Lexaria Bioscience Corp. 10-Q

Item 1. Financial Statements LEXARIA BIOSCIENCE CORP. CONSOLIDATED BALANCE SHEET (Expressed in U.S. Dollars) November 30 August 31 2020 2020 ASSETS (Unaudited) (Audited) Current Cash and cash equivalents $ 525,341 $ 1,293,749 Marketable securities (Note 20) 43,731 19,321 Accounts receivable (Note 7) 427,330 208,925 Inventory (Note 8) 125,963 116,871 Prepaid expenses and deposit (Note 18) 136,016 182,095 Current assets from discontinued operations (Note 21) 49,333 105,250 Total Current Assets 1,307,714 1,926,211 Non-current assets, net Lease right of use 118,193 126,920 Intellectual Property (Note 9) 296,058 292,000 Property & equipment (Note 10) 452,355 483,357 Total Non-current Assets 866,606 902,277 TOTAL ASSETS $ 2,174,320 $ 2,828,488 LIABILITIES Current Accounts payable and accrued liabilities (Note 11) $ 83,095 $ 86,920 Deferred revenue 35,500 44,255 Due to a related party (Note 15) 87,185 58,704 Lease current (Note 17) 36,695 36,038 Current liabilities from discontinued operations (Note 21) - 250 Total Current Liabilities 242,475 226,167 Long Term Lease long term (Note 17) 79,969 89,393 Loan payable (Note 19) 30,852 30,670 Total Long Term Liabilities 110,821 120,063 TOTAL LIABILITIES 353,296 346,230 STOCKHOLDERS' EQUITY Share Capital Authorized: 220,000,000 common voting shares with a par value of $0.001 per share Issued and outstanding: 3,001,476 common shares at November 30, 2020 and 3,001,476 common shares at August 31, 2020 3,001 3,001 Additional paid-in capital 30,373,285 30,324,398 Deficit (28,498,226 ) (27,802,198 ) Equity attributable to shareholders of the Company 1,878,060 2,525,201 Non-Controlling Interest (57,036 ) (42,943 ) Total Stockholders' Equity 1,821,024 2,482,258 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,174,320 $ 2,828,488 The accompanying notes are an integral part of these condensed consolidated interim financial statements. Page 3 of 31 Table of Contents LEXARIA BIOSCIENCE CORP. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Expressed in U.S. Dollars, except number of shares) THREE MONTHS ENDED November 30 November 30 2020 2019 (Unaudited) (Unaudited) Revenue (Note 14) $ 295,656 $ 10,332 Cost of goods sold 64,478 7,853 Gross profit 231,178 2,479 Expenses Accounting and audit 15,628 19,036 Depreciation and amortization (Note 9, 10) 27,929 27,512 Advertising and promotions 27,906 45,861 Bad debt 12,000 - Consulting (Notes 13, 15, 17) 256,014 483,796 Investor relations 33,964 17,515 Legal and professional 248,695 52,355 Office and miscellaneous 76,517 74,027 Research and development 192,261 107,463 Travel 532 21,853 Wages & salaries 75,498 87,593 Unrealized (gain) loss on marketable securities (Note 19) (24,410 ) 41,574 Inventory writeoff (Note 8) 1,765 - 944,299 978,585 Net loss from continuing operations (713,121 ) (976,106 ) Discontinued operations Income from discontinued operations (Note 21) 3,000 51,344 Net (loss) and comprehensive loss for the year $ (710,121 ) $ (924,762 ) Net (loss) and comprehensive loss attributable to: Common shareholders $ (696,028 ) $ (907,312 ) Non-controlling interest $ (14,093 ) $ (17,450 ) Basic and diluted (loss) per share Continuing operations $ (0.24 ) $ (0.35 ) Discontinued operations 0.00 0.02 $ (0.24 ) $ (0.33 ) Weighted average number of common shares outstanding - Basic and diluted 3,001,476 2,636,578 The accompanying notes are an integral part of these consolidated interim financial statements. Page 4 of 31 Table of Contents LEXARIA BIOSCIENCE CORP. CONSOLIDATED STATEMENT OF CASH FLOWS (Expressed in U.S. Dollars) THREE MONTHS ENDED November 30 November 30 2020 2019 (Unaudited) (Unaudited) Cash flows used in operating activities Net loss and comprehensive loss $ (710,121 ) $ (924,763 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock based compensation 48,887 162,414 Depreciation and amortization (Note 8, 9, 10) 27,929 27,512 Inventory write-off (Note 8) 1,765 - Bad debt expense 12,000 - Noncash right of use lease expense 8,727 - Unrealized loss on marketable securities (24,410 ) 41,574 Unrealized foreign exchange 182 - Warrants issued for services - 70,752 Change in working capital Accounts receivable (230,405 ) 155,010 Inventory (6,067 ) (6,160 ) Prepaid expenses and deposits 46,079 (27,140 ) Accounts payable and accrued liabilities (3,825 ) (43,382 ) Due to related parties 28,481 (10,896 ) Operating lease liability (8,767 ) - Deferred revenue (8,755 ) - Net cash used in operating activities $ (818,300 ) $ (555,079 ) Cash flows used in investing activities Intellectual property (5,775 ) (5,710 ) Property & equipment - - Net cash used in investing activities $ (5,775 ) $ (5,710 ) Cash flows from financing activities Proceeds from issuance of equity - 706,704 Net cash from financing Activities $ - $ 706,704 Net cash from discontinued operations $ 55,667 $ (97,742 ) Net Change in cash and cash equivalents for the period (768,408 ) 48,174 Cash and cash equivalents at beginning of period 1,293,749 1,285,147 Cash and cash equivalents at end of period $ 525,341 $ 1,333,321 Supplemental information of cash flows: Income taxes paid in cash $ 3,540 $ 957 Subscription Receivable $ - $ 110,025 The accompanying notes are an integral part of these condensed consolidated interim financial statements. Page 5 of 31 Table of Contents LEXARIA BIOSCIENCE CORP. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Expressed in U.S. Dollars) ADDITIONAL COMMON STOCK PAID-IN TOTAL SHARES AMOUNT CAPITAL DEFICIT NCI STOCKHOLDERS' $ $ $ $ EQUITY Balance August 31, 2019 2,626,236 2,626 26,248,614 (23,868,202 ) 107,674 2,490,712 Stock based compensation - - 162,414 - - 162,414 Warrants issued for services - - 70,752 - - 70,752 Private placement 60,792 61 815,959 816,020 Net loss - - - (907,313 ) - (907,313 ) Non-controlling interest - - - - (17,450 ) (17,450 ) Balance November 30, 2019 2,687,028 2,687 27,297,739 (24,775,515 ) 90,224 2,615,135 Stock based compensation - - 294,293 - - 294,293 Exercise of stock options 3,667 4 10,996 - - 11,000 Net loss - - - (950,344 ) - (950,344 ) Non-controlling interest - - - - (47,148 ) (47,148 ) Balance February 29, 2020 2,690,695 2,691 27,603,028 (25,725,859 ) 43,076 1,922,936 Stock based compensation - - 682,563 - - 682,563 Warrants issued for services - - 98,081 - - 98,081 Private placement 295,540 296 1,887,310 - - 1,887,606 Net loss - - - (1,361,381 ) - (1,361,381 ) Non-controlling interest - - - - (29,272 ) (29,272 ) Balance May 31, 2020 2,986,235 2,986 30,270,983 (27,087,240 ) 13,804 3,200,533 Exercise of stock options 3,667 4 19,026 - - 19,030 Shares issued for service 11,574 12 99,988 - - 1,00,000 Private placement - - (65,600 ) - - (65,600 ) Net loss - - - (714,958 ) - (714,958 ) Non-controlling interest - - - - (56,747 ) (56,747 ) Balance August 31, 2020 3,001,476 3,001 30,324,398 (27,802,198 ) (42,943 ) 2,482,258 Stock based compensation - - 48,887 - - 48,887 Warrants issued for services - - - - - - Private placement - - - - - - Net loss - - - (696,028 ) - (696,028 ) Non-controlling interest - - - - (14,093 ) (14,093 ) Balance November 30, 2020 3,001,476 3,001 30,373,285 (28,498,226 ) (57,036 ) 1,821,024 The accompanying notes are an integral part of these condensed consolidated interim financial statements. Page 6 of 31 Table of Contents LEXARIA BIOSCIENCE CORP. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS November 30, 2020 (Expressed in U.S. Dollars) 1. Organization, Business and Going Concern Lexaria Bioscience Corp. (“Lexaria”, or the “Company”) was formed on December 9, 2004 under the laws of the State of Nevada. In March of 2014, the Company began work in the fields of enhanced delivery of active ingredients and drugs. In May 2016, the Company commenced out-licensing its patented DehydraTECH™ technology (the “Technology”) for improved delivery of bioactive compounds that promotes healthy ingestion methods, lower overall dosing and higher effectiveness in active molecule delivery. The Company has its office in Kelowna, BC, Canada. The Company’s 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 (US GAAP) have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of results for a full year. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated annual financial statements and notes thereto included in our annual report filed on Form 10-K for the year ended August 31, 2020. The Company’s unaudited interim consolidated financial statements have been prepared in accordance with US GAAP 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 recurring losses from operations and net capital deficiency raise substantial doubt about the Company’s ability to continue as a going concern. The Company requires additional funds or revenues to maintain its operations and developments. Management’s 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. In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak and any related adverse public health developments may adversely affect workforces, economies, and financial markets globally, potentially leading to an economic downturn. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or results of operations at this time. During November of 2020, our Board of Directors ("Board") approved a plan to sell the businesses assets underlying our Canpharm THC related segment. As a result, the related financial results were reflected in our consolidated statement of income, retrospectively, as discontinued operations beginning in the first quarter of fiscal 2021. On November 18, 2020, we signed a definitive agreement to sell the assets. As at November 30, 2020, the transaction was pending final approval from the TSX Venture Exchange. As a result, the related assets and liabilities associated with the discontinued operations in the prior year consolidated balance sheet are classified as discontinued operations. See "Note 21 - Discontinued Operations" for additional information. Page 7 of 31 Table of Contents Subsequent to November 30, 2020, the Company approved a 1:30 reverse stock split with no fractional shares issued. All share and per share information within these condensed interim consolidated financial statements have been retroactively restated to reflect the effects of the approved reversed stock split. 2. Business Risk and Liquidity The Company is subject to several categories of risk associated with its operating activities. 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 continue 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. Lexaria does have an ancillary involvement risk via out-licensing of its patented technology to licensees that choose to utilize DehydraTECH 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. Lexaria and its subsidiaries are not involved directly or indirectly in the production or sale of any products containing nicotine. Products containing nicotine have historically been involved in litigation in the USA. Lexaria’s corporate licensee may introduce products containing nicotine that utilize DehydraTECH to the US consumer market, which could therefore introduce third-party risks to Lexaria. Lexaria and its subsidiaries are not involved directly or indirectly in the production or sale of any pharmaceutical or antiviral products. Licensees may enhance their product’s delivery using our Technology, which could therefore introduce third-party risks to Lexaria. 3. Significant Accounting Policies The significant accounting policies of the Company are consistent with those of our audited financial statements on Form 10-K for the year ended August 31, 2020. 4. Basis of Consolidation These interim consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries; Lexaria CanPharm ULC, PoViva Corp., Lexaria Hemp Corp., Kelowna Management Services Corp. and Lexaria Pharmaceutical Corp., and our 83.333% subsidiary Lexaria Nicotine LLC (16.667% Altria Ventures Inc., an indirect wholly owned subsidiary of Altria Group, Inc.). All significant intercompany balances and transactions have been eliminated. Page 8 of 31 Table of Contents 5. Estimates and Judgments The preparation of financial statements in conformity with U.S GAAP requires us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Some of the Company’s accounting policies require us to make subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. These accounting policies involve critical accounting estimates because they are particularly dependent on estimates and assumptions made by management about matters that are highly uncertain at the time the accounting estimates are made. Although we have used our best estimates based on facts and circumstances available to us at the time, different estimates reasonably could have been used. Changes in the accounting estimates used by the Company are reasonably likely to occur from time to time, which may have a material effect on the presentation of financial condition and results of operations. The Company reviews these estimates, judgments and assumptions periodically and reflect the effects of revisions in the period in which they are deemed to be necessary. We believe that these estimates are reasonable; however, actual results could differ from these estimates. In preparing these unaudited interim consolidated financial statements, the significant judgments made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those applied to the audited consolidated financial statements for the year ended August 31, 2020. 6. Recent Accounting Guidance In June 2016, the FASB issued a new standard to replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For trade and other receivables, loans and other financial instruments, the Company will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects 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. In November 2019 FASB issued ASU No 201910 revised the effective date based on updated criteria with the effective date for fiscal years beginning after December 15, 2022. Application of the amendments is through a cumulative effect adjustment to deficit as of the effective date. The Company is currently assessing the impact of the standard on its consolidated financial statements. 7. Accounts and Other Receivables November 30 August 31 2020 2020 $ $ Trade and deposits receivable 3,792 82,492 Intellectual Property Fees 325,304 38,250 Sales tax receivable 98,234 88,183 427,330 208,925 Page 9 of 31 Table of Contents 8. Inventory November 30 August 31 2020 2020 $ $ Raw materials 53,676 51,404 Work in progress 11,557 15,705 Finished goods 60,730 49,762 125,963 116,871 During the period ended November 30, 2020, the Company wrote down $1,765 (2020 - $8,240 full year) of inventory to reflect its net realisable value. 9. Intellectual Property The following is a list of US capitalized patents held by the Company 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 05/15/2018 US 9,974,739 B2 05/22/2018 US 10,084,044 B2 09/25/2018 US 10,103,225 B2 10/16/2018 US 10,381,440 08/13/2019 US 10,374,036 08/06/2019 US 10,756,180 08/25/2020 The Company also holds non-capitalized patents outside the US. A continuity schedule for capitalized patents is presented below: November 30 August 31 2020 2020 $ $ Balance – beginning 292,000 265,127 Addition 5,775 33,645 Amortization* (1,717 ) (6,772 ) Balance – ending 296,058 292,000 *The patents are amortized over their legal life of 20 years. Page 10 of 31 Table of Contents 10. Property & Equipment Cost Period Amortization Disposal Accumulated Amortization Net Balance November 30, 2020 Quarter Ended November 30, 2020 $ $ $ $ $ Leasehold improvements 259,981 (13,509 ) - (100,120 ) 159,861 Computers 63,964 (4,920 ) - (36,789 ) 27,175 Furniture fixtures equipment 34,220 (1,604 ) (3,094 ) (11,608 ) 19,518 Lab equipment 291,235 (10,967 ) - (45,434 ) 245,801 649,400 (31,001 ) (3,094 ) (193,951 ) 452,355 Cost Period Amortization Accumulated Amortization Net Balance August 31, 2020 Year Ended August 31, 2020 $ $ $ $ Leasehold improvements 259,981 (53,268 ) (86,610 ) 173,371 Computers 63,964 (19,681 ) (31,869 ) 32,095 Furniture fixtures equipment 34,220 (7,036 ) (13,097 ) 21,123 Lab equipment 291,235 (27,921 ) (34,467 ) 256,768 649,400 (107,906 ) (166,043 ) 483,357 During the three month period ended November 30, 2020, $4,790 of amortization was included in the cost of inventory. 11. Accounts Payable and Accrued Liabilities November 30 August 31 2020 2020 $ $ Accounts Payable Trades payable 12,659 45,080 Accrued Liabilities Corporate tax payable 1,785 3,834 Trades payable 68,651 38,006 Balance – ending 83,095 86,920 12. Common Shares and Warrants During the quarter ended November 30, 2020 the Company did not issue any shares or warrants. A continuity schedule for warrants is presented below: Number of Warrants Weighted Average Exercise Price $ Balance August 31, 2019 94,177 41.40 Cancelled/expired (25,000 ) 44.90 Issued 402,431 12.74 Balance August 31, 2020 471,608 16.77 Cancelled/expired (32,510 ) 67.50 Balance November 30, 2020 439,098 14.68 Page 11 of 31 Table of Contents A summary of warrants outstanding as of November 30, 2020 is presented below: # of Warrants Weighted Average Remaining Contractual Life Weighted Average Exercise Price $ 3,333 0.47 years 28.80 8,333 0.48 years 46.50 25,000 0.86 years 4.20 291 0.95 years 36.00 7,500 1.93 years 24.00 51,808 3.96 years 36.00 8,983 4.00 years 36.00 16,666 4.29 years 9.00 267,616 4.43 years 10.50 49,568 4.45 years 10.50 439,098 4.01 years 14.68 13. Stock Options The Company has established the 2014 Stock Option Plan whereby the board of directors may, from time to time, grant up to 62,917 stock options to directors, officers, employees, and consultants; and the 2019 Equity Incentive Plan whereby the board of directors may, from time to time, grant up to 261,290 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 Company’s board of directors. The exercise price of an option is equal to or greater than the closing market price of the Company’s common shares on the day preceding the date of grant. The vesting terms of each grant are set by the board of directors. The Company did not grant options during the quarter ended November 30, 2020. A continuity schedule for stock options is presented below: Options Weighted Average Exercise Price $ Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value $ Balance August 31, 2019 166,767 21.30 Cancelled/expired (149,437 ) 29.51 Exercised (7,333 ) 4.09 Granted 161,600 11.66 Balance August 31, 2020 171,596 11.17 Cancelled (1,333 ) 12.90 Balance November 30, 2020 (Outstanding) 170,263 11.16 4.05 30,000 Balance November 30, 2020 (Exercisable) 146,231 10.51 4.05 30,000 Page 12 of 31 Table of Contents 14. Revenues November 30 2020 $ November 30 2019 $ Product sales 164,990 10,015 Licensing revenue 130,584 - Freight revenue 82 317 Income from ongoing operations 295,656 10,332 Income from discontinued operations 3,000 51,750 298,656 62,082 During the three months ended November 30, 2020, the Company recognized $3,138 of Intellectual Property Licensing fees and $127,446 of usage fees from ongoing operations and $3,000 of income from discontinued operations (November 2019 - $33,750 licensing and $18,000 usage fees all relating to discontinued operations). Revenues are significantly concentrated on one customer. There was an increase in our intermediate product sales and licensing revenues in the current year compared to the prior year, which began in the second quarter of fiscal 2020, with increasing volume to customers. Intermediate products are typically a DehydraTECH enabled powder that companies can purchase to include in their products. Intermediate product sales and licensing revenue constituted the majority of our revenue. The licensing fees consist of intellectual property licensing fees for transfer of the Technology with the signing of definitive agreements for the DehydraTECH technology and usage fees. 15. Related Party Transactions November 30 November 30 2020 2019 Contract Non Cash Total Contract Non Cash Total Management, consulting and director services $ $ $ $ $ $ CAB Financial Services (1) 67,537 - 67,537 65,757 - 65,757 M&E Services Ltd. (1) 31,822 - 31,822 29,382 - 29,382 Docherty Management Limited (1) 52,579 - 52,579 56,730 - 56,730 Directors 17,076 - 17,076 16,717 - 16,717 169,014 - 169,014 168,586 - 168,586 (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, and Docherty Management Limited is owned by the President of the Company. All related party transactions pertain to management and director agreements entered into in the normal course of business (Note 17). Due to related parties : Related party transactions are recorded at the exchange amount established and agreed to between the related parties. As at November 30, 2020, $87,185 (August 31, 2020 - $58,704) was payable to related parties and included in due to related parties. Page 13 of 31 Table of Contents 16. Segment Information The Company’s operations involve the development and usage, including licensing, of its proprietary DehydraTECH 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 and Products. Licensing revenues are significantly concentrated on one licensee. IP Licensing $ Products $ Corporate $ Consolidated Total $ External revenue 130,584 165,072 - 295,656 CoGS - (64,478 ) - (64,478 ) Operating expenses (127,868 ) (92,038 ) (724,393 ) (944,299 ) Discontinued operations 3,000 - - 3,000 Segment income(loss) 5,716 8,556 (724,393 ) (710,121 ) Total assets 817,830 125,963 1,230,527 2,174,320 Capital Asset by Region Cost US Disposal US Net Balance US Cost Canada Net Balance Canada Total Net Balance Three Months Ended November 30, 2020 $ $ $ $ $ $ Leasehold Improvements - - - 259,981 159,861 159,861 Computers - - - 63,964 27,175 27,175 Furniture Fixtures Equipment 3,094 (3,094 ) - 31,126 19,518 19,518 Lab Equipment 98,050 - 79,128 193,185 166,673 245,801 101,144 (3,094 ) 79,128 548,256 373,227 452,355 Capital Asset by Region Cost US Net Balance US Cost Canada Net Balance Canada Total Net Balance Year Ended August 31, 2020 $ $ $ $ $ Leasehold Improvements - - 259,981 173,371 173,371 Computers - - 63,964 32,095 32,095 Furniture Fixtures Equipment 3,094 - 31,126 21,123 21,123 Lab Equipment 98,050 85,263 193,185 171,505 256,768 101,144 85,263 548,256 398,094 483,357 17. Commitments, Significant Contracts and Contingencies Management and Service Agreements: As at November 30, 2020, the Company is party to the following contractual commitments: Party Monthly Commitment Expiry Date C.A.B Financial Services CAD $29,706 January 1, 2022 Docherty Management Ltd. CAD $25,609 January 1, 2022 M&E Services Ltd. CAD $13,997 June 1, 2021 Corporate Development CAD $1,500 Month to Month Office Management CAD $10,800 August 15, 2022 Research & Development CAD $3,854 Month to Month Office operating lease (1) CAD $4,823 November 15, 2023 Page 14 of 31 Table of Contents Right of Use Assets - Operating Lease (1) Corporate office and R&D lab space leased in Kelowna, British Columbia, Canada until November 15, 2023 with an option to extend an additional five years. In addition to minimum lease payments, the lease requires us to pay property taxes and operating costs which are subject to annual adjustments. Right of use assets - operating leases: $ November 30, 2020 126,920 Amortization (8,727 ) Total right of use assets 118,193 Liabilities: November 30, 2020 125,431 Lease payments (10,987 ) Interest accretion 2,220 Total lease liabilities 116,664 Operating lease cost as at November 30, 2020 $ 118,193 Operating cash flows for lease 10,948 Remaining lease term 2.8 Years Discount rate 7.25 % Pursuant to the terms of the Company’s lease agreements in effect, the following table summarizes the Company’s maturities of operating lease liabilities as of November 30, 2020: 2021 32,746 2022 44,815 2023 44,815 2024 7,469 Thereafter - Total lease payments 129,845 Less: imputed interest (13,181 ) Present value of operating lease liabilities 116,664 Less: current obligations under leases (36,695 ) Total 79,969 Page 15 of 31 Table of Contents 18. Prepaid Expenses Prepaid expenses consist of the following at November 30, 2020 and August 31, 2020: November 30 August 31 2020 2020 $ $ Advertising & conferences 21,539 21,878 Legal fees 130 47,498 Licence, filing fees, dues 30,138 8,541 Office & insurance 58,823 78,792 Research & development 25,386 25,386 136,016 182,095 19. Loan Payable We have applied for, and received, governmental assistance related to the COVID-19 pandemic. As of November 30, 2020 there is one Canadian governmental programs that currently provides: A Canadian dollar loan of C$40,000 under the Canada Emergency Business Account (CEBA) program. The loan is a 0% interest bearing loan with no principle payments and if repaid before December 31, 2022 will result in a loan forgiveness of 25% (up to C$10,000). The loan can be converted into a 3-year term loan at 5% annual interest paid monthly effective January 1, 2023. 20. Marketable Securities The components of Marketable Securities were as follows: Cost Basis $ Unrealized Gains $ Unrealized Losses $ Total $ August 31, 2020 Common stock 56,250 9,997 (38,584 ) Total 56,250 9,997 (46,926 ) 19,321 November 30, 2020 Common stock 56,250 24,410 - Total 56,250 34,407 (46,926 ) 43,731 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. The COVID-19 pandemic has caused significant market turbulence and it is possible that our evaluation will change dependant upon new information as it arises. Page 16 of 31 Table of Contents 21. Discontinued Operations On November 19, 2020 the Company entered a definitive asset sale agreement through its wholly owned subsidiary Lexaria Canpharm ULC to sell certain non-core business assets for gross proceeds of C$3,850,000. The financial results of the group of assets sold are presented as income (loss) from discontinued operations, net of income taxes in our consolidated statement of income. The following table presents financial results of the assets: THREE MONTHS ENDED November 30 November 30 2020 2019 Revenue $ 3,000 $ 51,750 Operating Expenses - 406 Net Income $ 3,000 $ 51,344 The following table presents cash flows of discontinued operations: THREE MONTHS ENDED November 30 November 30 2020 2019 Cash flows used in discontinued operating activities Net income $ 3,000 $ 51,344 Change in working capital 55,667 (97,742 ) Net cash used in discontinued operating activities $ 58,667 $ (46,398 ) Net cash provided by (used in) discontinued operations 58,667 (46,398 ) The following table presents the aggregate carrying amounts of the classes of assets and liabilities of discontinued operations of the assets: November 30 August 31 2020 2020 Current Assets Accounts receivable $ 49,333 $ 105,250 Total assets classified as discontinued operations in the consolidated balance sheet 49,333 105,250 Current Liabilities Accounts payable $ - $ 250 Total liabilities classified as discontinued operations in the consolidated balance sheet - 250 22. Subsequent Events 1. On December 9, 2020, the Company announced that it closed the sale of its non-pharmaceutical THC-related 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, a C$2,000,000 promissory note 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 use with certain 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. 2. On January 11, 2021, at 4:30 p.m. Eastern time, 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. Concurrently, the Company began listing its common shares on the NASDAQ exchange under the symbol LEXX. 3. 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. Page 17 of 31 Table of Contents