
first patent granted and has a publish date of October 27, 2016 (June 10 2017 in Australia No.
2015274698) and protects our technology for twenty years. On December 12, 2017,
the USPTO granted patent number US 9,839,612 B2 for the use of
DehydraTECH
TM
technology as a delivery platform. On May 22, 2018
patent US 9974739 B2, Food and Beverage Compositions Infused With Lipophilic
Active Agents and Methods of Use Thereof was granted providing for composition
of matter claims that protect the specific combination of substances which
enable improved taste and bioabsorption properties of its DehydraTECH
technology for the delivery of cannabinoids. On May 15, 2018 patent US 9972680
B2, Food and Beverage Compositions Infused With Lipophilic Active Agents and
Methods of Use Thereof was granted providing claims that protect processes for
making specific compositions of matter for enhanced cannabinoid delivery
utilizing its DehydraTECH technology.
The Company does not know and cannot know whether these
strategies will be successful, or if successful, how long it will take to gain
consumer acceptance and customer loyalty. It can be a challenge to be successful
by introducing new consumer products to a competitive retail marketplace, and we
can offer no assurances that our products will be a commercial success.
International Patent Protection
When Lexaria first began examining the legal medical cannabis
market in 2013, and entered the market in 2014, the Company believed it could
make an impact in perhaps both the Canadian and U.S. marketplaces. Our pursuit
and development of technology has expanded our potential area of impact, both
geographically and by sector. Because of the applicability of our technology to
markets outside of the legal cannabis sector, we have taken the necessary steps
to protect that intellectual property within larger global markets, regardless
of whether they lie within the medical cannabis sector or in other unrelated
sectors.
Additional Molecules
NICOTINE.
More than 99% of all nicotine that is consumed
worldwide is delivered through smoking cigarettes. Approximately 6,000,000
deaths per year, worldwide, are attributed primarily to the delivery of nicotine
through the act of smoking according to the Centers for Disease Control and
Prevention, which also estimates that over $170 billion per year is spent just
in the USA on direct medical care costs for adult smokers. 69% of U.S. adult
smokers want to quit smoking and 43% of US adult smokers have attempted to quit
in any twelve-month period.
Worldwide, retail cigarette sales were worth $722 billion in
2013, with over 5.7 trillion cigarettes sold to more than 1 billion smokers.
RELEVANCE
: Lexaria postulates that delivery of nicotine
to satisfy current demand, utilizing our patented lipid-delivery technology in
common food groups, could shift demand from smoking cigarettes to alternative
nicotine-based food products. Since most of the adverse health outcomes of
nicotine consumption are associated with the delivery method and only to a
lesser degree to the actual ingestion of nicotine, there could be a vast
positive community health outcome through the reduction in smoking cigarettes.
Additional research and regulatory compliant investigations would need to be
conducted before otherwise healthy foods such as tea, coffee or energy bar
snacks containing nicotine could be introduced. Nicotine is a named molecule in
the latest Lexaria patent applications.
NSAID
. Non-steroidal Anti-inflammatories are the
second-largest category of pain management treatment options in the world. The
global pain management market was estimated at $22 billion in 2011, with $5.4
billion of this market being served by NSAIDs. The U.S. makes up over one-half
of the global market. The opioids market (such as morphine) form the largest
single pain management sector but are known to be associated with serious
dependence and tolerance issues.
Some of the most commonly known NSAIDs are ASA (Aspirin),
Ibuprofen (Advil, Motrin), and Acetaminophen (Tylenol). (Acetaminophen is not
accepted by all persons to be an NSAID.) Although NSAIDs are generally a safe
and effective treatment method for pain, they have been associated with a number
of gastrointestinal problems including dyspepsia and gastric bleeding.
RELEVANCE
: Lexaria postulates that delivery of NSAIDs
through a lipid-based mechanism could provide the beneficial properties of pain
relief with lessened negative gastrointestinal effects, and also potentially
deliver lower dosages of active ingredients with similar pain management
outcomes as current pill forms at higher dosages. ASA, Piroxicam, Diclofenac,
Indomethacin, Ibuprofen, and Acetaminophen are all named molecules in the latest
Lexaria patent applications.
VITAMINS.
The global vitamin and supplement market is
worth $68 billion according to Euromonitor. The category is both broad and deep,
comprised of many popular and some lesser known substances. Vitamins in general
are thought to be an $8.5 billion annual market in the U.S. The U.S. is the
largest single national market in the world, and China and Japan are the
2
nd
and 3
rd
largest vitamin markets.
Vitamin E is fat soluble and can be incorporated into cell
membranes which can protect them from oxidative damage. Global consumption of
natural source vitamin E was 10,900 metric tons in 2013 worth $611.9
million.
RELEVANCE
: Lexaria postulates that delivery of fat
soluble vitamins through its patented lipid-based delivery mechanism may result
in less waste and lower dosages required than most current pill forms. As well,
ingestion of pills is an unpleasant experience for many people so it is possible
that vitamin delivery through common food groups could vastly expand market
demand for this sector. Vitamin E is a named molecule in the latest Lexaria
patent applications.
On August 11, 2015, Lexaria signed a license agreement with
PoViva Tea LLC for $10,000, granting Lexaria a 35-year non exclusive worldwide
license to unencumbered use of PoViva Tea LLCs IP Rights, including rights of
resale. This license agreement ensures Lexaria has full access to the underlying
infusion technology.
Scientific testing and validation
On August 24, 2015, the Company announced potential
industry-changing achievements in enhanced gastrointestinal absorption of
cannabidiol (CBD) utilizing Lexarias technology. The third-party testing was
conducted in two phases of
in vitro
tests beginning in June and completed
in August, 2015.
The independent laboratory results delivered average CBD
permeability of 499% of baseline permeability, compared to CBD permeability
without Lexarias technology. These results exceed Company expectations. This
was assessed in a strictly controlled,
in vitro
experiment using a human
intestinal tissue model. Samples of Lexarias commercially available
CBD-fortified ViPova black tea were administered in the model compared with
concentration-matched CBD control preparations that lacked Lexarias patented
formulation and process enhancements. Lexaria believes that its
in vitro
findings provide compelling evidence of the intestinal absorption enhancing
capabilities of its technology, based on which it is exploring opportunities to
progress to more advanced, follow-on bioavailability testing in animals.
The tests also showed 325% of baseline gastro-intestinal
permeability of CBD comparing Lexarias CBD-fortified ViPova black tea to a
second control of CBD and black tea combined,
without
Lexarias patented
formulation enhancements. This confirmed that the specialized processing
undertaken by Lexaria during its manufacturing process together with its
formulation enhancements, does indeed significantly improve absorption levels.
The bioavailability of CBD (or of THC) varies greatly by
delivery method. Smoking typically delivers cannabinoids at an average
bioavailability rate of 30% (Huestis (2007) Chem. Biodivers. 4:17701804;
McGilveray (2005) Pain Res. Manag. 10 Suppl. A:15A 22A). By comparison, orally
consumed cannabis edibles typically deliver cannabinoids at an average
bioavailability rate of only 5% (Karschner et al. (2011) Clin. Chem.
57:6675).
The Companys present findings suggest that its technology may
achieve a 5-fold improvement in cannabinoid absorption in edible form over that
which can be achieved without its proprietary process and formulation
enhancements. This conceptually supports that Lexarias technology represents a
significant breakthrough in cannabinoid delivery by approximating the high
absorption levels achieved as though through administration by smoking, but
without the associated negative effects on human health caused by smoking.
The tests were completed in two phases culminating with testing
using simulated intestinal fluid conditions that delivered these findings. These
results were stronger than earlier iterations of the tests that did not use a
simulated intestinal fluid environment and contributed to Lexarias
understanding of the mechanisms at work. For these and other reasons, Lexaria
believes that bioavailability testing in animals is likely to yield even
stronger absorption results in the presence of natural intestinal fluid
conditions.
CBD has been repeatedly found to provide beneficial pain
relieving, anti-inflammatory, anti-anxiety, neuroprotection, anti-psychotic, and
anti-convulsive effects among others. Lexarias patented technology could
significantly reduce individual serving requirements for CBD to consumers. This
could lead to reduced costs of consumption for consumers and increased
profitability for Lexaria.
Lexaria believes that the same technology used to enhance the
absorption of CBD in the recent laboratory tests, is applicable to THC,
nicotine, NSAIDs and other lipophilic compounds that are widely used today.
During January 2015, Lexaria conducted a study of nitric oxide
levels in humans, as a biomarker for absorption of cannabidiol, with the
expectation that it would provide additional evidence of the efficient
absorption of cannabidiol from Lexaria food products enhanced with hemp oil, by
demonstrating the elevation of nitric oxide in the human body in response to
product ingestion.
The study data from human subjects demonstrated significant
elevation of systemic nitric oxide levels as a surrogate biomarker for
cannabidiol (CBD) bioabsorption in response to ingestion of Lexaria's products.
This provided clinical support for the CBD bioavailability enhancing properties
of Lexaria's patented technology, on the premise that bioavailable CBD is known
to elevate levels of the endocannabinoid anandamide in the human body which, in
turn, stimulates release of nitric oxide in the vascular system.
In summary, consuming Lexaria and ViPova food products
resulted in elevated levels of nitric oxide within the body. The results of the
study indicated that all Lexaria and ViPova food products elicited significant
increases in salivary nitric oxide, achieving levels from 110 µM to as high as
220 µM in the test subjects. The beverage products generally had faster initial
responses in as little as 15 minutes after product ingestion, whereas the
initial responses from the protein-energy bars required 30 minutes. The faster
response time with the beverage products was to be expected, given the relative
ease of digesting liquids versus solids. All products sustained their maximum
levels of nitric oxide detection through to the 60-minute end-points used in the
study, indicating a need for additional study to determine the length of time
that nitric oxide levels remain elevated following production consumption.
The study assessed six flavors of ViPova tea (Yunan Black,
Herbal Cherry Black, Earl Grey, Herbal Bengal Chai, Herbal Masala Chai and Decaf
English Breakfast), ViPova Columbian Supremo Coffee, ViPova Hot Chocolate and
Lexaria Energy Foods Chocolate Berry Date and Cashew Berry Date protein-energy
bars.
Six healthy human subjects (3 male and 3 female) between the
ages of 22 and 65 years of age were recruited for the study. Subjects were
screened for cardiovascular and allergic response to hemp products, were
non-smokers and did not have any history of substance or alcohol abuse. One
product was studied per day across all six subjects, with each subject consuming
a full product serving size. Subjects were required to refrain from eating food
or using vape products for at least 12 hours before test article administration
on each day of the study. Nitric oxide levels in the test subjects were assessed
using a commercially available, colorimetric test kit designed to quantify
systemic nitric oxide via a detectable salivary marker. Immediately before test
article administration each day, all subjects were required to demonstrate a
negative baseline nitric oxide saliva test. Subjects were considered to have a
negative test strip reading at a level of 20 µM according to the test strip
scale, and positive readings anywhere above this. Subjects performed salivary
nitric oxide testing at 15, 30, 45 and 60 minutes post-consumption of each
product. All subjects remained sedentary from baseline through to the completion
of testing for each product.
We have also completed our first study evaluating
DehydraTECH
TM
used in a topical cream formulation for absorption of
CBD through human skin. Results proved significant increases in both speed and
quantity of CBD absorption through skin when compared to control formulations.
The absorption study was performed on human skin at a California-based
laboratory that specializes in Franz diffusion cell skin permeability testing.
Lexarias DehydraTECH
TM
technology was used together with a
sophisticated oil-in-water emulsion formulation design and compared to a series
of matching oil-in-water emulsion formulations prepared with the same CBD
inputs, with and without the DehydraTECH
TM
technology and with and
without two leading skin penetration enhancers currently used in the skin
products industry. Several factors were measured, including the time required to
detect CBD skin
penetration and quantity, and peak amounts of CBD absorbed into and through the skin, at multiple testing intervals over a 48-hour duration.
Lexaria’s DehydraTECH
TM
-enabled topical formulation, absent either of the commercial penetration enhancers, was the fastest acting for absorption into the epidermis, dermis or through the skin into the systemic fraction representing
permeation into the underlying circulatory system. Lexaria’s DehydraTECH
TM
-enabled product also had no odour even without the use of perfumes, contrary to other cannabinoid industry products that can be quite strongly odoriferous
without the use of masking perfumes.
Furthermore, Lexaria’s DehydraTECH
TM
-enabled topical formulation without the addition of either of the commercial penetration enhancers, demonstrated the highest overall average quantity of CBD delivered through the skin and into
the representative systemic fraction of all the formulations tested, with as much as a 225% increase in CBD permeability when compared to the highest performing commercial penetration enhancer formulation assessed and almost a 1,900% increase in CBD
permeability when compared to a control formulation that was devoid of both the DehydraTECH
TM
technology or any commercial penetration enhancers. The commercial skin penetration enhancers only demonstrated performance that was on par or
superior to the DehydraTECH
TM
-enabled formulations tested in so far as total CBD absorption into the shallow epidermis or dermis was concerned.
We have also completed our first ingestible nicotine in vivo (animal) absorption study. Lexaria is pursuing the use of its patented DehydraTECH
TM
technology as a possible new nicotine delivery method, an edible dose absorbed through the
gastrointestinal tract, with potential both as a nicotine replacement therapy as well as an alternative product format for regular tobacco users.
DehydraTECH
TM
delivered the following major nicotine absorption performance improvements: 1,160% faster delivery of equivalent peak quantities of nicotine to the bloodstream than achieved with controls (within 15 min vs. 2.9 hours), 148%
gain in the quantity of peak nicotine delivery to the bloodstream relative to controls, 560% higher brain levels of nicotine where nicotine effects are focused, compared to controls, Lower urine levels of nicotine excreted than controls, for
enhanced nicotine activity and bioavailability over the course of the study, lower quantities of key liver metabolites in the bloodstream than controls as hypothesized, suggesting bypass of first pass liver metabolism.
Study Design Parameters:
The study was designed to principally assess the relative ingestible nicotine absorption performance of DehydraTECH
TM
-powered formulations compared to concentration-matched control formulations that lacked any form of delivery enabling
technology in rats. Nicotine was administered in a nicotine polacrilex derivative format as is widely commercialized today in nicotine replacement therapy products such as chewing gums. Twelve male rats were divided into four groups of three, such
that DehydraTECH
TM
and control formulations were each tested at a 1 mg/Kg and 10 mg/Kg dosage level. Formulations were administered orally and all rats were cannulated for blood collection at multiple intervals over an 8 hour duration
post-dosing with the first data collection at the 15-minute mark. Urine and feces were also collected for up to a 24-hour duration post-dosing, and essential organ tissue samples were also collected for examination after the study. All samples
were subjected to analytical testing in order to quantify the levels of nicotine therein, as well as the levels of three major liver metabolites thereof, hydroxycotinine, nicotine N’-oxide and cotinine, in order to assess the relative
metabolite levels absorbed by the different formulations. Lexaria’s hypothesis was tested to prove that its DehydraTECH
TM
technology would influence more rapid and complete intestinal bioabsorption of nicotine lymphatically with
less metabolic degradation by the liver. All animals were also assessed for general tolerability of the administered formulations. The study was conducted at the same independent laboratory in Philadelphia where the Company completed its initial
cannabidiol absorption study in 2015.
Results & Observations:
The Lexaria formulations generally achieved faster absorption, higher peak absorption and higher overall quantities of nicotine, on average, in the blood than the concentration-matched control formulations at both the 1mg and 10 mg/Kg doses tested.
Furthermore, as previously reported, there were no obvious signs of gastrointestinal distress such as vomiting or diarrhea indicating that the animals appeared to tolerate the treatment well.
Nicotine blood levels were evaluated multiple times over a period of 8 hours after dosing. In the 10mg/Kg dosing arm, the control formulation required nearly 3 hours to reach similar levels of blood absorption that the Lexaria formulation reached in
only 15 minutes. Furthermore, the Lexaria formulation went on thereafter to demonstrate peak plasma levels that were 148% of those achieved by the control formulation. If replicated in human studies, these findings are suggestive that
Lexaria’s technology could prove more effective in elevating blood nicotine levels through edible formats much more quickly and substantially than previously theorized, potentially making ingestible nicotine preparations a viable alternative
to today’s available product formats while also leading to a more rapid nicotine craving satiation.
Analysis of the liver metabolites revealed, as expected, that overall levels in the blood of two of the three metabolites studied were higher in the control group than in the Lexaria formulation group at the 10 mg/Kg dose. This result was especially
pronounced in the 45-minute to 2-hour time interval post-dosing which is consistent with the expected timing of release of metabolites in higher quantity into the bloodstream by the liver following normal physiological processing of ingested
nicotine with the control preparation, compared to the DehydraTECHTM technology that is believed to elude first pass liver metabolism. The Lexaria formulation also demonstrated lower quantities of nicotine in the rat urine at both doses, which is
consistent with the fact that the levels of nicotine in the rat blood remained higher over the duration of the study with the Lexaria formulation than with the control. The study also revealed that the Lexaria formulation at the 10 mg/Kg level
achieved up to 5.6 -times as much nicotine upon analysis of the rat brain tissue than was recovered with the matching control formulation. These findings together perhaps suggest prolongation of nicotine effectiveness with the Lexaria formulation
which may also be beneficial in humans to control cravings over an extended time-period from a single edible nicotine dose.
In addition to the above described scientific testing and validation studies, Lexaria has also conducted various cannabinoid formulation experiments, together with potential DehydraTECH™ licensee partners, on chocolates, candies, gummies,
mouth-melts, chocolate bars, protein bars, beverages such as beer, spices, tea, coffee, supplements and more over the past several years. Beverage formulations have produced cannabinoid water-based products including de-alcoholized beer that mask
unwanted cannabis flavor and are fast acting. Chocolate formulations were reported as being the fastest acting, most consistent, and best-tasting products relative to comparator control formulations in approximately 70% of cases in a recent 2017
consumer study. As well, on March 22, 2016, Lexaria announced results from another chocolate formulation consumer study in which test subjects ranked those chocolates that had been created with Lexaria’s technology as the best tasting, most
palatable and providing the best overall experience of the chocolates sampled. Furthermore, the test subjects in that study indicated a time of onset of the cannabis oil effects in as little as 15-20 minutes on average. The study included 12
volunteers who were all regular cannabis consumers with experience ingesting conventional edibles. All chocolates used in the study were blinded (unmarked) in order that the subjects could not discern the product formulations applied.
Technology out-licensing
On May 14, 2016, the Company entered into a Licensing Agreement with Nuka Enterprises, LLC for a two-year period, to utilize the Company’s technology to create, test, manufacture, and sell marijuana-infused consumable and/or topical products,
in the state of Colorado, with an option of extending the terms of the Licensing Agreement to Washington, Oregon, and California. On April 30, 2018, the Company announced a new 10-year licensing agreement with Nuka Enterprises LLC, maker of 1906
brand cannabis chocolates and other edible products. The new agreement provides Nuka Enterprises LLC with semi-exclusive ability to utilize the DehydraTECH
TM
technology across the US. Nuka also acquired an option to expand its products
and brand to Canada, including using Lexaria’s existing chocolate and confections contract manufacturer licensee Cannfections Group Inc. The agreement incorporates new rights in product categories in addition to the original chocolate
formats, which include candies, beverages, capsules and pills, and topical creams.
On January 25, 2018, the Company announced it entered a definitive technology licensing agreement with a 7-year term with Cannfections Group Inc. whereby Lexaria is providing its patented DehydraTECH
TM
technology to empower
next-generation performance in cannabis infused chocolates and candies to be developed and sold in Canada and internationally.
On February 26, 2018 the Company announced it entered an
agreement with NeutriSci International Inc. ("NeutriSci") (TSX-V: NU, OTCQB:
NRXCF) such that NeutriSci now owns 100% of Ambarii Trade Corporation and
Lexaria has granted to NeutriSci an Intellectual Property License and Supply
Agreement for the manufacturing and sale of CBD based products.
On February 27, 2018 the Company announced it entered a
definitive technology licensing agreement with Los Angeles-based, privately-held
Biolog, Inc. (Biolog) for a 5-year term whereby Lexaria provided its patented
DehydraTECH
TM
technology to empower a unique set of next-generation
food and beverage cannabis infusion products to be sold in the United States.
On April 25, 2018, the Company announced that it entered a
definitive technology licensing agreement with GP Holdings LLC, (GP) whereby
Lexaria provided its patented DehydraTECH
TM
technology for cannabis
infused beverages and topical skin products in California. GP acquired a 5-year
semi-exclusive right.
On April 30, 2018, the Company announced a new 10-year
licensing agreement with Nuka Enterprises LLC, maker of 1906 brand cannabis
chocolates and other edible products. The new agreement provides Nuka
Enterprises LLC with semi-exclusive ability to utilize the
DehydraTECH
TM
technology across the US. Nuka also acquired an option
to expand its products and brand to Canada, including using Lexarias existing
chocolate and confections contract manufacturer licensee Cannfections Group Inc.
The agreement incorporates new rights in product categories in addition to the
original chocolate formats, which include candies, beverages, capsules and
pills, and topical creams.
The continuation of our business interests in these sectors is
dependent upon obtaining further financing, a successful programs of
development, and, ultimately, achieving a profitable level of operations. The
issuance of additional equity securities by us could result in a significant
dilution in the equity interests of our current stockholders. Obtaining
commercial loans, assuming those loans would be available, will increase our
liabilities and future cash commitments.
We are not yet profitable and have not yet demonstrated our
ability to generate significant revenues from our business plan. We will require
additional corporate funds if our existing capital is not sufficient to support
the Company until potential future profitability is reached. There are no
assurances that we will be able to obtain further funds required for our
long-term operations. We do not expect to require additional operating capital
during our fiscal 2018 year. There can be no assurance that additional financing
will be available to us when needed or, if available, that it can be obtained on
commercially reasonable terms. If we are not able to obtain the additional
financing on a timely basis, we will be unable to conduct our operations as
planned, and we will not be able to meet our other longer-term obligations as
they become due. In such event, we could be forced to scale down or perhaps even
cease our operations. There is uncertainty as to whether we can obtain
additional long-term financing if we do in fact require it.
Our business plan does not anticipate that we will hire a large
number of employees or that we will require extensive office space. We expect to
be able to utilize contracted third parties for most of our production and
distribution needs, instead focusing on our capital on higher value added
aspects of the business such as research and development, and scientific
testing. We have no current plans to build our own production facility.
Our company relies on the business experience of our existing
management, on the technical abilities of consulting experts, and on the
technical and operational abilities of its operating partner companies to
evaluate business opportunities.
Competition
The legal marijuana industry is comprised of several
sub-sectors, and is legal under different guidelines in many states though it
remains illegal under most federal laws. Notwithstanding, the overall sector is
generally recognized to be one of the fastest growing in the USA, with
state-legal revenue of over $8 billion in 2016. Independent projections and
publicized reports expect revenue of $20 billion or more in 2020, both as the
sector gains in credibility and acceptance, and as more and more states legalize
either medical use or adult recreational use; or both.
In any fast growing industry, competition is expected to be
both strong and also difficult to evaluate as to the most effective competitive
threats. While we are an early adopter within the cannabinoid delivery sector,
there are already reports of more than 300 public companies that have claimed to
be involved in the sector in some fashion; and an unknown number of private
companies. Our current strategies may prove to be ineffective as the sector
grows and matures, and if so, we will have to adapt quickly to changing sectoral
circumstances. Accordingly, the Company intends to aggressively pursue
technology out-licensing opportunities not only within the cannabinoids sector
where it is already active, but also across other sectors where its
DehydraTECH
TM
technology is patent allowed and/or pending, including
the opportunities in the vitamin and supplements sector, the pain relief sector
and the nicotine products sector.
Competition in alternative health sectors and in consumer
products in the USA is fierce. We expect to encounter competitive threats from
existing participants in the sector and new entrants. Although PoViva Tea LLC
has filed patent applications to protect intellectual property, there is no
assurance that patents beyond those already issued will be granted nor that
other firms may not file superior patents pending. Food supplements, organic
foods, and health food markets are all well established and our Company will
face many challenges trying to enter these markets. Lexaria is also aware of
various competing technologies that exist in the marketplace that claim to also
enhance the bioabsorption of cannabinoids as Lexaria has demonstrated through
repeated
in vitro
and
in vivo
scientific testing with its patented
DehydraTECH
TM
technology. By and large, these technologies are all
forms of nanotechnology that generally claim to enable the formation of
microencapsulated microemulsions of cannabinoid active ingredients. These
technologies can enable exceptional water solubility of cannabinoid ingredients
and can impart improved intestinal bioabsorption as a result. However, it is
Lexarias belief that its patented DehydraTECH
TM
technology offers a
host of benefits beyond what competing technologies can offer, including
superior oral palatability, a more appealing and all-natural ingredient
compositional profile from a food and beverage formulation perspective and
superior scalability and cost effectiveness from a manufacturing perspective.
Lexaria believes that its DehydraTECH
TM
technology is, therefore,
significantly distinguished from competing technologies in these respects, with
a view to growing the breadth and number of licensees that will adopt its
technology for their product offerings going forward. Lexaria believes that
these competitive advantages together with its wealth of scientific data showing
noteworthy bioabsorption enhancements with its DehydraTECH
TM
technology constitute a compelling value proposition for its prospective
licensees, and it intends to continue to pursue license arrangements not only
within the cannabinoids edibles sector where it is already active, but also in
the various other bioactive ingredient sectors identified in its issued and
pending patent applications.
Compliance with Government Regulation
Over 30 States in the USA have passed some form of legislation
related to that states permission to grow, cultivate, sell or use marijuana
either for medical purposes or for recreational or adult use purposes; or
both. The various state legislation is not necessarily harmonious with one
another, leading to potential conflicts between state laws. It is most often not
legal to transport cannabis-related products across state lines.
Lexaria does not touch the plant in any location within or
outside of the USA. We comply with federal law that provides for certain
exemptions for agricultural (industrial) hemp and certain byproducts to be
manufactured and sold in the US. The DehydraTECH
TM
technology may
have applications within the legal marijuana sector and we may seek to license
that technology to companies that have met and comply with state regulations for
the sale or distribution of cannabis related products in any particular
jurisdiction.
Lexarias position is that, just as a telephone company
provides communications services, and an electric company provides electrical
power, our provision of technological services to a state-legal cannabis company
is in compliance with laws and required regulations.
Lexarias patented DehydraTECH
TM
technology may also
have application in completely separate sectors such as vitamins, non-steroidal
anti-inflammatories, and nicotine. We have no products nor operations in any of
these sectors today. If we enter any of these sectors at any time, we will be
exposed to and of necessity will have to comply with, all local, state and
federal regulations in each of those sectors. As a result of the possibility of
Lexaria being involved in a number of disparate business sectors, compliance
with government regulations could require significant resources and expertise
from our company.
Lexarias corporate offices are located in Canada. Canada has
passed federal legislation that currently allows legal medical-purposed
cannabis. Canada has also passed federal legislation that will allow, announced
to be on October 27, 2018, recreationally-purposed cannabis for personal use.
Lexaria complies with all Canadian legislation related to Cannabis and other
controlled substances.
Significant Acquisitions and Dispositions
We do not intend to purchase any significant office equipment
over the next twelve months other than office computers, furnishings, and
communication equipment as required. We are currently planning to lease or
otherwise acquire a new head-office location that will include the purchase of
office computers and communications systems. We are also planning for the
construction of a small, federal licensed laboratory on-premises for our
internal R&D purposes. All planning is in the preliminary stages as of May
31, 2018 but may evolve into an active plan at any time. Costs are not known at
this time but could certainly amount to $200,000 - $800,000.
Contractors
We primarily use sub-contractors and consultants in the
intellectual property development and licensing, and alternative health product
sectors. We primarily engage with consultants to serve our executive needs.
The Company has an agreement with CAB for a consulting fee of
$12,000 per month. The term of the agreement is two years but can be terminated
by either party by providing two months notice. The Company may pay Mr. Bunka a
bonus from time to time, at its sole discretion. Mr. Bunka will be entitled to
receive common stock-based and stock option based bonuses upon achieving certain
milestones during the time of his consultancy with the Company. These milestones
are during the first 12 months after the date of the agreement with CAB,:
Revenue Incentive Milestones
(Revenue Incentives A)
|
|
Upon the Company achieving non-refundable revenues of
$200,000 to any single customer in any consecutive 60-day period, CAB
would be entitled to an award of 100,000 restricted common shares of the
Company and after the first 12-month period, expiring after 24 months of
the amended agreement, upon the Company achieving non-refundable revenues
of $200,000 to any single customer in any consecutive 60- day period, CAB
would be entitled to an award of 50,000 restricted common shares of the
Company. These awards are limited to one payment per customer during the
24-month period but payable for each customer that meets the revenue
thresholds.
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|
|
Upon the Company achieving non-refundable revenues of
$500,000 in any fiscal quarter would result in an award to CAB of 200,000
common shares of the Company and after the first 12 months, expiring 24
months after the amended agreement, the Company achieving non-refundable
revenues of $500,000 in any fiscal quarter would result in an award to CAB
of 100,000 common shares of the Company. These awards are limited to one
payment per fiscal quarter.
|
Intellectual Property Milestones
(IP Incentives B)
|
|
During the term of the agreement, for each provisional
patent application substantively devised by CAB and successfully created,
written and filed with the US Patent Office for the Companys Technology,
CAB will be entitled to an award of 250,000 restricted common shares of
the Company.
|
On June 1, 2017, the Company appointed Mr. Allan Spissinger as
acting CFO, Corporate Secretary and Treasurer. The Company executed a twelve
month consulting contract with M&E Services Ltd., a wholly owned company by
Mr. Allan Spissinger, with monthly compensation of CAD$8,000 superseding the
previously CAD$3,400 plus hourly billing for additional work and applicable
taxes. The Company may pay Mr. Spissinger a bonus from time to time, at its sole
discretion. Mr. Spissinger was awarded 200,000 incentive stock options
exercisable at $0.37 vesting immediately. Mr. Spissinger will be entitled to
receive additional common stock-based and stock option based bonuses upon
achieving certain milestones during the time of his consultancy with the
Company. These milestones are during the first 12 months after the date of the
agreement with M&E Services Ltd.:
|
|
Revenue Incentives A as defined above.
|
The Company appointed Mr. John Docherty as President of Lexaria
effective April 15, 2015. On March 1, 2017, the Company executed a twenty four
month consulting contract with Docherty Management Limited, solely owned by Mr.
John Docherty with monthly compensation of CAD$15,000 plus applicable taxes,
superseding the previous agreement with monthly compensation of CAD$12,500 plus
applicable taxes. The Company may pay Mr. Docherty a bonus from time to time, at
its sole discretion. Pursuant to the previous agreement, Mr. Docherty received
800,000 stock options and 924,000 restricted common shares of the Company. Mr.
Docherty will be entitled to receive additional common stock-based and stock
option based bonuses upon achieving certain milestones during the time of his
consultancy with the Company. These milestones are during the first 12 months
after the date of the agreement with Docherty Management Ltd.:
|
|
Revenue Incentives A as defined above.
|
|
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IP Incentives B as defined above.
|
On June 19, 2017, the Company executed a contract with Alex
Blanchard Capital as manager for investor relations and communications. The
agreement is for six months continuing month to month and may be terminated
thereafter with one months notice for CAD$7,500 per month. Mr. Blanchard was
granted 200,000 warrants exercisable at $0.29 and 300,000 stock options
exercisable at $0.295 vesting 100,000 options at 1st 3rd anniversaries of the
contract provided that the contract is not terminated. Mr. Blanchard will be
entitled to receive additional common stock-based and stock option based bonuses
upon achieving certain milestones during the time of his consultancy with the
Company. These milestones are during the first 12 months after the date of the
agreement with Alex Blanchard Capital:
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Revenue Incentives A as defined above.
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On December 1, 2017, the Company executed a contract with a
contractor as office manager and assistant to the CEO and CFO. The agreement is
for two years continuing month to month thereafter and may be terminated with
one months notice for CAD$6,500 per month. The contractor was granted 250,000
warrants exercisable at $0.83. They will be entitled to receive additional
common stock-based and stock option based bonuses upon achieving certain
milestones during the time of their consultancy with the Company. These
milestones are during the first 12 months after the date of the agreement:
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Revenue Incentives A as defined above, with
the exception that the common share awards are revised to 75,000 share
instead of 100,000, 40,000 instead of 50,000, 150,000 instead of 200,000
and 80,000 instead of 100,000.
|
We do not expect any material changes in the number of
contractors over the next 12 month period although individual personnel changes
and fluctuations should always be expected. We do and will continue to outsource
contract employment as needed. However, with product advancement or retail
acceptance of our new products, we may need to retain additional contractors
particularly in the fields of product manufacturing, development, sales and
distribution. It is not possible to accurately project potential needs into the
future based on circumstances that may or may not occur.
Off-Balance Sheet Arrangements
We have no significant 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. 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.
Equipment
Equipment is stated at cost less accumulated depreciation, and
depreciated using the straight-line method over its useful life of five years.
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 health products is recognized at a
point in time following the transfer of control of such products to the
customer, 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
We recognize revenue for License fees at a point in time
following the transfer of our intellectual property to the licensee, which
typically occurs on delivery of documentation.
Usage Fees
We recognize revenue for Usage fees when usage of our
intellectual property occurs by licensees.
Research and Development
We incur research and development costs during the process of
researching and developing our intellectual property technologies. Our research
and development costs consist of employee compensation, materials, and outside
services.
Marketable Securities
All marketable securities have been classified as available
for sale and are carried at fair value. Unrealized gains and losses, net of any
related tax effects, are excluded from earnings and are included in other
comprehensive income (expense), net. The Company regularly evaluates whether
declines in the fair value of its investments below their cost are other than
temporary. The evaluation includes consideration of the cause of the impairment,
the number of securities in an unrealized loss position, the severity and
duration of the unrealized losses, whether the Company has the intent to sell
the securities, and whether it is more likely than not that the Company will be
required to sell the securities before their recovery. The Company has not
recorded any realized losses or declines in value judged to be other than
temporary on its marketable securities.
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.
As a result of the financings completed during fiscal 2017 and
ongoing exercises that have occurred during the period, management believes it
has sufficient funds to meet its obligations as they become due for the next
twelve months.
Accounting Pronouncements
Effective March 1, 2018, the Company began recognizing revenue
in accordance with FASB ASC Topic 606, Revenue from Contracts with Customers
(ASC 606). The Company adopted ASC 606 utilizing the modified retrospective
method, meaning the cumulative effect of applying the standard was recognized to
opening retained earnings as of January 1, 2018 with $NIL effect. ASC 606
provides for a five-step model that includes identifying the contract with a
customer, identifying the performance obligations in the contract, determining
the transaction price, allocating the transaction price to the performance
obligations, and recognizing revenue when, or as, an entity satisfies a
performance obligation.
In January 2016, FASB issued an ASU, Subtopic 825-10, to amend
certain aspects of recognition, measurement, presentation, and disclosure of
financial instruments. Most prominent among the amendments is the requirement
for changes in fair value of equity investments, with certain exceptions, to be
recognized through profit or loss rather than other comprehensive income. The
new standard will be effective for the Company beginning September 1, 2018. We
estimate an $8,000 impact on the Companys financial statements upon
implementation.
In February 2016 FASB issued ASU No. 2016-02, Leases (Topic
842) which supersedes FASB ASC Topic 840, Leases (Topic 840) and provides
principles for the recognition, measurement, presentation, and disclosure of
leases for both lessees and the lessors. The new standard requires the lessees
to apply a dual approach, classifying leases as either finance or operating
leases based on the principle of whether or not the lease is effectively a
financed purchase by the lessee. The classification will determine whether lease
expense is recognized based on an effective interest method or on a
straight-line basis over the term of the lease, respectively. A lessee is also
required to record a right-of-use asset and a lease liability for all leases
with a term of greater than twelve months regardless of classification. Leases
with a term of twelve months or less will be accounted for similar to existing
guidance for operating leases. The standard is effective for annual and interim
periods beginning after December 15, 2018, with early adoption permitted upon
issuance. When adopted, the Company does not expect this guidance to have a
material impact on its consolidated financial statements.
In June 2016, the FASB issued an ASU No 2016-13 (Topic 326) to
replace the incurred loss impairment methodology in current U.S. GAAP with a
methodology that reflects expected credit losses and requires consideration of a
broader range of reasonable and supportable information to inform credit loss
credit loss estimates. For trade and other receivables, loans and other
financial instruments, the Company will be required to use a forward-looking
expected loss model rather than the incurred loss model for recognizing credit
losses which reflects losses that are probable. Credit losses relating to
available for sale debt securities will also be recorded through an allowance
for credit losses rather than as a reduction in the amortized cost basis of the
securities. The new standard will be effective for Lexaria beginning September
1, 2020, with early adoption permitted. Application of the amendments is through
a cumulative-effect adjustment to deficit as of the effective date. The Company
is currently assessing the impact of the standard on its consolidated financial
statements.
In February 2018, the FASB issued ASU No. 2018-02, Income
StatementReporting 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 is currently evaluating the effect this ASU will have on
its consolidated financial statements and related disclosures, but does not
expect it to have a material impact on its consolidated financial statements.
Results of Operations
The following summary of our results of operations should be
read in conjunction with our financial statements for the period ended May 31,
2018, which are included herein.
Our operating results for each period indicated and the changes
between those periods are summarized as follows:
|
|
Three Months Ended
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
May 31,
|
|
|
|
|
|
May 31,
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
140,340
|
|
$
|
29,253
|
|
$
|
111,087
|
|
$
|
336,933
|
|
$
|
51,080
|
|
$
|
285,853
|
|
Cost of Goods Sold
|
|
2,427
|
|
|
9,183
|
|
|
(6,756
|
)
|
|
22,239
|
|
|
24,943
|
|
|
(2,704
|
)
|
Operating Expenses
|
|
3,562,825
|
|
|
363,430
|
|
|
3,198,669
|
|
|
5,696,697
|
|
|
1,235,758
|
|
|
4,460,939
|
|
Inventory Impairment
|
|
3,625
|
|
|
726
|
|
|
8,337
|
|
|
12,609
|
|
|
4,651
|
|
|
7,958
|
|
Net loss
|
|
(3,424,912
|
)
|
|
(344,086
|
)
|
|
(3,080,826
|
)
|
|
(5,382,003
|
)
|
|
(1,209,621
|
)
|
|
(4,172,382
|
)
|
Our financial statements report a net loss of $3,424,912 for
the three-month period ended May 31, 2018 and $5,382,003 for the nine-month
period ended May 31, 2018. $3,989,400 during the nine-month period of losses
incurred related to non-cash expenses from stock based compensation, warrants
and shares for services primarily issued during the three months ending May 31,
2018. Contemplating the current Net Loss without the non-cash expenses, our
actual cash expenses are roughly in-line with previous reporting periods and
current expectations. Significant increases in Research and Development
(R&D) supporting patent filings and ongoing increases in the legal costs
relating to patent filings included additional work stemming from positive
research results. R&D increased in the three-months by $160,589 and
nine-months by $255,942 in the period ended May 31, 2018 compared to the same
period ended May 31, 2017. We also continued advertising, promotional support
and outreach to potential licensees and partners. These increases are in line
with expectations for executing our business plan.
Revenue increases were primarily based on new licence
agreements entered into recognising the IP Territory Licensing fee and they are
expected to generate future IP Usage Licensing fees. The Territory fees consist
of IP licensing fees for transfer of the Technology with the signing of
definitive agreements for the DehydraTECH
TM
technology with: the
Cannfections Group Inc. for a 7-year term for infused chocolates and candies to
be developed and sold in Canada and internationally, NeutriSci International
Inc. for a 2-year term for the manufacturing and sale of CBD based products,
Biolog, Inc. for a 5-year term to manufacture food and beverage infused products
to be sold in the United States, GP Holdings LLC for infused beverages and
topical skin products for a 5-year term, and Nuka Enterprises LLC for their 1906
Chocolates for 10 years renewing from their chocolate only 2 year contract to
now include chocolate, candies, beverages, capsules and pills, and topical
creams. The additional Licensing fees include payments due upon transfer of the
Technology and installment payments that are receivable within 12 months. We are
pleased that our licensing revenues are increasing in scale and across a larger
number of customers.
Consumer product sales remain low due to challenges in securing
expansive distribution opportunities, 3
rd
-party production
challenges, inconsistent federal vs. state or local regulations, and payment
processing changes. The Company continues to pursue more widespread distribution
possibilities which have the potential to unlock more significant consumer
product revenues.
The trend of hemp oil fortified foods, and hemp seed products,
gaining consumer acceptance continued through the period ended May 31, 2018, and
provides a reason to believe that sales could increase. Those trends should
support higher potential consumer product sales. Release of the TurboCBD product
in fiscal 2017 was successful but ongoing sales were limited by changes to
payment processing services outside of the Companys control. At the time of
this report the Company had extinguished its supplies of certain products like
protein bars and the lack of inventory was also a negative impact on consumer
product sales potential.
During fiscal 2018 the Company expected to derive ever larger
proportions of its revenues from technology licensing to third parties and has
accomplished this through new IP licence agreements. We are continuing to pursue
additional licensing opportunities and are expanding our potential licensees via
the positive results from our R&D work. At the time of this report the
Company has entered more than 10 formal letters of intent or definitive
agreements and is negotiating more. During the period ended May 31, 2018 we have
entered into five new licensing agreements that increased our IP licensing
revenue and we expect additional revenue will be generated from the licensees
utilizing the technology in their processes from the usage fees. It is the
Companys view that the December 9, 2017, grant of patent US 9839612 B2, and the
grants of US 9972680 B2 and US 9974739 B2 during May 2018 and its expanding
patent portfolio is a positive step in enabling the generation of more
significant revenues during fiscal 2018.
We do not expect that all of the Letters of Intent into which
we enter will result in definitive agreements with paying customers and cannot
predict how many will. We believe that strengthening and expanding our
intellectual property portfolio and conducting supportive R&D will jointly
contribute to strengthening revenue prospects.
Liquidity and Financial Condition
|
|
May 31
|
|
|
August 31
|
|
Working Capital
|
|
2018
|
|
|
2017
|
|
|
|
$
|
|
|
$
|
|
Current assets
|
|
2,587,120
|
|
|
2,795,495
|
|
Current
liabilities
|
|
71,643
|
|
|
92,347
|
|
Working capital balance (deficiency)
|
|
2,515,477
|
|
|
2,703,148
|
|
The Companys working capital balance marginally decreased
during the nine months ended May 31, 2018, as a result of its executing its
operating plan via increased activities in potential licensee outreach, research
and development, ongoing worldwide patent filings and other aspects of our
business plan utilizing funding from financing activities during fiscal 2017 and
the ongoing exercises of options and warrants.
|
|
Nine Months
Ended
|
|
|
|
May 31
|
|
|
May 31
|
|
Cash flows
|
|
2018
|
|
|
2017
|
|
|
|
$
|
|
|
$
|
|
Cash flows used in operating
activities
|
|
(1,680,919
|
)
|
|
(1,192,574
|
)
|
Cash flows used in investing activities
|
|
(128,640
|
)
|
|
(9,699
|
)
|
Cash flows provided by financing activities
|
|
1,339,591
|
|
|
3,897,842
|
|
Increase (decrease) in cash
|
|
(469,968
|
)
|
|
2,695,569
|
|
Operating Activities
The decrease in the net cash used in operating activities
during the nine months ended May 31, 2018, is primarily the result of the
Companys execution of its operating plan with available funding compared to
cost containment during the period ended May 31, 2017. This difference was
largely due to the increased costs pertaining to consulting, advertising and promotion, patent and trademark
related filings, research and development, and travel, and is in-line with
expectations.
Investing Activities
During the nine months ended May 31, 2018, the Company
continued its investment in expanding its patent applications and it acquired
100% ownership of our subsidiary PoViva Tea LLC. The Companys current patent
portfolio has expanded more than 2,000% percent from 2014/15 to present and
represents the potential for large increases in shareholder value over time.
Financing Activities
During the period ended May 31, 2018, the Company raised a
total of $1,339,591 from equity issuances, relating to the exercise of its
outstanding stock options and warrants.