What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-04-11 compared with 2022-01-14 · 65 added, 58 removed, 186 unchanged (40% of the section changed)

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All references to “C$” refer to Canadian dollars and all references to “common shares” and “shares” refer to the common shares in our capital stock, unless otherwise indicated.

The terms “Lexaria” “we”, “us”, “our” and “Company” mean Company and/or our subsidiaries, unless otherwise indicated.

The terms “Lexaria” “we”, “us”, “our” and “Company” mean the Company and/or our subsidiaries, unless otherwise indicated.

The following discussion should be read in conjunction with our condensed financial statements and accompanying notes in this quarterly report on Form 10-Q, and our audited financial statements with notes in our annual report on Form 10-K for the year ended August 31, 2021.

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.

DehydraTECH substantially improves the rapidity and quantity of Active Pharmaceutical Ingredients (“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.

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Research & Development

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

Currently, our primary research program is the investigation of cannabidiol (CBD) for the reduction of hypertension with three human clinical trials concluded in calendar 2021 and a human clinical trial planned for Q2, 2022.

Currently, our primary research program is the investigation of cannabidiol (CBD) for the reduction of hypertension with a human clinical trial initiated in Q3, 2022 and three human clinical trials concluded in calendar 2021.

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.

During the quarter ended November 30, 2021, Lexaria incurred $458,709 (November 2020 $192,261) in R&D expenditures.

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

During the quarter ended February 28, 2022, Lexaria incurred $275,213 (February 2021- $176,398) in R&D expenditures.

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

Due to our expanding portfolio coverage, we continually examine accelerated timetable options for testing, research, and development of each API.

The first quarter of fiscal 2022 continued to highlight the direction of our research and development programs with confirmatory results from our ongoing programs.

We are devoting an increasing proportion of our resources and focus towards pharmaceutical applications as launched in 2021 fiscal year.

The first half of fiscal 2022 continued to highlight the direction of our research and development programs with confirmatory results from our ongoing programs.

We are devoting an increasing proportion of our resources and focus towards pharmaceutical applications as launched in the prior fiscal year.

In September 2021 the Company reported successful results from its HYPER-H21-2 human study of DehydraTECH-CBD in arterial stiffness.

On December 29, 2021, we announced the Company received approval of its study protocols submitted for our study HYPER-H21-4 from the Independent Review Board.

This study is expected to consist of 60 volunteers between the ages of 45-70 using three 150 mg doses of DehydraTECH-CBD, every day for the 6-week duration of the study.

The study will use a double blinded, randomized cross-over design, and a placebo control.

This study is expected to consist of 60 volunteers between the ages of 40-70 using three daily doses of DehydraTECH-CBD, every day for the multi-week dosing duration of the study.

The Study was initiated during the first week of April, 2022.

HYPER-H21-4 is a double blinded, randomized cross-over design study with a placebo control.

Some volunteers will already be using leading standard of care hypertension drugs such as ACE inhibitors with or without diuretics which will help evaluate the efficacy of DehydraTECH-CBD with and without other hypertension treatments.

The extended duration of the study will allow Lexaria to gather critical data monitoring of DehydraTECH-CBD over time and will evaluate the potential for longer term health benefits.

This study should “de-risk” outcomes prior to Lexaria’s planned entry into regulatory pathways for the use of DehydraTECH-CBD to treat hypertension and perhaps other forms of cardiovascular disease.

This study should “de-risk” outcomes prior to Lexaria’s planned entry into regulatory pathways for the use of DehydraTECH-CBD to treat hypertension and possibly other forms of cardiovascular disease.

In October 2021 the Company reported results from its THC-A-21-1 in vivo study of DehydraTECH-THC showing it successfully elevated THC levels in blood plasma, requiring only 15 minutes at levels comparable to those achieved in 45 minutes with concentration-matched controls.

On October 5, 2021, Lexaria published results of from its NIC-A21-1 in vivo trial of DehydraTECH-NICZ (nicotine benzoate) deliver via oral pouches.

Lexaria also published results from its NIC-A21-1 in vivo trial of DehydraTECH-NICZ (nicotine benzoate) which was delivered via oral pouches.

Favorable results were all statistically significant, supporting further evaluation of the candidate.

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Lexaria is currently in the design phase of this proposed human clinical study, which will be independently funded with existing capital.

On February 2, 2022, results of our PDE5-A21-1 animal study were published by the Company which illustrated that in as little as four minutes after dosing, the DehydraTECH formulation delivered 74% more sildenafil into the bloodstream on average than the concentration-matched, generic control formulation.

Seven minutes after dosing, the DehydraTECH-sildenafil formulation achieved an average blood level higher than the generic sildenafil control formulation reached at any point during the study.

On March 15, 2022, the Company announced that the first phase of its epilepsy research program EPIL-A21-1 has commenced.

The EPIL-A21-1 research program consists of two main studies to be performed in rodents following the first phase pilot animal model.

The two main studies within the program are expected to begin in May/June 2022, and will involve both an acute seizure model induced by electrical stimulation (“MES”) as well as a chronic chemically induced seizure model (“RISE-SRS”).

Lexaria has selected these models because they have been previously employed by other researchers studying the antiepileptic effects of CBD including select study work funded by GW with its Epidiolex® formulation (PubMed Reference Number 30588604).

The Company continues to report progress on its R&D programs through its filing of Form 8-Ks and other public releases.

These results of these programs can also be found on the Company’s website:

The results of these programs can also be found on the Company’s website:

www.LexariaBioscience.com.

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regulated cannabinoids, and nicotine and its analogs.

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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.

The Company currently has over 50 patent applications pending worldwide and during the quarter ended November 30, 2021, we have been advised that our first patent in Mexico in the Company’s second patent family had been allowed.

The Company currently has over 50 patent applications pending worldwide.

The Company’s issued patents in the United States, Australia, Europe, India, Mexico, and Japan are as follows:

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

AU 2019256805

Compositions Infused with Nicotine Compounds and Methods of Use Thereof

In November of 2021, we were advised that our first patent in Mexico, in the Company’s second patent family, had been allowed.

Subsequent to the quarter ended February 28, 2022, on March 8, 2022, the Company announced it has been granted a new patent entitled “Compositions Infused with Nicotine Compounds and Methods of Use Thereof”.

The new Australian patent expands upon Lexaria’s international intellectual property rights to apply DehydraTECH enhancement technology to most oral forms of nicotine, including pills, tablets, lozenges, capsules, pouches, gums and sprays.

The patent covers many different forms of nicotine including free base nicotine, nicotine salts, polymer resins of nicotine and other forms of nicotine complexes.

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

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

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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 warrants at an exercise price of $6.58.

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 priced at $5.25 per share with an equivalent number of five-year warrants 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.

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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.

The Company’s common stock was uplisted from trading on the OTCQX under “LXRP” to the Nasdaq Capital Market where our common stock and certain of our 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”, voluntarily delisted from the Canadian Securities Exchanges (“CSE”) effective after the closing of trading on Wednesday, July 7, 2021.

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

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.

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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.

Further, Hill Street had no experience selling THC products and at the time of the sale was not licensed 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 $4,585 in the year-ended August 31, 2021.

Subsequent to fiscal 2021, the Company has received a further $6,880 payment toward the balance of the Note.

These amounts are considered other income when received.

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Subsequent to fiscal 2021, the Company has received a further $10,858, included in other revenues, as payment toward the balance of the Note and accumulated interest on the Note.

Impact of COVID-19

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To date, we have not experienced a material impact on our financial statements, impairments of any of our assets or any major business disruptions, including with our vendors.

The extent to which the COVID-19 pandemic will impact the progress of our research and development programs is subject to future developments which are highly uncertain and cannot be predicted with confidence.

We continue our efforts to be proactive in managing the impact from the pandemic, including various actions to communicate with suppliers, customers, and project participants as we may deem appropriate.

We have made modifications to our normal operations including requiring team members to work remotely on a staggered basis.

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Capital assets are stated at cost less accumulated depreciation and depreciated using the straight-line method over their useful lives or otherwise by units of production.

Capitalized patent costs represent legal costs incurred to establish patents.

When patents reach a mature stage, any associated legal costs are typically maintenance fees and expensed as incurred.

US patent costs, which represent legal costs incurred to establish US granted patents, are capitalized.

Capitalized patent costs are amortized on a straight-line basis over the remaining life of the patent.

In the period ended November 30, 2021, the Company recognized $15,840 attributable to capitalized patents.

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When US patents reach a mature stage, any associated legal costs, including typical maintenance fees, are expensed as incurred.

In the period ended February 28, 2022, the Company recognized $15,840 attributable to capitalized patents.

All other patent costs are expensed when incurred.

Revenue Recognition

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As we move forward with our Investigational New Drug application with the FDA, we anticipate that our expenditures will further increase and accordingly, we expect to incur increased operating losses and negative cash flows for the foreseeable future.

Through November 30, 2021, we have funded our operations primarily with proceeds from the sale of our common stock.

The Company has consistently incurred recurring losses and negative cash flows from operations, including net losses of $2,003,482 and $710,121 for the three months ended November 30, 2021 and 2020, respectively.

Through February 28, 2022, we have funded our operations primarily with proceeds from the sale of our common stock.

The Company has consistently incurred recurring losses and negative cash flows from operations, including net losses of $3,452,156 and $316,931 for the six months ended February 28, 2022, and 2021, respectively.

The continuation of our Company as a going concern is dependent upon our Company raising additional capital and/or attaining and maintaining profitable operations.

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The recurring losses from operations and net capital deficiency do raise doubt about the Company’s ability to continue as a going concern within one year following the date that these consolidated financial statements are issued.

As of the issuance date of these consolidated interim financial statements, we expect our cash and cash equivalents of approximately $9.7m as at November 30, 2021 will be sufficient to fund our operating expenses and capital expenditure requirements through the forthcoming 12 months from the issuance date of this report.

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Results of Operations for our Period Ended November 30, 2021, and 2020

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

THREE MONTHS ENDED November 30,

As of the issuance date of these consolidated interim financial statements, we expect our cash and cash equivalents of approximately $8.4m as at February 28, 2022, will be sufficient to fund our operating expenses and capital expenditure requirements through the forthcoming 12 months from the issuance date of this report.

Results of Operations for our Period Ended February 28, 2022, and 2021

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

SIX MONTHS ENDED

Research and development

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Discontinued operations

Product revenues of $7k and licensing usage fees of $Nil during period ended November 30, 2021, constitute a significant decline in intermediate product sales and related licensing usage fees.

Our primary customer in the B2B product revenue stream has been delayed in chain-store rollouts due resulting in overstocked inventory and as such there was no manufacturing & sales of new inventory for this licensee for the quarter ended November 30, 2021.A number of our other licensees are experiencing suspended or curtailed business activities due to the impact of COVID-19 on markets and consumer spending.

The abilities of other licensees to generate ongoing sales, thereby increasing usage fees are expected to increase as the effects of the pandemic are eventually diminished.

Product revenues of $17k and licensing usage fees of $16k during period ended February 28, 2022, constitute a significant decline in intermediate product sales and related licensing usage fees.

Our primary customer in the B2B product revenue stream has been delayed in chain-store rollouts resulting in overstocked inventory and as such there was no manufacturing & sales of new inventory for this licensee for the quarter ended February 28, 2022.A number of our other licensees are experiencing suspended or curtailed business activities due to the impact of COVID-19 on markets and consumer spending.

The abilities of other licensees to generate ongoing sales, thereby increasing usage fees are expected to increase as the effects of the pandemic are eventually diminished and the market acceptance of the products continue to develop.

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

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Research and Development

Expenditures on R&D increased by $266k for the period ended November 30, 2021, as the company undertook several studies within its 2022 applied research and development program focusing on DehydraTECH-CBD to treat hypertension.

General and Administrative

Our other general and administrative expenses increased by $502k during the period ended November 30, 2021, over the same period last year.

The increase is primarily comprised of an unrealized loss on marketable securities ($340k) and non-cashed stock-based compensation on options granted and vested ($121k).

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Expenditures on R&D increased by $366k for the period ended February 28, 2022, as the company undertook several studies within its 2022 applied research and development program focusing on DehydraTECH-CBD to treat hypertension.

Consulting Fees and Salaries

Our consulting fees increased by $407k primarily due to non-cash stock-based compensation on options granted and vested ($409k) in the quarter.

Our consulting fees increased by $335k primarily due to non-cash stock-based compensation on options granted and vested ($287k) in the six months ended February 28, 2022, and increased salaries due to hiring within our R&D, investor relations and accounting departments.

Legal and Professional Fees

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

General and Administrative

Included in general and administrative expenses during the six months ended February 28, 2021 was the gain on the sale of assets ($1.5m) which accounts for approximately half of the year-over-year change.

Other general and administrative expenses increased by $675k during the period ended February 28, 2022, over the same period last year.

The increase is primarily comprised of expenditures on investor relations and advertising ($505k) and the unrealized losses on marketable securities ($264k) offset by lower general expenses ($74k) and bad debs ($25k).

Liquidity and Financial Condition

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Operating Activities

Net cash used in operating activities increased by $356,791 for the period compared with cash used in operating during the same period in 2020.

This difference was largely due to the increased expenditures pertaining to R&D, professional fees, and investor outreach programs.

Net cash used in operating activities for the six months ended February 28, 2022, increased by $723k for the period compared with cash used in operating during the same period in 2021.

This difference was largely due to the increased expenditures pertaining to R&D, professional fees, and our stakeholders outreach programs.

Investing Activities

Net cash from investing activities increased by $52,440 over 2021 due to increased spending on capitalized US patents filings and the purchase of equipment.

Net cash used in investing activities increased by $93k due to increased spending on capitalized US patents filings and the purchase of equipment in the six months ended February 28, 2022, compared to 2021 which saw an inflow of cash from the sale of assets to Hill Street.

Financing Activities

Net cash provided from financing activities decreased $2,220 during the period ended November 30, 2021 due to right-of-use lease payments.

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Net cash provided from financing activities during the period ended February 28, 2022, is due to the amortized right-of-use lease payments.

Cash provided by financing activities in the six months ended February 28, 2021, of $9.4m primarily related to the underwritten public offering that closed January 21, 2021.

Liquidity and Capital Resources

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Short Term Liquidity

On November 30, 2021, we had $9.7m in cash and $10.7m of working capital.

On February 28, 2022, we had $8.4m cash and $10.4m of working capital.

Based on our current and upcoming research and development programs and our projected general and administration expenditures, we have determined that our cash resources are sufficient to allow us to continue operations through at least the next twelve months from the issuance date of this Quarterly Report.

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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.

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As of November 30, 2021, 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 CFO concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of November 30, 2021.

As of February 28, 2022, 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 CEO, President, and CFO concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of February 28, 2022.

Management’s Report on Internal Control over Financial Reporting

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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 November 30, 2021.

Our management assessed the effectiveness of our internal control over financial reporting as of February 28, 2022.

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 November 30, 2021, 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 has concluded that, as of February 28, 2022, 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.

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Changes in Internal Control over Financial Reporting

During the quarter ended November 30, 2021, our controls and controls processes remained consistent with August 31, 2021.

There have been no changes in our internal controls over financial reporting that occurred during the quarter ended November 30, 2021, that have materially or are reasonably likely to materially affect our internal controls over financial reporting.

During the quarter ended February 28, 2022, our controls and controls processes remained consistent with our fiscal year ended August 31, 2021.

There have been no changes in our internal controls over financial reporting that occurred during the quarter ended February 28, 2022, 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

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-Q

Item 2. Management’s Discussion and Analysis