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Item 7. Management’s Discussion and Analysis

2021-11-29 compared with 2020-10-15 · 150 added, 187 removed, 29 unchanged (92% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our audited consolidated financial statements and the related notes that appear elsewhere in this annual 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 annual report, particularly in the section entitled "Risk Factors".

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Our audited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.

Plan of Operation

During the next twelve-month period (beginning September 1, 2020), we intend to:

pursue a listing on a U.S.

senior stock exchange or market;

pursue technology out-licensing opportunities for our patented DehydraTECH technology.

This will be focused first primarily on the CBD-from-hemp and nicotine sectors, and will evolve as time allows for completed R&D in other sectors, to the NSAID, and will eventually include the anti viral drug sectors if and as our R&D supports such initiatives;

identify and secure sources of equity and/or debt financing for intellectual property pursuit and maintenance, R&D, and consumer product formulation and marketing and general corporate operations;

Our plans beyond fiscal 2021 are dependent upon our ability to obtain sufficient capital through equity capital or other finance choices and by revenues generation which we expect to improve slightly.

During the previous year we did raise sufficient capital to fulfill all our plans.

Without sufficient capital, our plans will change, and could change materially.

We anticipate that we will incur up to the following operating expenses during this period:

Estimated Funding Required During the 12 Months beginning September 1, 2020

Estimated Completion/Due

Research and Development (Products)

Research and Development (General)

Patent applications and trademark

Marketing and Sales

Consulting Fees (~50% in officers and directors contracts)

Wages and Salaries

Professional Fees

Other general administrative expenses (including travel, insurance, conferences, and fees)

Interest Expense

12 Month Outlook for Current Product Line, Product Development & Design, Patents

As at August 31, 2020, we had a working capital surplus of $1,700,044 and cash on hand of $1,293,749.We therefore estimate that we will require approximately $2.0 million in cash to finance our planned expenditures for the 12 months beginning September 1, 2020.In the uncertain event that we are unable to raise sufficient funds to execute our current business plan, we will scale back our operations to prioritize immediate and necessary expenses, shifting portions of our plan into our longer term planning for fiscal 2022.

We estimate our minimum necessary expenses for the year to be roughly $2.5 million in which case we would require approximately $1.2 million in additional financed cash to meet our minimum level of expenditures.These necessary expenses include professional fees, wages and general and administrative expenses necessary to satisfy our public reporting requirements.

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Our business strategy involves several elements and has evolved from recent years.

We intend to prioritize our revenue generating efforts in 2021/22 on technology licensing in the nicotine and pharmaceutical sectors, with a secondary focus on expanding our R&D to support applications of DehydraTECH for drug and related active ingredient delivery.

Our patented technology was developed to aid absorption and bioavailability of certain “payload” molecules, including cannabinoids, nicotine, NSAIDs and lipophilic vitamins – all of which have received granted patents.

DehydraTECH appears to improve absorption and bioavailability of cannabinoids and nicotine into human epi-intestinal cells.

We developed a line of demonstration oral-delivered products utilized to show the efficacy of DehydraTECH for the purpose of manufacturers to be able to incorporate the technology into their product lines.

Although we have experimented with consumer product development in the past, those activities occupy a declining amount of our corporate time.

We first began selling trial amounts of ViPova branded black tea fortified with hemp oil and utilizing our technology, in January 2015 and added additional flavours over time.

We currently sell three flavors of ViPova tea but sales have been modest and we have not as yet been successful in initiating more widespread interest in this product line.

We also began offering our first coffee and hot chocolate also fortified with broad-spectrum hemp oil, and also under the ViPova brand.

Together, tea, coffee and hot chocolate comprise all our product offerings under the ViPova brand, despite modest changes to flavors or packaging, etc.

Offering a variety of self-made beverages consumers helped us to establish modest brand recognition of ViPova and greatly improved our knowledge of how to implement our technology into these types of consumer products.

This in turn has aided in our understanding of some CPG manufacturing processes and has assisted in our ability to understand the needs of potential corporate licensees of our technology.

Generating meaningful revenue from product sales will be challenging and will rely in part on our ability to gain widespread retail distribution access, which to date we have failed to achieve.

We have also investigated the possibility of generating sales from international markets, in those locations where hemp oil fortified foods are permissible by law but have not as yet offered products in other national markets.

ViPova branded products are owned by our wholly owned PoViva Corp subsidiary.

While the ViPova line is focused on a “coffee house” experience, we experimented with the Lexaria Energy line to focus on athletic performance and active lifestyle needs.

The first Lexaria Energy product was believed to be unique or nearly so:

a protein energy bar utilizing our technology and fortified with broad spectrum hemp oil.

We first offered the Lexaria Energy Bar for sale in November 2015, but it was since discontinued due to the complexities in locating reliable manufacturing.

TurboCBD and ChrgD+ products have also been publicly released demonstrating additional product formats that benefit from our patented DehydraTECH technology’s advantages in capsules and powdered form for ready to drink beverages respectively.

Lexaria Energy, TurboCBD and ChrgD+ branded products are owned 100% by Lexaria Bioscience Corp.

Our strategy was to encourage online sales via dedicated websites, and also to pursue traditional grocery store, convenience store, specialty stores, roadside store and wholesale distribution channels.

To facilitate distribution, we have third-party fulfillment centers that process and ship orders.

Despite our efforts we were unable to achieve significant commercial traction with consumer products and at this time it is uncertain if we will continue to pursue these markets.

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Through our product development we have communicated to the industry the versatility of our technology in specific CPG formats and we believe this strategy has been successful in assisting us in technology licensing discussions with potential new clients.

Meanwhile, our business strategy contains a second element that we believe will be more impactful to future corporate growth that involves the further development and out-licensing of our intellectual property.

This out-licensing of our technology comprised the largest portion of our revenue in the fiscal year just finished.

We do not and are not planning to offer for sale any products containing THC in quantities higher than 0.3%.

We also expect to discontinue all US-based business activities - including the licensing of our technology – to state-legal cannabis firms.

However, we may retain the right to license our technology to companies offering THC products operating in international jurisdictions where doing so is legal.

Our primary business focus is no longer related to cannabinoids, even though that sector is where our technology was originally developed.

We are now focused on other molecules such as nicotine that we have licensed to Altria Ventures Inc., an indirect wholly-owned subsidiary of Altria Group, Inc.

Our October 31, 2017 announcement of the USPTO Notice of Allowance for our first patent granted and the subsequent 15 granted patents of our technology related to new molecule groups, along with our ongoing patent filing and grants, may enhance our ability to successfully pursue this initiative during fiscal 2021 and beyond.

We expect to devote an as yet unknown but increasing proportion of our resources and focus towards pharmaceutical applications and launched operations in this division during the 2021 fiscal year.

Our past R&D in other sectors has contributed greatly to our understanding of DehydraTECH and has encouraged us to attempt to reach more meaningful commercial applications in the pharmaceutical sector than were available in cannabinoid sector.

We continue to communicate the benefits of DehydraTECH to potential licensing partners, i.e.

with higher absorption levels a manufacturer could perhaps infuse smaller amounts of active molecules into a product, thus reducing their manufacturing input costs, to provide higher bioavailability with the dosing limits being imposed or contemplated in many jurisdictions, to infuse consumer products while masking the flavor and smell of the active molecules, and predictable delivery times.

We believe these to be meaningful competitive advantages that may lead to the potential to generate licensing revenue, and will pursue these opportunities within the cannabinoids, nicotine and other bioactive molecular markets both within the USA and also internationally, in those locations where they are legal and regulated by government.

We do not and will not sell any THC products – after discontinuing THC-related licensing operations in the USA, we will only license technology to participants in valid jurisdictions outside of the USA.

We currently have six revenue generating agreements with such licensees and additional letters of intent and negotiations with other potential licensees.

Likewise, we do not sell any nicotine products and do not intend to – however our joint venture partner or other companies active in the tobacco or nicotine sectors may elect to utilize our technology in products containing nicotine for sale to consumers in the USA or internationally.

Subject to budgetary availability, we also plan to conduct additional in vitro and in vivo studies testing the absorption of some or all of the molecules named within our patent applications – CBD, NSAIDs, Vitamins, PDE5 inhibitors, Nicotine and anti viral drugs – to substantiate the effectiveness of DehydraTECH.

More than satisfying scientific curiosity, successful tests could lead to increased awareness and acceptance of DehydraTECH as a meaningful method by which to deliver some or all of the named molecules more effectively than their current delivery methods.

Therefore, absorption tests could become an important element leading towards higher rates of acceptance of our technology licensing initiatives.

This discussion and analysis contains forward-looking statements that involve not only risks and uncertainties but also changes in condition, significance, value and other factors, as described in “Risk Factors” and elsewhere in this Annual Report on Form 10-K, that could cause our actual results of operations, performance, financial position and business prospects and opportunities for this fiscal year and the periods that follow to differ materially from those expressed in, or implied by, those forward-looking statements.

This discussion and analysis should be read in conjunction with our consolidated financial statements and the accompanying notes related thereto that appear elsewhere in this Annual Report on Form 10-K.

The following management’s discussion and analysis of financial condition and results of operations (“MD&A”) is provided to enhance the readers understanding of our results of operations and financial condition for the year ended August 31, 2021, and in comparison, to the year ended August 31, 2020.

Executive Summary

Lexaria’s patented technology DehydraTECH improves the delivery of bioactive compounds while promoting healthy ingestion methods, lowers overall dosing, and is highly effective in active molecule delivery available in a range of formats from oral ingestible to oral buccal/sublingual to topical products.

DehydraTECH substantially improves the rapidity and quantity of API transport to the blood plasma and brain using the body’s natural process for distributing fatty acids via the oral route.

This technology extends across many categories beyond the primary pharmaceutical focus of the Company from foods and beverages to cosmetic products and nutraceuticals.

Lexaria is advancing a several R&D activities in both preclinical and clinical programs.

Currently, our program is investigating cannabidiol (CBD) for the reduction of hypertension with three human clinical trials during calendar 2021, and one human clinical trial planned during calendar 2022.

Other programs include nicotine for oral pouches and nicotine replacement therapy, antivirals and related compounds for COVID-19 and other viral diseases, PDE5 inhibitors, NSAIDS, hormones, and others.

From time to time the Company will engage in contract R&D for third parties who are interested in in evaluating DehydraTECH in their products.

Evaluate the financial condition and operating performance

Fiscal 2021 was highlighted by the intensified direction of our research and development programs as we scale up our research based on the continued confirmatory results from our ongoing programs.

During the year ended August 31, 2021, we completed ten studies and initiated a further seven.

These programs have been supported by the capital infusion as Lexaria raised approximately $15m in funding during the year which has enabled the active work programs of 2021 and supports significant advance in the fields of heart disease and hypertension, oral nicotine, and antiviral research.

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We consider advancing our applied R&D studies as a vital step towards our goal of establishing commercial relationships with potential industry partners who can utilizes DehydraTECH within our existing or new product lines.

We continue to conduct additional in vitro and in-vivo studies testing the absorption of some or all of the molecules named within our patent applications – CBD, NSAIDs, vitamins, PDE5 inhibitors, nicotine and anti-viral drugs – to further substantiate the effectiveness of DehydraTECH.

Successful tests are expected to increase awareness and acceptance of DehydraTECH as a meaningful method by which to deliver some or all of the named molecules more effectively than current delivery methods avail.

Therefore, absorption tests are an important element leading towards higher rates of acceptance and implementation of our technology licensing initiatives.

We will pursue technology licensing opportunities as a method of generating highly profitable revenue streams over long periods of time.

2 unchanged sentences

But if our remaining patent applications do become granted patents, our ability to generate meaningful license revenue from our intellectual property may increase in a short period of time.

We will continue to pursue our remaining patents pending as vigorously as we are able, since the successful granting of more of those applications could lead to material increases in shareholder value.

We are pursuing patent protection in more than 40 countries around the world.

Results of Operations for our Year Ended August 31, 2020 and August 31, 2019

Our net loss and comprehensive loss for the year ended August 31, 2020, for the year ended August 31, 2019 and the changes between those periods for the respective items are summarized as follows:

Consulting fees & employees

Legal and professional

Other general and administrative

Licensing revenues represent the majority of the $384,543 in revenues during the year ended August 31, 2020 and include a significant increase in product revenues from the sale of our intermediary products.

Licensing revenue increases were primarily based on licence renewals and expansions entered into recognising the IP Territory Licensing fee and they are expected to generate future ongoing IP Usage Licensing fees and increases in usage fees.

During the year ended August 31, 2020, our revenues were derived within the following categories:

$232,909 (2019 $198,000) of licensing revenue and $151,634 (2019 $24,610) in product and other revenues.

Licensing revenues generally deliver much higher gross profit margins than do product revenues.

General and Administrative

Our general and administrative expenses increased by $11,648 during the year ended August 31, 2020, which includes $1,408,103 of non-cash compensation.

The increase in our general and administrative expenses was largely due to non-cash expenses related to valuation of grants for service and share based payments.

Included in the total were significant reductions to Advertising, Legal fees, R&D and travel based on changes to our operations around COVID-19 and cost containment for a significant aggregate reduction of $851,625.

Interest Expense

Interest expense for the year ended August 31, 2020 was $Nil (2019 $Nil).

Lexaria is debt free and expects its current cash reserves to meet all its needs for the twelve months following the release of this report.

As such the budget for applied R&D during fiscal 2022 is fully funded.

The Company plans to seek strategic corporate business partners for many of its specific drug investigations after sufficient data has been generated which, if successful, could generate any combination of up-front milestone and/or royalty payments to the Company.

We will continue to pursue patent protection in more than 40 countries around the world as vigorously as we are able, since the successful granting of more of those applications could lead to material increases in shareholder value.

We expect to devote an increasing proportion of our resources and focus towards pharmaceutical applications and launched operations in this division during the 2022 fiscal year.

Our past R&D in other sectors has contributed greatly to our understanding of DehydraTECH and has encouraged us to attempt to reach more lucrative commercial applications in the pharmaceutical sector

We continue to communicate the benefits of DehydraTECH to potential licensing partners, i.e.

On December 9, 2020, Lexaria CanPharm ULC (“CanPharm”) completed a disposition (the “Disposition”) of its use and licensing rights to use its DehydraTECH technology (the “Assets”) specifically in association with non-pharmaceutical products containing cannabis molecules that contain 0.3% or greater THC.

The purpose of the Disposition was to remove the Company’s association with cannabis as it remains a Schedule 1 Drug and thereby eliminating any such regulatory restrictions cannabis products may create.

The Disposition assisted the Company in obtaining a listing on the Nasdaq Capital Market (“Nasdaq”) on January 12, 2021.

As a result of the Disposition, CanPharm assigned to the purchaser Hill Street license agreements with three existing non-related party licensees.

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Consulting fees

Our consulting fees increased during the year ended August 31, 2020 due to the involvement of additional consultants, contract updates and non-cash payments for services of $1,244,472.

Our executives are typically hired and compensated as consultants and costs associated with those agreements comprise the majority of our consulting fees expense (Note 15) and thus a portion of our Consulting Expenses category includes certain fees that might otherwise be recognized under wages and salaries.

Professional Fees

Our professional fees decreased by $299,019 during fiscal 2020 primarily due to fewer patent and trademark filings, tax and contract work.

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

Working Capital

Current assets

Current liabilities

Net Working Capital

The Company’s working capital balance increase during the year ended August 31, 2020, was due to the exercises of outstanding options and two private placements that provided significant incoming funds.

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

Cash flows (used in) provided by operating activities

Cash flows (used in) provided by investing activities

Cash flows (used in) provided by financing activities

Increase (decrease) in cash

Operating Activities

Net cash used in operating activities was $2,663,281 for the year ended August 31, 2020 compared with cash used in operating activities of $3,005,555 during the same period in 2019.

This difference was largely due to the decreased costs pertaining to advertising and promotion, patent and trademark related filings, research and development, and travel.

Investing Activities

Net cash used in investing activities was $26,843 (2019 $769,165) for the year ended August 31, 2020 is due to the Company’s cost incurred related to its capitalized patent related applications.

The reduction is primarily based on the inclusion of the new head office facility and equipment in fiscal 2019.

In consideration for the Assets, Hill Street provided CanPharm with C$350,000 cash, a promissory note bearing a principal amount of C$2,000,000 and bearing an interest rate of 10% (the “Note”) and C$1,500,000 in shares of Hill Street, issuable in three tranches by April 9, 2022.

The repayment of the Note does not have a fixed maturity date and is based on quarterly installments equal to 5% of the gross sales realized by Hill Street of DehydraTECH enabled products.

Due to the uncertainty pertaining to the settlement of the Note, management concluded that the note had $NIL value at the time of the sale and was recorded as such.

Some of the factors considered in the $Nil valuation of the Note were that the legal sales of THC products in the US and Canada have little or no history which made the expectant quarterly payments very difficult to forecast.

Further, Hill Street had no experience selling THC products and at the time of the sale was not licenced to produce and sell such products.

Therefore, the Company considered risk of default high and the collectability of the Note as highly doubtful.

Since the date of sale Hill Street has repaid $4,854 in the year-ended August 31, 2021.

Subsequent to fiscal 2021, the Company has received a further $6,632 payment toward the balance of the Note.

These amounts are considered interest income when received.

Reverse Stock Split

On January 11, 2021, the Company filed an amendment and restatement of its articles of incorporation to effectuate a 1-for-30 reverse stock split of the issued and outstanding shares of common stock of the Company.

The purpose of the reverse stock split was to meet Nasdaq’s minimum stock price requirement.

The reverse stock split did not change the number of authorized shares of common stock, which remains at 220,000,000 shares.

All warrants, options, share and per share information in this Report gives retroactive effect to the 1-for-30 reverse stock split.

Public Offering

On January 14, 2021, the Company closed an underwritten public offering with the issuance of 2,102,856 shares of the Company’s common stock price of $5.25 per share with an equivalent number of five-year warrant at an exercise price of $6.58.

Additionally, 227,161 Representative Warrants were issued as partial consideration to the underwriters of the offering that have a five-year term at an exercise price of $6.58.

Net of fees and disbursements, the Company received net proceeds of $9,471,497.

The Company plans to use approximately $3,700,000 of the net proceeds for research and development studies and the patent and legal costs associated thereto, with the remaining net proceeds to be used for general working capital purposes.

LEXX Market Listing

The Company’s common stock was uplisted from trading on the OTCQX under “LXRP” to the Nasdaq Capital Market where our common stock and warrants began trading under the symbols “LEXX” and “LEXXW”, respectively, effective as of the opening of market trading on January 12, 2021.

The Company, trading under the symbol “LXX”, voluntary delisted from the Canadian Securities Exchanges (“CSE”) effective after the closing of trading on Wednesday, July 7, 2021.

The overwhelming majority of trading has moved to Nasdaq and by delisting from the CSE the Company expects to realize savings in fees and managerial time and effort that had been required to maintain a dual listing.

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Financing Activities

Cash provided from financing activities was $2,698,726 during the year ended August 31, 2020 compared to $3,332,683 during the same period in 2019.

Results of Operations for our Year Ended August 31, 2019 and August 31, 2018

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

General and administrative

Results of Operations for our Year Ended August 31, 2021

Our net loss from operations for the year ended August 31, 2021, was $5,686,852 (2020 - $4,084,613).

The changes between these periods for the respective items are summarized as follows:

Research & development

Consulting fees & employees

Legal and professional

Licensing revenues of $198,000 represent the majority of revenues during the year ended August 31, 2019 and reflect delays in usage fee revenues from existing licensees in Canada waiting for approval from Health Canada on products, and other licensees initiating or ramping up their production.

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

Increasing ongoing usage fees are expected as licensees begin or ramp up products or contracted minimum requirements become due.

Two years ago the Company had one Licensee and as of August 31, 2019, we have nine Licensees.

The territory fees consist of IP licensing fees for the transfer of the Technology at the signing of definitive agreements for the DehydraTECH technology.

The additional Licensing fees include payments due upon transfer of the technology and installment payments that are receivable within 12 months (Note 7).

We are pleased that we have signed additional licenses and are looking toward revenues increasing during fiscal 2020 with the legalization of edible products in Canada expected during October 2019 and the potential for licensee product launches early in calendar 2020 in that country.

Our additional and expanded licenses in the US are anticipated to generate ongoing usage fee revenues based on contracted minimums or based on licensee sales starting during our fiscal 2020.

We have made progress in signing more corporate licensees than ever before in our corporate history, but most of these licensees are small start up companies that continue to present operational risk to us.

We continue to attempt to work with larger more established companies to encourage them to adopt our technology, but the markets have been slow to adopt our technology, notwithstanding our new corporate relationship with a Fortune 500 company in the nicotine industry.

Consumer product sales remain low due to ongoing challenges in securing expansive distribution opportunities, third-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.

General and administrative

Net operating loss

Lexaria’s business operations include technology licensing agreements wherein corporate licensees implement DehydraTECH under license within our facilities under royalty agreements and also includes corporate clients that purchase pre-processed DehydraTECH CBD-powders manufactures at a Lexaria -contracted GMP-certified food facility for shipment back to the client for integration into their final product formats.

Fees payable to the Company contain a mixture of both manufacturing charges as well as royalty and trademark fees.

The primary source of revenues for the Company are derived from Lexaria Hemp where sales of B2B processing of intermediary product saw an increase of approximately 153% (2021 - $383,179, 2020 – $151,634) in the year and contributed approximately 53% of the 2021 annual revenues.

Lexaria developed a line of demonstration oral-delivered products that were utilized to show the efficacy of DehydraTECH and enabled the ability of manufacturers to incorporate the technology into their product lines.

We earlier offered these products for sale to consumers through our web-based sales platform.

During the year-ended August 31, 2021 we discontinued these direct-to-consumer demonstration products and closed our web sales platform in order to intensify our efforts on B2B production.

During the year the Company sold the underlying assets of its THC-related business to Hill Street, a Canadian company that is now producing and selling THC infused products using the DehydraTECH technology in Canada with planned expansion into the US.

Lexaria’s gross revenues from this discontinued operation were $3,000 in fiscal 2021, and $69,750 in fiscal 2020.

Licensing revenues, particularly usage fees, increased more than 40% in the year ended August 31, 2021 (2021 $334,974 – 2020 $232,909) and correspond in part to the increased B2B product sales.

Licensing revenues generally deliver much higher gross profit margins than do product revenues.

During the year ended August 31, 2021, the Company also generated $86,921 (2020- $Nil) from R&D contracts.

During the year ended August 31, 2021, the Company renegotiated a contract with one of our existing licensees who held an exclusive territorial use of our DehydraTECH technology.

Due in part to logistical constraints, the customer has agreed to relinquish territorial exclusivity and has continued to use our technology under licence.

Revenues of $101,000 were conceded by the Company in the revision of terms.

In fiscal 2022 the Company expects to derive increased revenues from technology licensing to third parties as market demand for Hemp based products increase and supply chain logistics improve.

The expansion of our intellectual property portfolio and conducting supportive R&D will jointly contribute to strengthening revenue prospects.

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During the year ended August 31, 2019, our revenues were derived within the following categories:

$198,000 (2018 $415,183) of intellectual property licensing revenue and $24,610 (2018 $18,104) in product and other revenues.

As fiscal 2019 came to a close, hemp oil fortified foods, and hemp seed products continued gaining consumer acceptance and provide a reason to believe that sales could increase.

In addition, legislative trends in America and in many nations around the world such as Canada and the UK are supportive of additional opportunities in the hemp-based foods and supplements sector.

Those trends could support higher potential consumer product sales.

Release of the ChrgD+ product was successful, but sales were limited due to ongoing payment processing issues outside of the Company’s control, and due to our not being successful in obtaining widespread retail distribution channels.

For 2020 the Company expects to continue to derive the majority of its revenues from technology licensing to third parties noting that IP territory fees are recognized when new definitive license agreements occur and IP usage fees are dependent upon our licensees’ opportunity to implement the technology pursuant to applicable regulatory approvals.

Canadian regulatory approval for ingestible products was originally scheduled for October 17, 2019, but there are indications that actual individual product approvals required from Health Canada may delay licensee product launches into 2020 in that country.

At August 31, 2015 the Company had zero technology licensing agreements entered.

By August 31, 2016 we had entered several LOI’s or definitive agreements related to technology out-licensing.

During the period ended August 31, 2019 we entered into nine active licensing agreements that are expected to generate additional revenue from the payment of usage fees as the licensees’ production and sales occur.

It is the Company’s view its eight US patents granted and eight Australian patents granted along with its expanding patent portfolio is a positive step in enabling the generation of more significant revenues during fiscal 2020.

At the time of this report the Company has entered more than 10 formal letters of intent or definitive agreements and is negotiating more.

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.

Research and Development

Research and development costs are expensed as incurred and account for a significant portion of our operational expenses.

With proceeds from our underwritten public offering in January of 2021, we were able to direct additional expenditures to the increased focus on studies pertaining to hypertension and anti-viral drugs.

We plan to continue to invest in our R&D programs for the foreseeable future and we expect these expenses will increase in 2022 compared to 2021.

Our R&D programs will continue to be directed at four core business segments;

heart disease including hypertension, reduced-risk non-combusted nicotine, improve antiviral drug delivery and CBD from hemp.

Of significant note, we are in the late stage planning of an initiation of Investigational New Drug (“IND”) trials for DehydraTECH in the US during fiscal 2022.

Preclinical and clinical development is inherently unpredictable as is regulatory approval and commercialization, therefore we are unable to estimate with any certainty the costs we will incur and the timelines required in our continued development and commercialization efforts.

Any successful development and completion of clinical trials as well a regulatory approval and commercialization are uncertain and may not result in approved products.

Completion dates and completion costs can vary significantly for each future product candidate and are difficult to predict.

Lexaria and our commercial partners will continue to explore multiple R&D programs directed toward further evaluation, development, and commercialization of our DehydraTECH technology.

General and Administrative

Our general and administrative expenses decreased by $2,659,158 during the year ended August 31, 2019.

The decrease in our general and administrative expenses was largely due to non-cash expenses related to valuation of grants for service and share-based payments required by contracts included in fiscal 2018.

Increases during fiscal 2019 included expanded patent applications, R&D, IR programs and the addition of employees for a total of $1,061,125, which includes $368,115 of non-cash compensation and $58,243 increase in depreciation related to new facilities and equipment.

Interest Expense

Interest expense for the year ended August 31, 2019 was $Nil (2018 $Nil).

The Company has no debt at this time other than month-to-month receivables.

Consulting fees

Our consulting fees decreased by $3,887,663 primarily due to the non-cash payments for services included in fiscal 2018.

Our executives are typically consultants and costs associated with those agreements comprise a significant portion of our consulting fees expense (Note 15).

General and administrative expense consists primarily of consulting fees and personnel in executive, accounting, and other administrative functions as well as advertising and marketing, investor relations and stock-based compensation expense.

General and administrative expense also includes corporate facility costs, including rent and utilities, insurance premiums, legal fees related to corporate matters, and fees for auditing, accounting, and other consulting services.

Our general and administrative expenses saw an overall increase of $988,645 during the year ended August 31, 2021, from $3,982,704 for the prior year ended August 31, 2020.

In effort to bring the results of the Company’s R&D programs to the attention of various industry sectors and to the scientific and investment communities, the Company accelerated its advertising, promotion, and investor relations programs.

Lexaria participated in 5 virtual investor conferences during the year and issues press releases on a regular basis designed to provide continuous disclosure.

This marketing outreach program resulted in increased spending of $441,114 for a total in the year ended August 31, 2021, of $829,668 ($388,554 – August 31, 2020).

Licensing, filing, and regulatory fees increased by $135,229 due to additional fees for SEC filings corresponding to our listing on the Nasdaq exchange in January 2021.

Included in general and administration expenses in the year ended August 31, 2021, is a cumulative unrealized net-loss on marketable securities of $166,255.

The unrealized loss is attributable to shares received as a part of the sale of assets in the year.

Management has concluded that the loss is likely temporary in nature based on our evaluation of available information.

Our consulting fees, included in general and administrative expenses, decreased by $24,575 in the year ended August 31, 2021, primarily due to the higher non-cash payments for services included in fiscal 2020 derived from the granting of options.

Our executive compensation is typically categorized under consultant fees and costs excluding non-cash share-based payments associated with those agreements comprise a significant portion of our expenditures on consulting fees.

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Legal and Professional Fees

Our professional fees increased by $381,801 to $670,863 during the year primarily due to ongoing patent and trademark filings, consultations on licensing agreements, and other advisory services.

Although we always try to minimize expenses, we consider increases in costs related to patent and trademark work to reflect positive progress in executing our business plan.

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

Liquidity and Financial Condition

Included in general and administration expenses, legal and professional fees saw an increase of $148,270 to $703,407 during the year primarily related to securities, patent, and trademark related filings and other advisory services.

Accounting and auditing fees also increased by approximately 75% ($58,295) year over year.

We recognize certain accounting and professional tax advisory services as “Professional Fees”.

During fiscal 2021 Lexaria was granted three additional patents in the US, India and in Japan.

We have over 50 patents pending internationally.

Although we endeavour to minimize expenses, when possible, we consider that increased costs related to patent and trademark work reflects positive progress in attempting to build the value of our intellectual property portfolio, and in executing our business plan.

Corporate general and administrative expenses are expected to increase moderately in fiscal 2022 as compared to 2021 as a result of higher human resource, regulatory, legal and investor relations costs and the potential impact of inflation.

Liquidity and Capital Resources

Since Lexaria’s entry into the bioscience sector in 2015 and through to August 31, 2021, we have accumulated a $23.5m deficit despite generating total gross revenues of $1.9m.

We have used the issuance of common shares to raise the required capital to fund our expenditures.

Since fiscal 2014, we have raised an aggregate of $25.3 m to fund our operations, of which $16.1 m was from the sale of our common stock, $8.8 m from warrants and $0.4 m were proceeds from the exercise of stock options.

We may offer additional securities for sale during our fiscal year 2022 or thereafter in response to market conditions or other circumstances if we believe such a plan of financing is required to advance the Company’s business plans and is in the best interests of our stockholders.

There is no certainty that equity or debt financing will be available in the future or that it will be at acceptable terms and at this time, it is not possible to predict the outcome of these matters.

We have incurred significant net losses of approximately $4.2 m and $4.1 m for the two years ended August 31, 2021, and August 31, 2020, respectively.

We expect to continue to incur significant operational expenses and net losses in the upcoming 12 months and beyond.

Our net losses may fluctuate significantly from quarter to quarter and year to year, depending on the stage and complexity of our R&D studies and related expenditures, the receipt of additional payments on the licencing of our technology, if any, and the receipt of payments under any current or future collaborations we may enter into.

The Company has evaluated whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern.

As of August 31, 2021, the Company had cash and cash equivalents of approximately $10.9 m to settle $153,276 of current liabilities and thus the Company believes this will enable the Company to fund its operating and R&D expenses requirements through at least one year from the issuance date of this report.

The Company does not anticipate making any material capital expenditures in the fiscal 2022 as we believe our facilities and equipment held at the year ended August 31, 2021, are sufficient for at least twelve months proceeding the date of filing this report.

Working Capital

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Net Working Capital

The Company’s working capital balance decrease during the year was limited due to exercises of outstanding options and warrants and the private placement (Note 13) completed during the year.

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

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The Company’s working capital balance increased substantially during the year ended August 31, 2021, due to the cash infusion from the sale of assets ($273,373), the net proceeds of an underwritten public offering ($9,471,497) and the exercise of warrants issued with the shares of the underwritten public offering ($4,015,043).

The Company maintained a positive and strong working capital position throughout the year despite a healthy increase in expenditures, particularly in our R&D programs.

Cash flows (used in) provided by operating activities

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Cash flows (used in) provided by financing activities

Decrease in cash

Cash flows (used in) provided by discontinued operations

Increase in cash

Operating Activities

Net cash used in operating activities was $3,005,555 for the year compared with cash used in operating activities of $2,517,979 during the same period in 2018.

This difference was largely due to the increased costs pertaining to consulting, advertising and promotion, patent and trademark related filings, legal advisory services, new employees, research and development, and travel.

Net cash used in operating activities was $3,997,590 for the year ended August 31, 2021, compared with $2,628,450 during the same period in 2020.

The increase in cash used in operating activities during fiscal 2021 was primarily driven by increased research and development programs and office and administrative expenditures, particularly on increased advertising and investor relations activities.

Investing Activities

Net cash used in investing activities was $769,165 (2018 $155,399) for the year due to the Company’s cost incurred related to its patent applications $122,982 and our new office space and equipment (Note 10) $646,183.

Net cash provided by investing activities was $193,880 (2020 ($26,843)) for the year ended August 31, 2021, is due to the cash proceeds received on the sale of assets and further investment in our US patent portfolio.

Financing Activities

Net cash provided from financing activities was $3,332,683 during the year ended August 31, 2019 compared to net cash provided of $1,867,224 during the same period in 2018.

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Going Concern

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“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 Company has a net loss attributable to its common shareholders of $3,933,996 for the year ended August 31, 2020 (2019 $4,099,420) and at August 31, 2020 had a deficit accumulated since its inception of $27,802,198 (2019 $23,868,202).

The Company has a working capital balance of $1,700,044 as at August 31, 2020 (2019 $1,634,322).

The Company requires additional funds to maintain its operations and developments beyond fiscal 2020.

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.

Net cash provided from financing activities was $13,427,758 during the year ended August 31, 2021, compared to $2,663,895 during the same period in 2020.

During the year ended August 31, 2021, cash provided by financing activities was primarily driven by the issuance of common stock supplemented by the exercise of warrants related to underwritten public offering.

As the repercussions of COVID-19 reverberate around the world, the effects on Lexaria’s operations have been relatively minor.

We have experienced some difficulty in recruiting R&D and administrative staff but as of the date of this report we have filled these positions and expect to accelerate our in-house research efforts throughout 2022.

We have also experienced some delay in getting test results of our R&D programs due to supply-chain factors that could be attributed to the virus.

Supply chain issues have also had some, but not significant, impact on securing ingredients for our B2B production.

As the world re-opens, we will expect to increase spending on travel as we seek out commercial partners and further our advertising and investor relations efforts.

Off-Balance Sheet Arrangements

We have no 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 Policies

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States of America (US GAAP).

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Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with the US GAAP.

Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses.

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We believe that understanding the basis and nature of the estimates and assumptions involved with the aspects of our financial statements are critical to an understanding of our financial statements as more particularly described in Note 2 to our audited annual consolidated financial statements included herein.

While our significant accounting policies are described in more detail in the notes to the consolidated financial statements appearing elsewhere in this report, we believe that the following accounting policies and estimates are those most critical to the preparation of our consolidated financial statements:

Stock-based compensation

We account for our stock-based compensation awards in accordance with the FASB ASC Topic 718, Compensation—Stock Compensation (“ASC 718”).

ASC 718 requires all stock-based payments to employees, including grants of employee stock options and modifications to existing agreements, to be recognized in the consolidated statements of operations and comprehensive loss based on their fair values.

We use the Black-Scholes option-pricing model to determine the fair value of options granted.

Compensation expense related to our stock-based awards to employees, executives and directors have service-based vesting conditions and are recognized on a straight-line basis based on the grant date fair value over the associated service period of the award, generally the vesting term.

The vesting terms of each grant is determined by the board of directors and typically have a 5-year contractual term.

The fair value estimation of options requires the input of subjective assumptions, including expected life of the option, stock price volatility, the risk-free interest rate, and expected dividends.

The assumptions used in our Black-Scholes option-pricing model represent our best estimates involving numerous variables, uncertainties, assumptions, and the application judgment.

They are inherently subjective.

If any assumptions change, our stock-based compensation expense could be materially different in the future.

Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

The Company qualifies as a “Smaller Reporting Company” and, accordingly, this Item and the related disclosure is not required.

As a “Smaller Reporting Company”, this Item and the related disclosure is not required.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis