What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-11-20 compared with 2022-11-28 · 91 added, 90 removed, 74 unchanged (71% of the section changed)

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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 several R&D activities in both preclinical and future clinical programs.

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

Our primary focus during the year was on our investigations of CBD for the reduction of hypertension.

We completed three human studies in the year on hypertension with final results of our fourth and largest hypertension study to date expected to be released in the second fiscal quarter of 2023.

The FDA provided us with a positive written response from our pre-IND meeting regarding DehydraTECH-CBD for the treatment of hypertension.

The FDA confirmed that it has agreed with Lexaria’s proposal to pursue a 505(b)(2) new drug application (“NDA”) regulatory pathway for our program.

We continue working toward our IND filing which is anticipated to be in late fiscal 2023 or early 2024.

During the year ended August 31, 2022, we also completed studies in NSAIDS, THC, PDE5s and nicotine.

We previously completed human studies on hypertension with results that were supportive of our plans to file an Investigational New Drug (“IND”) application with the US Food and Drug Administration (“FDA”).

The FDA provided us with a positive written response from our pre-IND meeting in July 2022 regarding DehydraTECH-CBD for the treatment of hypertension.

The FDA confirmed that it had agreed with Lexaria’s proposal to pursue a 505(b)(2) new drug application regulatory pathway for our program.

We continue working toward our IND filing, however as announced in our news release of August 30, 2023, we have experienced some delays due to FDA compliance requirements of one of our ingredient suppliers which must be completed prior to our submission of our IND application.

During the year ended August 31, 2023, we also completed studies with estradiol and nicotine and reported improved drug delivery characteristics with both molecules after they were treated with DehydraTECH.

In fiscal 2023, we also advanced R&D activities in the fields of diabetes and weight loss management pursuant to successfully completed animal study work with our DehydraTECH-CBD in these areas.

It is now our intention to explore whether or not DehydraTECH has any benefits together with GLP-1 drugs in this regard.

The Company continues to engage in small R&D projects and B2B formulation for third parties who are evaluating our technology for use in their product.

We were granted a total of nine new patents during fiscal 2023 including our first ever patents in the country of Canada, making it one of our most successful years ever for the acquisition of new intellectual property.

Financial condition and operating performance

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We continue to devote an increasing proportion of our resources toward pharmaceutical applications with the continuation of our programs directed at hypertension as we move toward FDA approved IND clinical studies.

During the year ended August 31, 2022, we completed ten studies and initiated a further seven.

These programs, having been funded by the capital infusion of Lexaria’s 2021 financing of approximately $15m,supported our significant advancements in the fields of heart disease and hypertension, oral nicotine, and antiviral research.

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

During the year ended August 31, 2023, we completed seven studies investigating DehydraTECH infused CBD, nicotine and estradiol.

These programs, having been funded by the capital infusion of Lexaria’s 2021 financing of approximately $15 million, supported our significant advancements in the fields of heart disease and hypertension, hormones, oral nicotine, and diabetes.

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

Conducting additional in vitro and in vivo studies which test the absorption of some, or all of the molecules named within our patents and patent applications, i.e.

CBD, vitamins, PDE5 inhibitors, nicotine and anti-viral drugs, further substantiate the effectiveness of DehydraTECH.

CBD, vitamins, PDE5 inhibitors, nicotine and antiviral drugs, further substantiate the effectiveness of DehydraTECH.

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

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Our pursuit of opportunities within the cannabinoid, nicotine and other bioactive molecular markets in the US and internationally continue unabated.

We believe there are meaningful competitive advantages in manufacturers adopting DehydraTECH in their product with its demonstrated higher absorption levels, its ability to infuse smaller quantities of active molecules in their products and the benefit of its predictable drug delivery times.

We believe there are meaningful competitive advantages in manufacturers adopting DehydraTECH in their products with its demonstrated higher absorption levels, its ability to infuse smaller quantities of active molecules in their products and the benefit of its predictable drug delivery times.

Implementing our technology could lead to smaller dosing and decreased manufacturing costs while masking unwanted flavor and smell of the active molecules.

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We are pursuing technology licensing opportunities as a method of generating profitable revenue streams over long periods of time.

With ten US and nine Australian patents granted to date we also have numerous patent applications filed in the US and around the world.

It is not possible to forecast with certainty when, or if, our applications will be granted as patents.

We continue to vigorously seek patent protection in more than 40 countries around the world.

The successful granting of additional patents could lead to material increases in shareholder value through the ability to generate meaningful license revenues from an increased intellectual property portfolio.

We have not yet, however, been able to secure a large client utilizing our technology in large quantities of products.

With thirty-seven patents granted to date of which thirteen are granted in the US, Lexaria believes that it has a robust patent portfolio but continues to seek additional protection for its intellectual property globally.

The successful granting of additional patents could lead to material increases in shareholder value through the ability to generate meaningful license revenues from our increased intellectual property portfolio.

Lexaria expects its current cash reserves to meet our operational requirements for the twelve months following the release of this report.

The Company is continuing to explore strategic corporate business partnerships 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.

On December 9, 2020, Lexaria CanPharm ULC (“CanPharm”) completed a disposition (the “Disposition”) of its use and licensing rights for 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 also assisted in obtaining a listing on the Nasdaq on January 12, 2021.

As a result of the Disposition, CanPharm assigned to the purchaser, Hill Street Beverage Company Ltd.

(“Hill Street”), license agreements with three existing non-related-party licensees.

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 instalments 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 $25,083 of the Note and these amounts are considered other income when received.

Results of Operations for our Year Ended August 31, 2023

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

Research & development

Consulting fees & employees

Cost of goods sold

Research and development

Consulting fees & salaries

Legal and professional

General and administrative

Net operating loss

Other general and administrative

Other income (loss)

$ (6,712,525 )

$ (7,383,653 )

Lexaria’s business operations include technology licensing agreements where corporate licensees implement DehydraTECH under license within our contracted facilities under royalty agreements.

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Fees are derived from a combination of manufacturing charges, royalties 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 a significant decrease of approximately 70% (2022 - $113,438 vs 2021- $383,179) in the year and contributed approximately 46% of the 2022 annual revenues.

During the year ended August 31, 2022, the Company also generated $54,560 (2021- $86,921) from R&D contracts.

In fiscal 2023 the Company expects to see an increase in revenue through further technology licensing from DehydraTECH processed hemp-based CBD consumer products.

The anticipated expansion of our intellectual property portfolio and conducting supportive R&D will jointly contribute to strengthening revenue prospects as we continue to explore new applications for our technology.

In prior years, 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 had 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.

Year Ended August 31,

The primary source of revenues for the Company are derived from Lexaria Hemp where sales of B2B processing of intermediary CBD product saw a significant decrease of approximately 61% (2023 - $44,167 vs 2022- $113,438) in the year.

During the year ended August 31, 2023, Other revenue included $35,241 (2022- $87,399) from R&D contracts for exploratory work the Company performed on behalf of third parties interested in our technology.

Challenges in the US market for small companies has made it difficult to generate larger revenue streams, irrespective of the use of our technology, with many small companies struggling to exist.

On the other hand, revenue generated by licensing our technology to others has grown substantially to reach $146,800 in fiscal 2023 vs only $54,560 in fiscal 2022.

In fiscal 2024 and assuming our existing clients remain in compliance with their contracts, the Company expects to see an increase in revenue through further technology licensing from DehydraTECH processed hemp-based CBD and other consumer products.

One of our contracted clients is contractually required to make significantly larger quarterly payments to us during fiscal 2024 than during fiscal 2023.

The anticipated expansion of our intellectual property portfolio and conducting supportive R&D may jointly contribute to strengthening revenue prospects as we continue to explore new applications for our technology.

Research and Development

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

Research and development (“R&D”) 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 will continue to invest in our R&D programs for the foreseeable future and we expect these expenses to continue to increase in 2023 compared to 2022.

Our R&D expenditures for fiscal 2023, at $3,666,721 were nearly double those of fiscal 2022 at $1,842,675.

This was in agreement with our internal plans.

In large part, this was due to our ongoing expenditures in preparation for our hypertension-related prospective IND filing;

and also because of R&D programs completed in the fields of a human oral nicotine study and animal based DehydraTECH-CBD seizure and diabetes studies.

Each of these three areas of study produced positive results.

We will continue to invest in our R&D programs for the foreseeable future and we expect these expenses to continue to increase in 2024 compared to 2023, assuming successful corporate financing activities.

Our R&D programs are focused on three core business segments:

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

With the data collected during the fiscal year 2022 management has concluded that our studies related to the improvement of antiviral drug delivery using DehydraTECH indicate that the economics are not attractive enough to further pursue this segment at this time.

Of significant note, Lexaria submitted our preliminary application for an Investigational New Drug (“IND”) to the FDA with plans to develop a cannabidiol-based drug formulation, DehydraTECH-CBD for hypertension.

pharmaceutical applications, reduced-risk non-combusted nicotine and CBD from hemp.

Of these three, we do not expect to make any significant expenditures during fiscal 2024 on non-combusted nicotine R&D.

Of significant note, Lexaria submitted our preliminary pre-meeting application for an Investigational New Drug (“IND”) to the FDA with plans to develop a cannabidiol-based drug formulation, DehydraTECH-CBD for hypertension.

We received a written response following our pre-IND meeting in August 2022 where the agency has agreed with the Company’s plans to pursue a faster 505(b)(2) new drug application regulatory pathway for the program.

The 505(b)(2) pathway permits a faster commercial approval than the traditional 505(b)(1) NDA pathway.

The FDA has agreed with the Company’s proposed clinical protocol for DehydraTECH-CBD, which is designed to target 100 patients with hypertension.

The FDA has agreed with the Company’s proposed clinical protocol for DehydraTECH-CBD, which, as currently designed, would target 120 patients with hypertension.

The regulator has also decided that there was no need to conduct additional non-clinical studies before the start of the IND program.

We expect to file our IND application in late fiscal 2023.

Lexaria has engaged its CRO and the start-up activities for this study have commenced.

We expect to file our IND application as soon as possible after our third-party ingredient supplier has completed its FDA compliance requirements.

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.

We will require significant additional funding to complete any IND planned studies.

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

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General and Administrative

General and administrative expenses consist primarily of consulting fees, executive and employee salaries, the recording of non-cash expenses through stock-based compensation for options vesting in the year and unrealized gains/losses on marketable securities.

General and administrative expenses consist primarily of consulting fees, executive and employee salaries and stock-based compensation expense (non-cash).

Also included are costs for advertising and marketing, investor relations, corporate facilities, insurance premiums, legal fees related to corporate matters, fees for auditing, and tax filings.

Our general and administrative expenses saw an overall increase of $753,185 during the year ended August 31, 2022, from $4,971,349 recorded in the previous year.

We increased advertising and promotional expenditures by $752,097 in our continued efforts 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.

Stock-based compensation increased by $365,873 in the current fiscal year as result of options vested during the year.

Travel expenses were up by $49,105 in the year as covid restrictions were less of a barrier and we returned to near pre-pandemic excursion levels.

Unrealized losses on marketable securities increased by $598,359 in the year.

This is attributable to shares received as a part of the sale of assets to Hill Street Beverage Company in the year 2021.

The loss during fiscal 2022 on these securities was exacerbated by receipt of shares in the year that were valued according to the contract of sale and not at market value.

We remain confident that the loss is likely temporary in nature as Hill Street continues to make inroads to the US hemp markets with DehydraTECH enabled products produced and sold by their licensees.

Our consulting fees and salaries decreased by $383,118 in the year ended August 31, 2022.

Legal and professional fees were $140,142 lower in the year ended 2022 as compared to the previous years expenses that included the additional fees related to our Nasdaq listing.

In the previous year we recorded bad debts of $50,500 with no bad debts recorded in the year ended 2022.

Corporate general and administrative expenses are expected to increase moderately in fiscal 2023 as compared to 2022 as a result of higher human resource, regulatory, legal and investor relations costs and the potential impact of inflation.

Our general and administrative expenses saw an overall decrease of $1,897,911 during the year ended August 31, 2023, as compared to a $753,185 increase during the previous year.

We decreased advertising and promotional expenditures by $817,363, as we scaled back our efforts 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.

Stock-based compensation expense (non-cash) decreased from $752,591 to $170,382 ($582,209), due to fewer options vesting during the year.

These year-to-year decreases are a significant driver of the year-to-year overall decrease in consulting wages and salaries expense.

Travel expenses were also down by $34,678 due primarily to a decrease in participation in industry conferences.

Unrealized losses on marketable securities decreased by $542,921 in the year.

This is attributable to continuing decreases in the fair value of the Company’s investment in Hill Inc.

common shares.

We remain confident that the loss may be temporary in nature as Hill Inc.

continues to make inroads to the US hemp markets with DehydraTECH enabled products produced and sold by their licensees.

Our consulting fees and salaries decreased by $943,699 in the year ended August 31, 2023, due primarily to a decrease of $582,209 in stock-based (non-cash) compensation expense, the elimination of one management position and the renegotiation for reduced fees with our consultants.

Legal and professional fees were $116,672 lower in the year ended 2023 as compared to the previous year’s expenses.

No bad debts were recorded in the years ended 2023 and 2022.

The Company evaluated its patent portfolio and determined that certain pending applications had been abandoned or would not be pursued.

As such, during the year ended August 31, 2023, the Company recognized an impairment loss of $106,761 related to those abandoned applications.

Liquidity and Capital Resources

We have incurred net losses of approximately $7.4m and $4.2m respectively in the past two fiscal years.

Since Lexaria’s entrance into the bioscience sector, it has accumulated net losses of $45.8 million of which approximately $6.7 million and $7.4 million were incurred, respectively, in the past two fiscal years.

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.

Since Lexaria’s entry into the bioscience sector in 2015 and through to August 31, 2022, we have accumulated a $39.1m deficit despite generating total gross revenues of $2.1m.

We have used the issuance of common shares to raise the majority of capital required to fund our business operations.

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

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 related to the out-licencing of our technology, if any, and the receipt of payments under any current or future collaborations we may enter.

As the Company continues with our IND application process and progresses into the clinical development of our initial product candidate, the need for substantial capital resources increases.

Our existing cash will not be sufficient to complete the full development, testing and commercialization of an FDA approved product candidate.

Accordingly, we will be required to obtain further funding to achieve this business objective.

Accordingly, we will be required to obtain significant further funding to achieve this business objective and/or delay or modify the program in accordance with the financial resources available.

On August 12, 2022, we entered into a sales agreement with Maxim Group LLC, (“Maxim”), pursuant to which we may offer and sell shares of our common stock with an aggregate offering price of up to $5,925,000 under the At-The-Market (“ATM”) Offering.

The sales agreement provides that Maxim will be entitled to a sales commission equal to 3.0% of the gross sales price per share of all shares sold under the ATM Offering.

As of November 25, 2022 we have not sold any shares under the ATM Offering.

During the fiscal year ended August 31, 2023, 34,652 shares were sold under the ATM for gross proceeds of $114,456.

Offering costs netted against proceeds amounted to $125,122 and, as per the terms of the sales agreement, the ATM was terminated July 30, 2023.

On May 8, 2023, we entered into a placement agency agreement with Maxim, pursuant to which we agreed to sell 2,106,000 units at a price of $0.95 per unit for aggregate gross and net proceeds of $2,000,700 and $1,600,397, respectively.

Each unit was comprised of one share and one warrant, with each warrant being exercisable for a five-year period to purchase an additional share at a price of $0.95.

The securities were issued on May 11, 2023, and were registered pursuant to a Form S-1 registration statement filed under number 333-271096.

Maxim was paid 7% of the gross proceeds and was also reimbursed $70,000 for its expenses.

We may also offer securities 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.

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Entering into additional licencing agreements, collaborations, partnerships, alliances marketing, distribution, or licensing arrangements with third parties to increase our capital resources is also possible.

If we do so we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us.

If we do so we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favourable to us.

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, 2022, the Company had cash on hand of approximately $5.8m to settle $200,000 current liabilities.

The Company believes this is sufficient to fund our expected R&D and operating expenditures for twelve months proceeding the date of filing this report.

We do not anticipate making any material capital expenditures in the fiscal 2023 as we believe our current facilities and equipment are sufficient for the forthcoming twelve months proceeding the date of filing this report.

As of August 31, 2023, the Company had cash on hand of approximately $1.4 million to settle $270,000 in current liabilities.

The Company believes this is sufficient to fund our expected R&D and operating expenditures for twelve-months following the filing date of this report.

We do not anticipate making any material capital expenditures in the fiscal 2024 as we believe our current facilities and equipment are sufficient for the forthcoming twelve months following the filing date of this report.

Working Capital

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Net Working Capital

The Company’s working capital balance decreased by approximately $5.5m due to the lack of financing activities and lower revenue contributions to cash during the year ended August 31, 2022.

Cash flows (used in) provided by operating activities

Cash flows (used in) provided by investing activities

Cash flows (used in) provided by financing activities

Cash flows (used in) provided by discontinued operations

Increase (decrease) in cash

The Company’s working capital balance decreased by approximately $4.8 million due primarily to cash used in operating activities during the year ended August 31, 2023.

Cash flows used in operating activities

$ (5,881,237 )

$ (4,879,339 )

Cash flows used in investing activities

Cash flows used in financing activities

Decrease in cash

$ (4,461,116 )

$ (5,104,579 )

Operating Activities

Net cash used in operating activities was approximately $4.9m for the year ended August 31, 2022, compared with $4.0m during the same period in 2021.

The increase in cash used in operating activities during fiscal 2022 was primarily driven by increased research and development programs, slight increases in office and administrative expenditures and significantly lower revenue.

Net cash used in operating activities was approximately $5.9 million for the year ended August 31, 2023, compared with $4.9 million during the same period in 2022.

The increase in net cash used in operating activities during the year ended August 31, 2023 relates primarily to a decrease in non-cash expenses related to common shares issued for services ($1,200,000), stock-based compensation ($582,209) and unrealized loss on marketable securities ($542,921);

partially offset by a decrease in our net loss ($671,128) and a decrease in working capital ($494,738).

Investing Activities

Net cash used in investing activities is attributable to increased spending on our intellectual property.

During the year, four additional patents were granted.

During the fiscal year, nine additional patents were granted.

Financing Activities

Net cash used in financing activities reflects payments made on the lease of our facilities.

Net cash provided by financing activities reflects net proceeds from the issuance of common shares.

Net proceeds from the ATM and May 11, 2023 offerings totaled $1,589,731.

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 conformity with the US GAAP.

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

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

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Further details of the nature of these judgments, estimates and assumptions may be found in the relevant notes to the 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”).

This 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, directors and consultants 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 our Board 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.

Off-Balance Sheet Arrangements

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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