What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-01-14 compared with 2020-06-29 · 132 added, 141 removed, 130 unchanged (68% of the section changed)

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In some cases, forward-looking statements are identified by terminology such as "may", “will”, "should", “could”, “targets”, “goal”, "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology.

These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” set forth in Item 1(A) in our annual report on Form 10-K, as filed with the Securities and Exchange Commission on November 14, 2019, that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors" set forth in Item 1(A) in our annual report on Form 10-K, as filed with the Securities and Exchange Commission on October 14, 2020, that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

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Company and Business Overview

We are a bioscience intellectual property (“IP”) research, development and licensing company for our patented lipid nutrient infusion DehydraTECH™ technology (the “Technology”) and were incorporated in 2004 in Nevada.

Our Technology improves delivery of bioactive compounds that promotes healthy ingestion methods, lower overall dosing and higher effectiveness in active molecule delivery.

The Company’s oral sciences activities include the development of our proprietary nutrient infusion technologies for the production of functional foods, and the production of enhanced oral products under our consumer product brands, ViPova™, Lexaria Energy™, TurboCBD™ and ChrgD+ TM .

The Company’s Technology is believed to improve taste, rapidity and delivery of bioactive compounds that include cannabinoids, vitamins, Non-Steroidal Anti-Inflammatory Drugs (NSAIDs), nicotine and other molecules compared to what is possible without lipophilic enhancement technology.

This can allow for lower overall dosing requirements and/or higher effectiveness in active molecule delivery.

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Our current patent portfolio includes patent family grants relating to:

Infused Food and Beverage Compositions and Methods of Use Thereof, pertaining to Lexaria’s method of improving bioavailability and taste, and the use of the Technology as a delivery platform for a wide variety of Active Pharmaceutical Ingredients (“APIs”) encompassing all cannabinoids including tetrahydrocannabinol (“THC”);

fat soluble vitamins;

NSAIDs pain medications;

and nicotine.

Lexaria hopes to reduce other common but less healthy administration methods, such as smoking, as it embraces the benefits of its Technology for public health.

We are a biotechnology R&D company incorporated in 2004 in Nevada and focused on developing and out licensing our patented DehydraTECH™ Technology.

DehydraTECH improves delivery orally and topically of active ingredients and drugs.

The Company is focusing its capital and management time on its pursuit of intellectual property, technology licensing opportunities, and an expanding portfolio of patent pending applications.

The Company developed a variety of demonstration products throughout 2015 to demonstrate the potential uses for DehydraTECH to both consumers and potential licensees.

The Company subsequently developed additional demonstration products including powder filled capsules and mix and serve powders for beverage incorporation also utilizing DehydraTECH for the more palatable and efficient delivery of bioactive molecules.

The Company gained extensive experience and knowledge from the formulation and production of these demonstration products that facilitates assisting our licensees with the integration of DehydraTECH in their products.

In the manufacturing of our intermediate ingredients for Consumer Packaged Goods (“CPG”) companies to use, each raw material, intermediate stage and completed product is assessed for compliance with all applicable regulations.

The inputs and the finished ingredients meet all applicable legal and quality standards including and as it relates to content;

molds and mildews;

heavy metals;

and other additional components.

Lexaria hopes to reduce other common but less healthy administration methods, such as smoking, as manufacturers embrace the intended benefits of DehydraTECH for public health.

The Company is aggressively pursuing patent protection in national jurisdictions around the world.

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Lexaria is also filing new patent applications for new discoveries that arise from the Company’s R&D programs and, due to the inherent unpredictability of scientific discovery, it is not possible to predict if or how often such new applications might be filed.

As at May 31, 2020, we have identified two reportable operating segments:

Intellectual Property Licensing and Consumer Products.

The following discussion should be read in conjunction with our condensed financial statements and accompanying notes in this quarterly report on Form 10-Q, our audited financial statements with notes in our annual report on Form 10-K for the year ended August 31, 2019 and our Form S-1 filed June 3, 2020.

As at November 30, 2020, we have identified two reportable operating segments:

Intellectual Property and Products.

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Our Current Business

Our business plan is currently focused on the development of strategic partnerships with licensees for our patented DehydraTECH™ Technology (referred to herein as “ DehydraTECH ” or the “ Technology ”) in exchange for up front and/or staged licensing fees over time.

Secondarily and more generally, we continue to investigate national and international opportunities for development and distribution of the Company’s enhanced functional oral and supplement product offerings;

to investigate expansions and additions to our intellectual property portfolio;

and, to search for additional opportunities in alternative health sectors.

This includes the acquisition or development of intellectual property if and when we believe it is advisable to do so.

Our current patent portfolio includes patent family grants relating to:

(i) Food and Beverage Compositions Infused with Lipophilic Active Agents and Methods of Use Thereof;

(ii) Methods for Formulating Orally Ingestible Compositions Comprising Lipophilic Active Agents;

and (iii) Stable Ready-To-Drink Beverage Compositions Comprising Lipophilic Active Agents, all pertaining to Lexaria’s method of improving bioavailability and taste, and the use of the Technology as a delivery platform for a wide variety of Active Pharmaceutical Ingredients (“APIs”) encompassing all cannabinoids including tetrahydrocannabinol (“THC”);

Our business plan is currently focused on the development of strategic partnerships with licensees for our patented DehydraTECH technology in exchange for up front and/or staged licensing fees and/or royalty payments over time.

We continue to investigate national and international opportunities to investigate expansions and additions to our intellectual property portfolio.

We plan to perform additional human clinical investigations in early 2021 related to enhanced DehydraTECH formulations of cannabidiol in pre- and mildly-hypertensive middle-aged subjects to gather additional information on blood pressure reduction potential.

Lexaria also plans to conduct during calendar 2021 evaluations of DehydraTECH’s ability to improve the oral delivery characteristics and pharmacological performance of certain antiviral drugs.

We will continue to seek beneficial acquisitions of intellectual property if and when we believe it is advisable to do so.

Our current patent portfolio includes patent family applications or grants pertaining to Lexaria’s method of improving bioavailability and taste, and the use of DehydraTECH as a delivery platform for a wide variety of Active Pharmaceutical Ingredients (“APIs”) encompassing all cannabinoids including tetrahydrocannabinol (“THC”);

fat soluble vitamins;

NSAIDs pain medications;

and nicotine.

Lexaria hopes to reduce other common but less healthy administration 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 55 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.

and nicotine and its analogs.

Lexaria hopes to reduce common but less healthy administration methods, such as smoking cigarettes as a delivery method for nicotine, by way of enabling development of safe and effective oral nicotine dosage forms through licensing arrangements with major tobacco companies, as it demonstrates the intended benefits of DehydraTECH for public health.

The Company is aggressively pursuing patent protection in jurisdictions around the world.

The Company currently has more than 50 patent applications pending worldwide, with 18 patents granted to date.

Due to the complexity of pursuing patent protection, the quantity of patent applications will vary continuously as each application advances or stalls.

To date, the following patents have been awarded in the United States and Australia:

To date, the following patents have been issued in the United States, Australia and Europe:

Issued Patent #

Patent Issuance Date

Patent Issuance

Patent Family

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US 10,374,036

AUS 2015274698

AUS 2017203054

AUS 2018202562

AUS 2018202583

AUS 2018202584

AUS 2018220067

AUS 2016367036

US 10,756,180

AU 2015274698

AU 2017203054

AU 2018202562

AU 2018202583

AU 2018202584

AU 2018220067

AU 2016367036

Methods for Formulating Orally Ingestible Compositions Comprising Lipophilic Active Agents

AUS 2016367037

AU 2016367037

Stable Ready-to-Drink Beverage Compositions Comprising Lipophilic Active Agents

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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, NSAIDs, and Vitamins.

We are seeking additional patent protection for what we believe to be a unique process for oral delivery of certain molecules such as Cannabinoids, Nicotine, NSAIDs, and Vitamins.

To achieve sustainable and profitable growth, our Company intends to control the timing and costs of our projects wherever possible.

We have filed for patent protection of our Technology for additional compounds such as phosphodiesterase inhibitors, human hormones such as estrogen and testosterone and more.

We are investigating other compounds and molecules for potential patent protection pursuit.

During the quarter ended May 31, 2020, and up to the date of this report, we experienced the following significant corporate developments:

On March 4, 2020, the Company announced that it had amended its license agreement with Universal Hemp LLC, a B2B manufacturing company of hemp-derived bulk ingredients to remove the exclusivity rights originally associated with the license and to reduce the aggregate minimum performance fees from $3,750,000 to $132,500.

On March 19, 2020 the Company announced that it had commenced a program to research the benefits of its DehydraTECH Technology in connection with enhancing the delivery of certain antiviral drugs.

On April 21, 2020 the Company announced the filing of a strategic new US patent application under a new patent family “Compositions and Methods for Enhanced Delivery of Antiviral Agents” to utilize its DehydraTECH process in connection with antiviral drugs for the purposes of combatting infectious disease conditions including, but not limited to, the novel coronavirus disease 2019 (“COVID-19”), MERS, SARS, influenza, herpes and AIDS.

On May 4, 2020 the Company entered into material contracts with certain investors for the sale of up to 8,866,211 shares of common stock and warrants to purchase up to 8,866,211 shares of common stock for gross proceeds of $2,039,228.

The warrants have a five-year term and are exercisable at $0.35 per share.

The financing closed in two tranches on May 6, 2020 and May 11, 2020.

On May 5, 2020, the Company terminated the license issued to a private California-based company for its utilization in certain THC-based beverages which was originally announced on April 24, 2019.

On May 13, 2020, the Company announced that our annual and special shareholder meeting on Tuesday, June 23, 2020, and the details of the virtual meeting.

The emergence of COVID-19 in over 140 countries around the world beginning in January, 2020 presents significant and unforecastable new risks to the Company and its business plan.

Restrictions on national and international travel, and required business closures, have made it increasingly difficult to carry out normal business activities related to corporate finance efforts, to the pursuit of new customers for the Company’s products and services, and to retail customers throughout North America who might otherwise access the products of the Company’s business to business partners.

As a result, the COVID-19 pandemic will almost certainly increase risks of lower revenues and higher losses for the products and services currently offered by the Company.

We have filed for patent protection of DehydraTECH for use with additional compounds such as phosphodiesterase inhibitors, human hormones such as estrogen and testosterone, antivirals and more.

We are investigating other compounds and molecules for potential patent protection.

During the quarter ended November 30, 2020, and up to the date of this report, we experienced the following significant corporate developments:

On September 22, 2020, the Company announced that U.S.

10,756,180 was granted;

it has claims that protect the use of its DehydraTECH technology together with cannabinoids, nicotine, nonsteroidal anti-inflammatory drugs, or vitamins in mix and serve beverage formats.

The patent is entitled “Food and Beverage Compositions Infused With Lipophilic Active Agents and Methods of Use Thereof”.

On November 19, 2020 the Company entered a definitive asset sale agreement through its wholly owned subsidiary Lexaria Canpharm ULC (“CanPharm”), to sell certain non-core, non-pharmaceutical THC-related business assets (the “THC-Related Assets”) for gross proceeds of C$3.85 million.

The buyer of the THC-Related Assets is Lexaria’s long-standing Canadian licensee Hill Street Beverage Company Inc.

(“Hill Street”) (TSXV:

Under the terms of the agreement, Hill Street will pay C$350,000 in cash on closing;

an additional C$2,000,000 payable over time in the form of a promissory note bearing 10% interest per annum;

and C$1,500,000 in common shares of Hill Street equity, issuable in three equal tranches of C$500,000 at closing;

C$500,000 eight months after closing;

and C$500,000 16 months after closing.

On December 2, 2020, the Company announced that its DehydraTECH technology significantly improved delivery in study animals of representative drugs from two classes of antiviral therapies (a Protease Inhibitor and a Reverse Transcriptase Inhibitor) under investigation against SARS-CoV-2/COVID-19 and already in use against HIV/AIDS.

The study animals were not infected with or treated for any diseases.

These are the first two of a series of antiviral drugs to be tested using Lexaria’s DehydraTECH technology.

The improved delivery of the antivirals along with the animal’s demonstrated safety and tolerability of the DehydraTECH formulations has led the Company to begin preparations for expanded investigations into antiviral drug delivery enhancement and effectiveness and filing additional patent applications.

AUClast* Delivery &

AUC∞** Delivery &

Protease Inhibitor

Non-nucleoside Reverse Transcriptase Inhibitor

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The emergence of COVID-19 beginning in January of 2020, now in over 220 countries and territories around the world, presents significant and unforecastable new risks to the Company and its business plan.

Restrictions on national and international travel, and required business closures, have made it increasingly difficult to carry out normal business activities related to corporate finance efforts, to the pursuit of new customers, and to retail customers throughout North America who might otherwise access the products of our business partners and licensees.

As a result, the COVID-19 pandemic will almost certainly increase risks of lower revenues and higher losses.

We are monitoring our licensees and are working with them, where possible, to prevent default and contract terminations.

In some cases we have had to issue termination of contract notices in accordance to provisions within our contracts with licensees.

In some cases we have had to issue termination of contract notices in accordance to provisions within our contracts.

The Company is encountering significant challenges in executing its business plan and normal business operations as a result of COVID-19 and does not have sufficient resources to withstand a protracted term during which most business activities are curtailed.

We have implemented cost containment initiatives to reduce operating expenses and preserve cash that include dismissal of one employee, termination of contracts with two consultants and reduction of compensation payable to certain other consultants as a result of the COVID-19 pandemic.

We have not had to close operations or locations as our contractors and staff can work remotely and our third-party fulfillment centers continue to operate.

To the date of this report, we have not directly had to quarantine contractors or staff, however we have implemented additional safety precautions and measures to protect contractors and staff.

Due to our historically and current geographic diversity of our contractors, we have ongoing experience in remote work and collaboration and our procedures and controls have been built over time to continue uninterrupted by remote working requirements.

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The Company currently has six (6) employees and/or independent contractors who dedicate all or a majority of their time to the business of the Company and eight (8) consultants.

We may need to dismiss additional employees or terminate services contracts to preserve resources.

We have not had to close operations or locations as our contractors and staff can work remotely and our third-party facilities continue to operate.

To the date of this report, we have not directly had to quarantine contractors or staff, however we have implemented additional safety precautions and measures for their protection.

Due to our historic and current geographic diversity of our contractors and employees, we have long established and ongoing experience in remote work and collaboration.

Our procedures and controls have been built over time to address remote working requirements.

We have not experienced any significant impacts on our material supply chains but have noted increased timelines from some third-party research facilities regarding their ability to conduct research and testing.

To date, this has not significantly impacted our R&D programs, but we cannot predict whether our R&D programs will be impacted in the future.

The Company is investigating whether there may be any new emerging opportunities related to the COVID-19 crisis related to its patented Technology that has been thoroughly tested for its superior delivery of other compounds and drugs, and whether any of these characteristics might be applicable to compounds or drugs used to treat symptoms caused by the Coronavirus.

The Company is simultaneously investigating emerging opportunities related to the COVID-19 crisis in relation to its patented DehydraTECH technology that has been tested for its superior delivery of other compounds and drugs, and whether any of these characteristics might be applicable to compounds or drugs used to treat symptoms caused by the Coronavirus.

It is unknown at this time whether there is any such applicability.

On March 19, 2020, the Company announced that it intends to conduct a pilot human pharmacokinetic exploratory study in healthy volunteers of three antiviral drugs that have previously been studied against other coronavirus strains, comparing DehydraTECH formulations to controls without Lexaria’s Technology.

It intends to conduct the study at a leading Canadian University where a study design and plan have been submitted for ethics board approval.

Pending the successful execution and outcome of this study, additional research may include expanded pharmacokinetic and pharmacodynamic screening, including studies in appropriate coronavirus animal models for efficacy evaluation.

If the Technology is proven to increase delivery effectiveness of antiviral drugs, the Company intends to make it available to researchers throughout the world looking to maximize the effectiveness of their own drug investigations.

On March 19, 2020 the Company announced that it intended to commence a program to conduct tests to research the intended benefits of DehydraTECH in connection with enhancing the delivery of certain antiviral drugs.

The tests are intended to include a pilot human pharmacokinetic exploratory study in healthy volunteers of two antiviral drugs that had previously been studied against other coronavirus strains, comparing DehydraTECH formulations to controls without DehydraTECH.

The Company intends to conduct the study at a leading Canadian university where a study design and plan was submitted and ethics board approval was received.

The study is subject to further government regulatory approval.

The Company is currently in the process of pursuing the necessary steps to file for study approval from Canadian federal regulators.

In parallel, the Company launched a separate rodent antiviral study to evaluate pharmacokinetic benefits from the use of DehydraTECH in the delivery of representative drugs from two classes of antiviral drugs under investigation for treatment of COVID-19.

The results of that animal study were released on December 1, 2020 whereby the DehydraTECH enhanced antiviral drug formulations demonstrated increased delivery effectiveness of the antiviral drugs into the bloodstream of the animals.

The results of this animal study have encouraged the Company to conduct expanded investigations into antiviral drug delivery enhancement, with such investigations including remdesivir (a nucleotide reverse transcriptase inhibitor);

as well as three additional drugs known to target the main protease associated with SARS-CoV-2 infection.

The Company intends to make its research results available to researchers throughout the world looking to maximize the effectiveness of their own drug investigations.

The Company’s business model relies on performing early stage studies like these to help support its efforts to form commercial relationships with more established companies.

The Company continues to monitor governmental programs being released to assist with the COVID-19 pandemic.

Subsequent to May 31, 2020,

On June 3, 2020 the Company filed a Form S-1 Registration Statement.

One June 24, 2020 the Company announced the results of the 2020 Annual and Special Meeting held June 23, 2020.

The Company held the Meeting whereby there were 47,819,789 shares of the Company represented in person or by proxy at the meeting, constituting 53.38% of the Company’s issued share capital as at May 13, 2020, being the record date of the Meeting.

The matters voted upon at the Meeting and the final voting results are set forth below:

Matter Being Voted On

Abstain or Withheld

To Elect Chris Bunka as a director

To Elect John Docherty as a director

To Elect Nicholas Baxter as a director

To Elect Ted McKechnie as a director

To Elect Brian Quigley as a director

To Appoint Davidson & Company LLP as Auditors

To Approve a Reverse Stock Split on a ratio of not less than 2 current shares for one reverse stock split share and not more than 30 current shares for one reverse stock split share

To Approve an amendment to the Company’s Bylaws

To ratify the lawful actions of the directors for the past year

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All of the proposals are described in detail in the Company’s proxy statement filed with the Securities Exchange Commission via Edgar and with the BC Securities Commission and Ontario Securities Commission via SEDAR on May 25, 2020.

Subsequent to November 30, 2020

On December 10, 2020 the Company announced that it closed the sale of its non-pharmaceutical THC-related assets (“the Assets”) held within Lexaria Canpharm ULC to Hill Street Beverage Company Inc.

Lexaria received C$350,000 in cash, 6,031,363 restricted common shares of Hill Street at a deemed price of C$0.0829 per share as the first required equity-based payment, a promissory note having a principal amount of C$2,000,000 and bearing interest at the rate of 10% per annum, and a limited license to use the DehydraTECH technology outside of Canada and the US for certain non-pharmaceutical, therapeutic and medicinal products that contain 0.3% or greater THC and which are not classified by a national regulator as drug, pharmaceutical or biopharmaceutical product.

Pursuant to the terms of the transaction, Lexaria will receive another C$1,000,000 worth of common shares of Hill Street over a period sixteen months in C$500,000 issuances eight months and sixteen months after the closing date.

On January 11, 2021, the Company performed a 1:30 reverse stock split with no fractional shares issued.

The issued and outstanding balance of shares at that time changed from 90,044,312 to 3,001,476 as per shareholder approval at the annual general meeting of the company held June 23, 2020.

On January 12, 2021, the Company began its listing its common shares on the NASDAQ exchange under the symbol LEXX.

On January 14, 2021, the Company closed an underwritten public offering for $11,039,994, issuing 2,102,856 units consisting of one common share and one warrant for $5.25.

Total fees of $1,410,506 were estimated at time of closing.

The warrants issued will trade under the symbol LEXXW.

Research and Development

Lexaria incurred $318,830 (2019 $394,091) in research and development expenditures during the period ending May 31, 2020.

During the quarter ended November 30, 2020, Lexaria incurred $192,261 (2019 $107,463) in research and development expenditures during the period ending November 30, 2020.

Specific R&D programs are in ongoing development and will be tightly related to our financial ability to undertake each research phase for each API.

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Vitamin E, Ibuprofen, and Nicotine allowed us to perform testing on Nicotine with positive results.

Our plan to conduct our first ever in vivo absorption tests on CBD also yielded positive results.

Our plan to conduct our first ever in vivo absorption tests on CBD also yielded positive results, and in our first preclinical tests of representative drugs from two classes of antiviral therapies we had positive results.

Ongoing testing plans are proceeding to further define molecular compatibility, absorption rates, timing and viable formats of delivery.

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It is in our best interests to remain flexible at this early stage of our R&D efforts in order to capitalize on potential novel findings from early-stage tests and thus re-direct research into specific avenues that offer the most reward.

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Off-Balance Sheet Arrangements

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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.

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Capital Assets

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Product Revenue

Revenue from the sale of alternative health products is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured, which typically occurs upon shipment.

Revenue from the sale of products is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured, which typically occurs upon shipment.

The Company reports its sales net of the amount of actual sales returns.

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We recognize revenue for usage fees when usage of our DehydraTECH intellectual property occurs by licensees infusing an API into one or more of their product lines for sale.

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Going Concern

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The recurring losses from operations and net capital deficiency raise substantial doubt about the Company’s ability to continue as a going concern.

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Results of Operations for our Period Ended May 31, 2020 and May 31, 2019

Results of Operations for our Period Ended November 30, 2020 and November 30, 2019

Our net loss and comprehensive loss and the changes between those periods for the respective items are summarized as follows:

NINE MONTHS ENDED

THREE MONTHS ENDED

Consulting fees & employees

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Other general and administrative

Product revenues of $119,691 represent almost half of revenues during the period ended May 31, 2020 the majority of which are intermediate products sales that began during the second quarter.

Intermediate products we produce are typically a DehydraTECH enabled powder that companies include in their product’s manufacturing process.

Our Licensing revenue of $130,509 continue to reflect delays in usage fee revenues from existing licensees in Canada waiting for product approval from Health Canada on products, other licensees attempting to ramp up their production and the impact of the COVID-19 pandemic on some of our licensees.

Licensing revenue was primarily based on expanded licence agreements entered into recognising the IP Territory Licensing fee, and existing licenses generating usage fees.

The abilities of our licensees to generate ongoing sales, thereby increasing usage fees are expected to be impacted by the pandemic and may be further delayed as licensees work to address the pandemic.

Discontinued operations

Product revenues of $164,990 represent more than half of revenues during the period ended November 30, 2020, the majority of which are intermediate product sales to business customers.

Intermediate products we produce are typically a DehydraTECH enabled powder that third party companies include in their product’s manufacturing process.

Our licensing revenue of $130,584 was primarily related to intermediate product sales.

A significant number of our licensees are experiencing suspended business activities in Canada in part from waiting on product approval by Health Canada and the impact of the COVID-19 on markets and consumer spending, however this phenomenon has been mitigated following the sale of our THC-related business division that closed on December 9, 2020.

The abilities of other licensees to generate ongoing sales, thereby increasing usage fees are expected to continue to be impacted by the pandemic.

We are working with our licensees to assist them and prevent further license terminations.

However, we are not able to determine how severe the long-term impact will be of the pandemic and when recovery of the general economy will translate into increasing licensing or usage revenues.

However, we are not able to determine how severe the long-term impact of the pandemic will be and when recovery of the general economy will translate into increasing licensing or usage revenues.

Our licensing revenues consist of IP licensing fees for the transfer of the Technology and usage fees that occur over time.

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We have continued interest in our intermediate products but cannot predict how long the pandemic will affect purchasing decisions of retail customers that will affect the consumer product manufacturers that utilize our intermediate products.

During the period ended May 31, 2020, our revenues were derived within the following categories:

$130,509 (May 2019:

$90,000) of intellectual property licensing revenue and $119,691 (2019:

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The majority of our revenue was primarily based on one licensee of our intermediate products ramping up their production and product distribution.

From the initial introduction of our intermediate products in the second quarter of our fiscal 2020 year, we have experienced substantial growth in intermediate product sales.

During the period ended November 30, 2020, our revenues were derived within the following categories:

$130,584 (2020:

$51,344 in discontinued operations) of intellectual property licensing revenue and $164,990 (2020:

$10,015) in product revenues (Note 14, 16).

General and Administrative

Our total general and administrative expenses (consisting of consulting & wages, legal & professions, and all other) increased by $345,451 during the period ended May 31, 2020.

The increase is comprised of significant reductions in advertising and patent related filings and increases reflected in the additional personnel that started during fiscal 2019, asset amortization and $1,308,103 of non-cash based stock option compensation.

We are focusing on cost constraints to preserve cash where possible while executing portions of our business plan.

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Our total general and administrative expenses (consisting of consulting & wages, legal & professions, and all other) decreased by $34,286 during the period ended November 30, 2020.

The decrease is comprised of reductions in consulting expense, travel and wages due to staffing decreases, offset by increases legal filing for patents and research programs being initiated.

We are continuing to focus on cost constraints to preserve cash where possible while executing portions of our business plan.

Interest Expense

Interest expense for the period ended May 31, 2020 was $Nil (2019:

Interest expense for the period ended November 30, 2020 was $Nil (2019:

The Company has a C$40,000 noninterest-bearing loan until January 2023 (Note 19).

Consulting Fees

Our consulting fees increased by $821,923, which includes non-cash stock-based compensation for options ($1,173,720), director and advisor fees.

Reductions include month to month contracts that were not renewed that ended during our second quarter and reductions to some contracts.

Our consulting fees decreased by $227,782, which is primarily due to non-cash stock-based compensation included in 2020 of $233,166 that was not incurred in the current period.

Legal and Professional Fees

Our professional fees decreased by $257,096 during the period primarily due to reduced patent and trademark filings, and fewer other advisory services utilized during the period.

Our professional fees increased by $196,340 during the period primarily due to increased patent and trademark filings and additional advisory services utilized during the period.

We recognize certain legal fees, tax advice fees, and accounting services all as “Professional Fees.”

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Net Working Capital

The Company’s working capital balance increased during the period due to exercises of outstanding options, warrants and the two private placements (Note 12) completed during the period.

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The Company’s working capital balance decreased during the period due to normal execution of our business plan.

The Company maintained a positive and relatively strong working capital position throughout the period.

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Cash flows (used in) provided by financing activities

Net cash flows (used in) discontinued operations

Increase (decrease) in cash

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Net cash used in operating activities was $818,300 for the period compared with cash used in operating activities of $555,078 during the same period in 2020.

This difference was largely due to the decreased costs pertaining to professional fees, research and development, and advertising related to cost containment measures.

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This difference was largely due to the increased costs pertaining to professional fees and research and development.

Investing Activities

Net cash used in investing activities was $13,205 (2019 $736,079) for the period to support patent filings.

This includes reductions to patent filings and capital asset purchases.

Net cash used in investing activities was $5,775 (2020 $5,710) for the period to support capitalized patent filings.

Financing Activities

Net cash provided from financing activities was $2,743,383 during the period ended May 31, 2020 from two private placements and option exercise compared to net cash provided of $3,273,683 ($2,273,683 from private placements and exercises and $1,000,000 from the 16.67% acquisition of Lexaria Nicotine by Altria) during the same period in 2019.

Net cash provided from financing activities was $NIL during the period ended November 30, 2020.

Liquidity and Capital Resources

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Short Term Liquidity

At May 31, 2020 we had $2,034,011 in cash and cash equivalents.

We believe our cash resources are sufficient to allow us to continue operations for at least the next seven months from the date of this Quarterly Report.

At November 30, 2020 we had $525,341 in cash and cash equivalents.

On January 14, 2021 we closed an underwritten public offering for $11,039,994, issuing 2,102,856 units consisting of one common share and one warrant for $5.25.

Total fees of $1,410,506 were estimated at time of closing.

We believe our cash resources are sufficient to allow us to continue operations for at least the next twelve months from the date of this Quarterly Report.

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Long Term Liquidity

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These changes to requirements and transactions may impact our liquidity as well as affect our expenses.

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Controls and Procedures

Management ’ s Report on Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our President and Chief Executive Officer (Principal Executive Officer) and our Chief Financial Officer (Principal Financial and Accounting Officer) to allow for timely decisions regarding required disclosure.

As of May 31, 2020, the quarter covered by this report, we carried out an evaluation, under the supervision and with the participation of our CEO, President and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures.

Based on the foregoing, our President, CEO and the CFO concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of May 31, 2020.

Management ’ s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting.

Responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of control procedures.

The objectives of internal control include providing management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management’s authorization and recorded properly to permit the preparation of consolidated financial statements in conformity with US GAAP.

Our management assessed the effectiveness of our internal control over financial reporting as of May 31, 2020.

In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework.

Our management has concluded that, as of May 31, 2020, our internal control over financial reporting is effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US GAAP.

Our management reviewed the results of their assessment with our Board of Directors.

Inherent limitations on Effectiveness of Controls

Internal control over financial reporting has inherent limitations which include but is not limited to the use of independent professionals for advice and guidance, interpretation of existing and/or changing rules and principles, regulations, segregation of management duties, scale of organization, and personnel factors.

Internal control over financial reporting is a process which involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures.

Internal control over financial reporting also can be circumvented by collusion or improper management override.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis, however these inherent limitations are known features of the financial reporting process and it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Changes in Internal Control over Financial Reporting

During the quarter ended May 31, 2020 our controls and controls processes remained consistent with August 31, 2019.

There have been no changes in our internal controls over financial reporting that occurred during the quarter ended May 31, 2020 that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.

Our control processes are designed to include remote workers, which we have utilized for many years.

The advent of the COVID-19 pandemic has not materially impacted our internal controls over financial reporting other than increasing requirements for social distancing and some additional remote working requirements for staff.

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PART II—OTHER INFORMATION

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What changed 10-Q

Item 2. Management’s Discussion and Analysis