[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
LEXARIA BIOSCIENCE CORP.
(Exact name of registrant as specified in its charter)
Nevada
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20-2000871
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(State or other jurisdiction of incorporation or
organization)
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(I.R.S. Employer Identification
No.)
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|
|
|
|
|
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156 Valleyview Rd, Kelowna BC Canada V1X3M4
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V6E 4A4
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(Address of principal executive offices)
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(Zip Code)
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Registrant's telephone number, including area code:
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250-765-6424
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Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
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Name of Each Exchange On Which Registered
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N/A
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N/A
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $0.001
(Title of class)
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 the Securities Act.
Yes
[ ] No [X]
Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the Act
Yes
[ ] No [X]
Indicate by check mark whether the registrant: (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
1
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the last 90
days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-K (§229.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definition of large accelerated filer, accelerated
filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ]
|
Accelerated
filer
[ ]
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Non-accelerated filer [ ]
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Smaller reporting company
[X]
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Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
Yes
[ ] No [X]
The aggregate market value of Common Stock held by
non-affiliates of the Registrant on February 29, 2016, 2016 was $1,172,028 based
on the average of the high and low bid and asked price of the Registrants
shares of common stock on the OTC Bulletin Board or $0.09 on February 29, 2016.
For purposes of this computation, all executive officers and directors have been
deemed to be affiliates. Such determination should not be deemed to be an
admission that such executive officers and directors are, in fact, affiliates of
the Registrant.
Indicate the number of shares outstanding of each of the
registrants classes of common stock as of the latest practicable date.
52,371,013 common shares as of November 24, 2016
DOCUMENTS INCORPORATED BY REFERENCE
None.
2
TABLE OF CONTENTS
3
PART I
Item
1.
Business
Forward-Looking Statements
This annual report contains forward-looking statements. These
statements relate to future events or our future financial performance. In some
cases, you can identify forward-looking statements by terminology such as may,
should, expects, plans, anticipates, believes, estimates,
predicts, potential or continue or the negative of these terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors, including the risks in the
section entitled Risk Factors that may cause our or our industrys actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Except as required by
applicable law, including the securities laws of the United States, we do not
intend to update any of the forward-looking statements to conform these
statements to actual results.
Our consolidated financial statements are stated in United
States Dollars (US$) and are prepared in accordance with United States Generally
Accepted Accounting Principles.
In this annual report, unless otherwise specified, all dollar
amounts are expressed in United States dollars and all references to common
shares refer to the shares in our common stock. References to CAD$ refers to
Canadian dollars.
As used in this current report and unless otherwise indicated,
the terms "we", "us", "our" and "our company" mean Lexaria Bioscience Corp., our
wholly owned subsidiary, Lexaria CanPharm Corp., a Canadian corporation, and our
51% owned subsidiary PoViva Tea, LLC (PoViva"), an entity incorporated in the
state of Nevada, unless otherwise stated.
General and Historical Overview of Our Business
We were incorporated in the State of Nevada on December 9,
2004. We were an exploration and development oil and gas company engaged in the
exploration for and development of petroleum and natural gas in North America
from the date of incorporation until 2014. We owned various oil and gas
interests in Mississippi and Oklahoma, and produced cash flow from them. At
various times we issued equity to raise capital to acquire or sustain our
interests and operations, and entered various debt agreements for the same
reasons. In December 2014, we completed the sale of our last remaining oil and
gas assets for total consideration of $1,400,000 and repaid all outstanding
loans and debts associated with our tenure in the oil and gas business.
In 2014, we submitted an application to enter the legal medical
marijuana business in Canada and also launched a hemp oil-based food supplement
company in the USA.
We entered into a joint venture agreement with Enertopia Corp.
to source opportunities in the medical marijuana business. We also entered into
a separate joint venture agreement with Enertopia Corp. for a prospective
medical marijuana business under the Marijuana for Medical Purposes Regulations
(MMPR). Our company was to pay 55% of all costs to earn a 49% net ownership
interest in the business and Enertopia was to pay 45% of all costs to earn a 51%
ownership interest in the business. The joint venture identified a production
location in Burlington, Ontario and received municipal approval for the site in
July, 2014.
On June 26, 2015, we entered into a definitive agreement with
Enertopia Corp. and Shaxon Enterprises Ltd. to sell our 49% interest in the
Burlington Joint Venture and the MMPR application number 10MMPR0610. Pursuant to
the agreement, the joint venture received a non-refundable $10,000 deposit and
is entitled to receive up to $1,500,000 in milestone payments upon the
Burlington facility becoming licensed under the MMPR. All payments made pursuant
to the agreement would be divided 51% to Enertopia Corp. and 49% to our Company.
Notwithstanding the foregoing, we can neither guarantee nor provide a meaningful
time estimate regarding the grant of a production license for the Burlington
facility.
4
Our food sciences activities include the development of our
proprietary nutrient infusion technologies for the production of superfoods, and
the production of enhanced food products under our two consumer product brands,
ViPova and Lexaria Energy. Our patented lipid nutrient infusion technology is
believed to enable higher bioavailability rates for CBD; THC; NSAIDs; Nicotine
and other molecules than is possible without lipophilic enhancement technology.
This can allow for lower overall dosing requirements and/or higher effectiveness
in active molecule delivery. Lexaria has caused to be filed several patent
pending applications with the US Patent Office, and also internationally under
the Patent Cooperation Treaty (PCT). On October 26, 2016, the USPTO issued U.S.
Patent No. 9,474,725, Cannabinoid Infused Food and Beverage Compositions and
Methods of Use Thereof, pertaining to Lexarias method of improving
bioavailability and taste of certain cannabinoid lipophilic active agents in
food products. Lexaria hopes to reduce other common but less healthy ingestion
methods such as smoking as it embraces the benefits of public health.
As at August 31, 2016, we only had one reporatable segment,
being the development and usage, including licensing of our proprietary nutrient
infusion technology.
We maintain our registered agent's office and our U.S. business
office at Nevada Agency and Transfer Company, 50 West Liberty, Suite 880, Reno,
Nevada 89501. Our telephone number is (755) 322-0626.
The address of our principal executive office is 156 Valleyview
Rd, Kelowna BC Canada V1X3M4. We have administrative functions located in
Vancouver, British Columbia and Phoenix, Arizona.
Effective at the opening of trading on October 28, 2009, our
shares of common stock began trading on the Canadian Securities Exchange
(formerly, Canadian National Stock Exchange) under the trading symbol LXX.
Our common stock is quoted on the OTC Bulletin Board under the
symbol "LXRP" and on the Canadian Securities Exchange under the symbol LXX.
Our Current Business
Our companys business plan is currently focused in the USA, on
the introduction of hemp oil-infused food products extracted from Agricultural
Hemp and on the development of strategic partnerships with licensees for our
patented technology in exchange for up front and/or staged licensing fees over
time. Secondarily and more generally, we continue to investigate opportunities
in the US legal regulated medical marijuana sector where possible; to
investigate expansions and additions to our intellectual property portfolio;
and, to search for additional opportunities in alternative health sectors. This
includes the acquisition or development of intellectual property if and when we
believe it advisable to do so. We announced issuance of our first patent by the
U.S. Patent and Trademark Office (USPTO) on October 26, 2016 and we are seeking
additional patent protection for what we believe to be a unique process for the
nutritional delivery of certain molecules such as THC, CBD, Nicotine, NSAIDs,
and Vitamins. To achieve sustainable and profitable growth, our company intends
to control the timing and costs of our projects wherever possible.
During the past fiscal year we experienced the following
significant corporate developments:
On September 16, 2015, the Companys Board appointed Mr. Ted
McKechnie as a Director of the Company. Upon Mr. McKechnies appointment the
Company issued to him, 110,000 common shares of the Company valued at $19,000.
The Company also granted 100,000 stock options to Mr. Ted McKechnie. The
exercise price of the stock options is $0.17 and they expire on September 16,
2020. The number of shares and stock options were updated pursuant to the
forward stock split on December 16, 2015, as described below.
On October 6, 2015 we nnounced that our Lexaria Energy10
Protein Bar would be in stock and available for sale on November 3, 2015. On
November 3, 2015, the Company announced the Lexaria Energy10 Protein Bars were
in stock and available for sale.
On October 8, 2015, the Company announced product updates for
both coffee and hot chocolate. Lexaria had also determined that it would soon
make ViPova and Lexaria Energy products available for sale into the United
Kingdom, due to a favorable regulatory environment and to increased consumer
demand. Initially, sales would be made through the online store, but it also
indicated that discussions were also underway to enable local sales delivered
from within the United Kingdom.
5
On November 17, 2015, the Company announced selling out of the
Lexaria Energy Protein Bars unveiled at three investment and business trade show
conferences held in Las Vegas.
On November 18, 2015, the Company announced its Board of
Directors approved a forward stock split of 1.1 new shares for every existing
common share held. Upon effect of the forward stock split our authorized capital
increased to 220,000,000 shares of common stock, par value $0.001 and our issued
and outstanding shares increased from 39,952,984 to 43,948,282 shares of common
stock, with a par value of $0.001. The reverse stock split was reviewed by the
Financial Industry Regulatory Authority ("FINRA") and the Canadian Securities
Exchange ("CSE") and was approved for filing with an effective date of December
16, 2015. The forward split became effective with the OTC Markets at the opening
of trading on December 16, 205 under the symbol LXRPD. The "D" was placed on
our ticker symbol for 20 business days and subsequently removed. Our new CUSIP
number is 52886N307.
On December 10, 2015, Lexaria closed a private placement by
issuing 550,000 units at a price of $0.18 per unit for gross proceeds of
$90,000. Each unit consisted of one common share of the Company and one-half,
transferable share purchase warrant. Each full warrant is exercisable into one
further share at a price of $0.30 per share for a period of 24 months following
closing. A cash finders fee for $2,520 was paid to Leede Financial Markets
Ltd.; and 14,000 broker warrants with an exercise price of $0.30 for a period of
24 months were also issued to Leede Financial Markets Ltd. The number of common
shares and share purchase warrants was updated as a result of the forward stock
split on December 16, 2015.
On December 14, 2015, Lexaria signed an Investor Relations
contract with Radius Consulting Inc. for a 45-day term. Radius received $2,500
and 50,000 common shares valued at $9,500. Such common shares were adjusted for
the forward stock split closing on December 16, 2015.
On January 13, 2016, the Company announced it has commissioned
a study of nitric oxide levels in humans, as a biomarker for absorption of
cannabidiol.
On January 15, 2016, the Company announced BUYINS.NET was
consulting to Lexaria Corp to Surveil Short Sellers and Market Makers.
On January 20, 2016, the Company announced study data from
human subjects demonstrating significant elevation of systemic nitric oxide
levels as a surrogate biomarker for cannabidiol (CBD) bioabsorption.
On January 28, 2016, the Company announced it signed a
distribution agreement with Telluride Coffee.
On February 19, 2016, the Company announced Lexaria would be
proceeding with a name change at its Annual General Meeting expected to be held
March 23, 2016; the Company proposed to change its name to Lexaria Bioscience
Corp.
On March 8, 2016, the Company announced the resignation of
Thomas Ihrke as VP of US Operations of Lexaria Corp.
On March 8, 2016, the Company closed private placement offering
of a convertible debenture in the aggregate amount of $45,000. The convertible
debenture matures on August 31, 2020 with an interest rate of 10% per annum (on
a simple basis) and is convertible at (i) $0.12 per share at any time prior to
August 31, 2016 (ii) $0.15 per share at any time prior to August 31, 2017; (iii)
$0.20 per share at any time prior to August 31, 2018 or, at the sole option of
the holder, a price equal to a 20% discount to the 10-day average closing price
of the shares prior to the date of conversion (the Average Price) provided
that the Average Price is less than $0.20 and provided further that the
conversion price shall not be less than $0.15; (iv) $0.25 per share at any time
prior to August 31, 2019 or, at the sole option of the holder, the Average Price
provided that the Average Price is less than $0.25 and provided further that the
conversion price shall not be less than $0.15; and (v) $0.30 per share at any
time prior to August 31, 2020 or, at the sole option of the holder, the Average
Price provided that the Average Price is less than $0.30 and provided further
that the conversion price shall not be less than $0.15.
On April 15, 2016, pursuant to the consulting agreement with
Mr. John Docherty, the Company issued 210,000 common shares for services
rendered as the President of the Company. We also issued 300,000 stock options,
expiring on April 15, 2021, with an exercise price of $0.11 per share, to Mr.
Docherty, and agreed to pay him cash compensation of US$4,000.
6
On April 15, 2016, the Company closed a private placement of
750,000 units at a price of $0.08 per unit for gross proceeds of $60,000. Each
unit consisted of one common share of the Company and one non-transferrable
share purchase warrant, entitling the holder to purchase one additional common
share in the capital of the Company for a period of 18 months at an exercise
price of $0.15 per share. The Company also issued 8,750 broker warrants to
Haywood Securities Ltd. The broker warrants have a term of 18 months and are
each exercisable into one common share of the Company at a price of $0.15.
Effective April 29, 2016, Ms. Bal Bhullar resigned as CFO and a
director of the Company to pursue other opportunities. Mr. Chris Bunka was
appointed as interim CFO and Mr. John Docherty, the president of Lexaria, was
appointed a director of the Company.
On May 14, 2016, the Company entered into a licensing agreement
with an arms length party allowing the licensee, for a two-year period, to
utilize the Companys technology to create, test, manufacture, and sell
marijuana-infused consumable and/or topical products, in the state of Colorado,
with an option of extending the terms of the licensing agreement to Washington,
Oregon, and California. In addition to the granting of the license, the Company
is required to provide support services to the licensee in connection with the
use of the Companys technology during the term of the licensing agreement. The
licensing agreement was the first contracted, predictable, and significant
revenue stream to be achieved as a direct result of Lexarias technological
advantage in the marketplace. Under the terms of the licensing agreement, the
licensee would pay a minimum of $122,000 in pre-defined staged payments to
Lexaria over the initial two-year term. As per the licensing agreement, if the
licensee were to introduce certain product lines utilizing Lexarias technology
in each of the four states contemplated, Lexaria could expect to receive a
maximum of $1,064,000 over approximately 3.5 years, and the licensee would enjoy
semi-exclusivity to introduce its products in each of those states.
On June 6, 2016, the Company issued 25,000 stock options to a
consultant of the Company vesting immediately, with an exercise price of $0.14
per share and expiring on June 3, 2021.
On June 6, 2016, the Company engaged the marketing and investor
relations services of Frontier Merchant Capital Group (Frontier) for a period
of one year. Lexaria will pay CAD$6,000 per month and issued 300,000 stock
options with an exercise price of $0.14, vesting immediately, for this 12-month
period.
On June 6, 2016, a Company closed a private placement of
700,000 units priced at $0.11 per unit for gross proceeds of $77,000. Each unit
consists of one common share of the Company and one-half of a non-transferrable
share purchase warrant, with each warrant entitling the holder to purchase one
additional common share of the Company for a period of three years, at a
purchase price of $0.14 per share.
Effective July 1, 2016, the Company agreed to pay a monthly
stipend of US$4,000 to Director Ted McKechnie to reflect his commitment to the
Company.
On July 12, 2016, the Company announced that it received a
Notice of Allowance from the USPTO for one of its patent applications. The
Notice of Allowance concluded the substantive examination of US Patent
Application Serial No. 14/735,844 by the USPTO and indicated that issuance of a
US patent would follow after remaining administrative processes were
completed.
On July 21, 2016, the Company announced it entered into two
agreements; first with PPMT Strategic Group, Inc, a strategic consulting group,
with capabilities that include, Mergers & Acquisitions advisory services,
Sales and Marketing, Industry Partnering, Compliance and Executive CFO services,
the second with Terra Nova Capital Partners, Inc, a boutique investment and
merchant banking firm. PPMT received 250,000 restricted common shares as initial
payment under the agreement. PPMT will receive 250,000 warrants to purchase
common shares each month until the end of the agreement, with a fixed floor
price and otherwise subject to normal regulatory conditions.
On July 25, 2016, the Company announced it entered into a
$50,000 loan agreement for 15 months, with an interest-free holiday for the
first 3 months; if the loan is repaid within 3 months no interest will be due.
For the final 12 months of the term, Lexaria will pay 8% simple interest. This
secured loan is not convertible. The loan is provided by CAB Financial Services
Ltd, which is a private holding company wholly-owned by the CEO of the Company.
7
On August 10, 2016, the Company announced it entered a letter
of intent (LOI) to license its proprietary technology to CBDM LLC for the
development and sale of a range of marijuana oil infused products in a
potentially national-scale roll-out to Indian reservations across America and
certain other U.S. territories.
On August 11, 2016, the Company announced it closed a private
placement equity financing for 1,558,525 equity units priced at $0.06; each
equity unit consisting of one common share of the Company and one
non-transferable share purchase warrant, each warrant entitling the holder to
purchase one additional common share of the Company for a period of two years
from the date of issuance, at a purchase price of US$0.14; in order to raise
gross proceeds of $93,512. The Company also announced an enhanced marketing
services agreement with Frontier Merchant Captial Group at a cost of US$35,932
On August 31, 2016, the Company announced it has entered a new
letter of intent (LOI) to license its proprietary absorption and palatability
enhancing technology for cannabinoids and other bioactive substances. The
potential licensee is one of Americas most respected and well-known brands in
the cannabis infused products market, active in California and other U.S.
states. The identity of the potential licensee will remain undisclosed pending
further developments.
On August 31, 2016, the Company announced it has closed a
private placement equity financing for 3,266,666 equity units priced at $0.06;
each equity unit consisting of one common share of the Company and one
non-transferable share purchase warrant, each warrant entitling the holder to
purchase one additional common share of the Company for a period of two years
from the date of issuance, at a purchase price of $0.14 per share; in order to
raise gross proceeds of $196,000, of which $93,500 was collected during
September and October 2016. Placement fees of $1,200 were paid and 50,000 broker
warrants issued in connection with this tranche of the private placement.
We experienced the following significant corporate
developments subsequent to August 31, 2016
On September 8th, 2016, the Company announced signing new
definitive technology licensing and private label agreements. Lexaria will earn
a pre-defined premium to costs on all raw ingredient sourcing and manufacturing,
and will further earn a pre-defined royalty rate on all gross product sales
revenues earned by Care Limited. The agreement is for an initial term of 5
years.
On October 11, 2016, the Company granted 250,000 stock options
to a consultant with a strike price of $0.14 per share, and expiry term of two
years.
On October 11, 2016, pursuant to its agreement with Docherty
Management Ltd., the Company issued 252,000 restricted common shares and cash
compensation of $6,240.
On October 11, 2016, the Company issued 750,000 warrants with
an exercise price of $0.14 per share and valid for five years, in return for
consulting services provided in August, September, and October.
On October 11, 2016, the Company reached an agreement with a
director to settle the outstanding amount pursuant to a marketing agreement with
him, through issuance of common shares of the Company. To settle the outstanding
amount of $16,000 for four months to October 31, 2016, the Company issued
114,286 shares of its common stock at a value of $0.14 per share.
On October 16, 2016, the Company received $12,500 from exercise
of 55,000 stock options.
On October 26, 2016, the Company announced the USPTO issued
U.S. Patent No. 9,474,725, Cannabinoid Infused Food and Beverage Compositions
and Methods of Use Thereof, pertaining to Lexarias method of improving
bioavailability and taste of certain cannabinoid lipophilic active agents in
food products.
On November 1, 2016, the Company issued 56,250 shares of its
common stock in settlement of $9,000, recognized within accounts payable and
accrued liabilities as at August 31, 2016.
On November 1, 2016, the Company received $37,505 from exercise
of 165,000 share purchase warrants.
8
On November 16, 2016, the Company received $50,003 from
exercise of 220,000 share purchase warrants.
On November 21, 2016, the Company received $50,000 from
exercise of 220,000 share purchase warrants.
On November 22, 2016, the Company signed a Memorandum of
Understanding with NeutrisSci International Inc. (Neutrisci) for forming a
50/50 joint venture to develop, produce, and sell a line of healthy edible
cannabinoid products using Lexarias patented technology and Neutriscis
proprietary pterostilbene tablet formula and international distribution network.
The joint venture expects to commercialize any newly created cannabinoid edible
products through distribution programs and existing strategic partners.
Food Science and Technology
Lexaria is a food sciences company focused on the delivery of
cannabinoid compounds procured from legal, agricultural hemp, through gourmet
foods based upon its proprietary infusion technologies. Lexaria is focusing its
capital and management time on its pursuit of intellectual property, technology
licensing opportunities, and an expanding portfolio of patent pending
applications. The Company introduced an expanding variety of hemp oil-fortified
consumer food products throughout 2015. From January 2015 to December 2015, we
introduced seven (7) flavors of teas; hot chocolate; coffee, and two (2) flavors
of protein energy bars all utilizing our patent pending technology for the
more efficient delivery of hemp oil infused within those food products.
On November 11, 2014, our Company acquired 51% of PoViva Tea
LLC and executed an operating agreement to develop a business of legally
producing, manufacturing, importing/exporting, testing, researching and
developing, a line of hemp oil with cannabidiol-infused teas, drinks and foods.
Lexaria oversees all aspects of the business including, but not limited to,
production, product quality, licensing, testing, product legality, accounting,
marketing, capital investment, capital raising, sales, branding, advertising and
fulfillment. Pursuant to the agreement, there is a Management Committee, whereby
there are two representatives from Lexaria and one of the founding members of
PoViva.
In the production of the products, for each batch of hemp oil
purchased as a raw material to be used in ViPova -branded products, we assess
if the product inputs and the completed products comply with all applicable food
and drug laws, and that the inputs and the finished products meet all applicable
legal and quality standards including and as it relates to hemp oil content; THC
content; molds and mildews; heavy metals; and may measure additional
components.
The US Federal government, through the US Department of Health
and Human Services, owns US Patent #6630507, which among other things, claims
that
Cannabinoids have been found to
have antioxidant properties, unrelated to NMDA receptor antagonism. This new
found property makes cannabinoids useful in the treatment and prophylaxis of
wide variety of oxidation associated diseases, such as ischemic, age-related,
inflammatory and autoimmune diseases. The cannabinoids are found to have
particular application as neuroprotectants, for example in limiting neurological
damage following ischemic insults, such as stroke and trauma, or in the
treatment of neurodegenerative diseases, such as Alzheimer's disease,
Parkinson's disease and HIV dementia.
For reference, cannabinoids are compounds that affect
cannabinoid receptors located on many human cells. CB1 receptors are widely
found within the human brain; and CB2 receptors are found with the human immune
system and have been linked to anti-inflammatory and other responses.
Despite independent scientific findings in many locations
around the world, some regulatory agencies do not officially recognize that a
human endocannabinoid system exists.
Eighty-five different cannabinoids have been isolated from the
cannabis plant, most of which do not have psychoactive properties. One that does
have psychoactive properties is tetrahydrocannabinol (THC). Endocannabinoids are
produced naturally in the human body while phytocannabinoids are produced in
several plant species, most abundantly in the Cannabis plant.
9
Cannabidiol is one of the major phytocannabinoid forms of
cannabinoids, contributing more than 35% of the extracts from the cannabis plant
resin. Cannabidiol occurs naturally in other plant species beyond cannabis. For
example, the most widely acknowledged alternative source of phytocannabinoid is
in the better understood Echinacea species, in widespread use as a dietary
supplement. Most phytocannabinoids are virtually insoluble in water but are
soluble in lipids and alcohol.
The Alternative Health sector is large and growing. A long term
Medical Expenditure Panel Survey was conducted from 2002 until 2008 with at
least 29,370 subjects asked repeatedly if they had seen any kind of health care
practitioner in the previous six months. The survey recorded whether the health
care provider was a complementary and alternative medicine care professional,
including homeopathic, naturopathic, or herbalist.
Between 5.3% and 5.8% of the survey group at any one time
reported that they had seen a complementary or alternative medicine provider.
Based on the US population of ~319,000,000, this suggests between 16.9 million
and 18.5 million Americans are seeking an alternative health care professional
at any given time.
Meanwhile the Centers for Disease Control and Prevention, in an
April 2011 NCHS Data Brief, reported that more than 50% of the population uses
dietary supplements of one kind or another. Detailed findings from that report
included:
-
Use of dietary supplements is common among the U.S. adult population. Over
40% used supplements in 19881994, and over one-half in 20032006.
-
Multivitamins/multiminerals are the most commonly used dietary supplements,
with approximately 40% of men and women reporting use during 20032006.
-
Use of supplemental calcium increased from 28% during 19881994 to 61%
during 20032006 among women aged 60 and over.
Status of operations
More than 150 million Americans drink tea every day, amounting
to some 79 billion servings of tea in America every year. Our launch of ViPova
Tea brand is meant to tap into this existing demand. Part of our corporate
strategy is to build national brands through products that large groups of
potential customers are already familiar and comfortable with.
PoViva Tea LLC has filed patents pending to bind active hemp
oil ingredients with a lipid, potentially allowing for more efficient and
comforting delivery of the CBD.
We began producing cash flows from our products in January
2015; focused on the immediate opportunities in the CBD-sectors derived from
hemp oil that is federally legal. Cannabinoids have been found by many
researchers to have antioxidant properties and Lexaria plans to use the patented
process it has acquired with ViPova teas, to infuse CBDs into a number of
popular food and beverages.
Lexaria has launched a line of premium products, always relying
on our patented hemp oil-infusion process, to bring hemp oil into the
mainstream. Because hemp oil does not have psychoactive properties we expect our
products to appeal to the widest possible customer base. Initially we will focus
our sales efforts across the continental USA. Some studies have found that 3% of
the Canadian population regularly consumes hemp food products, while 1% of the
American population regularly consumes hemp food products. We believe the
consumption of hemp based food products offers exceptional growth possibilities.
According to Nutrition Business Journal, the Organic Food
sector was a $246 billion industry in the USA during 2014, while Dietary
Supplements was a $34.6 billion industry. According to Arcview, Legal Cannabis
was a $4.7 billion US industry in 2015 but is clearly a much smaller industry
sector than the more established food sectors. Lexaria has not yet determined
whether our hemp oil-infused products will be accepted into any or all three of
these particular sectors.
Lexaria commissioned three new websites in 2015 one for
ViPova -branded food products, another for a new Lexaria corporate website, and
a third for Lexaria Energy branded food products - which were completed
throughout 2015. All the sites are in operation and the two food products websites allow
customers to place orders and interact with normal e-commerce capabilities. The
majority of our product sales have taken place through these websites. A
contracted national distribution center ensures rapid and accurate fulfillment
of all orders. A 1-800 ordering center has also been placed into operation.
10
Lexaria is in the process of launching the Lexaria Energy
brand that is 100% owned by the Company. Under this brand, the Company plans to
develop hemp oil-infused food products for people with active lifestyles, such
as protein bars, protein shakes and other similar products. A protein bar has
gone into production and is available for sale under two different recipes and
flavors. The Lexaria Energy brand utilizes the same patented infusion process
across its product line.
Through the November 2014 acquisition of 51% of Poviva Teas
LLC, Lexaria acquired control of certain patents pending with the United States
Patent Office. Lexaria has worked to broaden the patents and extend their
utility to molecules other than those originally named.
On June 11, 2015, Lexaria initiated the simultaneous filing of
a U.S. utility patent application and an International patent application under
the Patent Cooperation Treaty (PCT) procedure, both at the U.S. Patent and
Trademark Office (USPTO). These applications follow the Companys 2014 and
2015 family of provisional patent application filings in the U.S. and serve two
additional broad purposes:
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1)
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Lexaria is seeking protection of its intellectual
property under international treaties. To this end Lexaria has filed for
PCT patent application protection. There are 148 countries that are
signatories to the Patent Cooperation Treaty, including such major markets
as Canada, China, India, much of Europe and the Middle East, the United
Kingdom and Japan among others.
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2)
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Lexaria believes its lipid infusion technology has
applications beyond the delivery of just cannabinoids. Based on further
formulation testing, Lexaria has included additional lipophilic molecules
that may be delivered via food and beverage formats utilizing its
technology, widely encompassing three major new market opportunities for
the Company: Nicotine; Nonsteroidal Anti-Inflammatories (NSAIDs); and
Vitamins.
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On October 26, 2016, the USPTO issued U.S Patent No. 9474725,
Cannabinoid Infused Food and Beverage Compositions and Methods of Use Thereof,
pertaining to our method of improving bioavailability and taste of certain
cannabinoid lipophilic active agents in food products. This is the Companys
first patent granted and has a publish date of October 27, 2016 and protects our
technology for twenty year.
International patent protection
When Lexaria first began examining the legal medical cannabis
market in 2013, and entered the market in 2014, the Company believed it could
make an impact in perhaps both the Canadian and U.S. marketplaces. Our pursuit
and development of technology has expanded our potential area of impact, both
geographically and by sector. Because of the applicability of our technology to
markets outside of the legal cannabis sector, we have taken the necessary steps
to protect that intellectual property within larger global markets, regardless
of whether they lie within the medical cannabis sector or in other unrelated
sectors.
Additional molecules
NICOTINE.
More than 99% of all nicotine that is consumed
worldwide is delivered through smoking cigarettes. Approximately 6,000,000
deaths per year, worldwide, are attributed primarily to the delivery of nicotine
through the act of smoking according to the Centers for Disease Control and
Prevention, which also estimates that over $170 billion per year is spent just
in the USA on direct medical care costs for adult smokers. 69% of U.S. adult
smokers want to quit smoking and 43% of US adult smokers have attempted to quit
in any twelve-month period.
Worldwide, retail cigarette sales were worth $722 billion in
2013, with over 5.7 trillion cigarettes sold to more than 1 billion smokers.
RELEVANCE
: Lexaria postulates that delivery of nicotine
to satisfy current demand, utilizing our patent pending lipid-delivery technology in common food groups, could shift
demand from smoking cigarettes to alternative nicotine-based food products.
Since most of the adverse health outcomes of nicotine consumption are associated
with the delivery method and only to a lesser degree to the actual ingestion of
nicotine, there could be a vast positive community health outcome through the
reduction in smoking cigarettes. Additional research and regulatory compliant
investigations would need to be conducted before otherwise healthy foods such as
tea, coffee or energy bar snacks containing nicotine could be introduced.
Nicotine is a named molecule in the latest Lexaria patent applications.
11
NSAID
. Non-steroidal Anti-inflammatories are the
second-largest category of pain management treatment options in the world. The
global pain management market was estimated at $22 billion in 2011, with $5.4
billion of this market being served by NSAIDs. The U.S. makes up over one-half
of the global market. The opiods market (such as morphine) form the largest
single pain management sector but are known to be associated with serious
dependence and tolerance issues.
Some of the most commonly known NSAIDs are ASA (Aspirin),
Ibuprofen (Advil, Motrin), and Acetaminophen (Tylenol). (Acetaminophen is not
accepted by all persons to be an NSAID.) Although NSAIDs are generally a safe
and effective treatment method for pain, they have been associated with a number
of gastrointestinal problems including dyspepsia and gastric bleeding.
RELEVANCE
: Lexaria postulates that delivery of NSAIDs
through a lipid-based mechanism could provide the beneficial properties of pain
relief with lessened negative gastrointestinal effects, and also potentially
deliver lower dosages of active ingredients with similar pain management
outcomes as current pill forms at higher dosages. ASA, Piroxicam, Diclofenac,
Indomethacin, Ibuprofen, and Acetaminophen are all named molecules in the latest
Lexaria patent applications.
VITAMINS.
The global vitamin and supplement market is
worth $68 billion according to Euromonitor. The category is both broad and deep,
comprised of many popular and some lesser known substances. Vitamins in general
are thought to be an $8.5 billion annual market in the U.S. The U.S. is the
largest single national market in the world, and China and Japan are the
2
nd
and 3
rd
largest vitamin markets.
Vitamin E is fat soluble and can be incorporated into cell
membranes which can protect them from oxidative damage. Global consumption of
natural source vitamin E was 10,900 metric tons in 2013 worth $611.9
million.
RELEVANCE
: Lexaria postulates that delivery of fat
soluble vitamins through its patent-pending lipid-based delivery mechanism may
result in less waste and lower dosages required than most current pill forms. As
well, ingestion of pills is an unpleasant experience for many people so it is
possible that vitamin delivery through common food groups could vastly expand
market demand for this sector. Vitamin E is a named molecule in the latest
Lexaria patent applications.
On August 11, 2015, Lexaria signed a license agreement with
PoViva Tea LLC for $10,000, granting Lexaria a 35-year non exclusive worldwide
license to unencumbered use of PoViva Tea LLCs IP Rights, including rights of
resale. This license agreement ensures Lexaria has full access to the underlying
patent pending infusion technology.
On August 24, 2015, the Company announced potential
industry-changing achievements in enhanced gastro-intestinal absorption of
cannabidiol (CBD) utilizing Lexarias patented technology. The third-party
testing was conducted in two phases of in vitro tests beginning in June and
completed in August, 2015.
The independent laboratory results delivered average CBD
permeability of 499% of baseline permeability, compared to CBD permeability
without Lexarias technology. These results exceed Company expectations. This
was assessed in a strictly controlled, in vitro experiment using a human
intestinal tissue model. Samples of Lexarias commercially available
CBD-fortified ViPova black tea were administered in the model compared with
concentration-matched CBD control preparations that lacked Lexarias patented
formulation and process enhancements. Lexaria believes that its in vitro
findings provide compelling evidence of the intestinal absorption enhancing
capabilities of its technology, based on which it is exploring opportunities to
progress to more advanced, follow-on bioavailability testing in animals.
12
The tests also showed 325% of baseline gastro-intestinal
permeability of CBD comparing Lexarias CBD-fortified ViPova black tea to a
second control of CBD and black tea combined, without Lexarias patented
formulation enhancements. This confirmed that the specialized processing
undertaken by Lexaria during its manufacturing process together with its
formulation enhancements, does indeed significantly improve absorption levels.
The bioavailability of CBD (or of THC) varies greatly by
delivery method. Smoking typically delivers cannabinoids at an average
bioavailability rate of 30% (Huestis (2007) Chem. Biodivers. 4:17701804;
McGilveray (2005) Pain Res. Manag. 10 Suppl. A:15A 22A). By comparison, orally
consumed cannabis edibles typically deliver cannabinoids at an average
bioavailability rate of only 5% (Karschner et al. (2011) Clin. Chem.
57:6675).
The Companys present findings suggest that its technology may
achieve a 5-fold improvement in cannabinoid absorption in edible form over that
which can be achieved without its proprietary process and formulation
enhancements. This conceptually supports that Lexarias technology represents a
significant breakthrough in cannabinoid delivery by approximating the high
absorption levels achieved as though through administration by smoking, but
without the associated negative effects on human health caused by smoking.
The tests were completed in two phases culminating with testing
using simulated intestinal fluid conditions that delivered these findings. These
results were stronger than earlier iterations of the tests that did not use a
simulated intestinal fluid environment and contributed to Lexarias
understanding of the mechanisms at work. For these and other reasons, Lexaria
believes that bioavailability testing in animals is likely to yield even
stronger absorption results in the presence of natural intestinal fluid
conditions.
CBD has been repeatedly found to provide beneficial pain
relieving, anti-inflammatory, anti-anxiety, neuroprotection, anti-psychotic, and
anti-convulsive effects among others. Lexarias patent-pending technology could
significantly reduce individual serving requirements for CBD to consumers. This
could lead to reduced costs of consumption for consumers and increased
profitability for Lexaria.
Lexaria believes that the same technology used to enhance the
absorption of CBD in the recent laboratory tests, is applicable to THC,
nicotine, NSAIDs and other lipophilic compounds that are widely used today.
On November 3, 2015, Lexaria Energy10 protein bars became
available for retail sales with 2 new flavors. The Company sells Cashew Berry
Date vegan bar which is optimal for pre-workout or morning use, with 10 grams of
protein and a combination of dates, cherries and blueberries for energy from
natural sugar sources. The 70-gram bar delivers energy for a workout or for the
day to come. The Chocolate Berry Date bar is optimal for post-workout and for
afternoon or evening use, or anytime one has the munchies. This 82-gram bar has
21 grams of protein and 13 grams of fiber to provide ones body with comfort and
cleansing after strenuous activity.
During January 2015, Lexaria conducted a study of nitric oxide
levels in humans, as a biomarker for absorption of cannabidiol, with the
expectation that it would provide additional evidence of the efficient
absorption of cannabidiol from Lexaria food products enhanced with hemp oil, by
demonstrating the elevation of nitric oxide in the human body in response to
product ingestion.
The study data from human subjects demonstrated significant
elevation of systemic nitric oxide levels as a surrogate biomarker for
cannabidiol (CBD) bioabsorption in response to ingestion of Lexaria's products.
This provided clinical support for the CBD bioavailability enhancing properties
of Lexaria's patented technology, on the premise that bioavailable CBD is known
to elevate levels of the endocannabinoid anandamide in the human body which, in
turn, stimulates release of nitric oxide in the vascular system.
In summary, consuming Lexaria and ViPova food products
resulted in elevated levels of nitric oxide within the body. The results of the
study indicated that all Lexaria and ViPova food products elicited significant
increases in salivary nitric oxide, achieving levels from 110 µM to as high as
220 µM in the test subjects. The beverage products generally had faster initial
responses in as little as 15 minutes after product ingestion, whereas the
initial responses from the protein-energy bars required 30 minutes. The faster
response time with the beverage products was to be expected, given the relative
ease of digesting liquids versus solids. All products sustained their maximum
levels of nitric oxide detection through to the 60-minute end-points used in the
study, indicating a need for additional study to determine the length of time that nitric oxide levels remain elevated following
production consumption.
13
The study assessed six flavors of ViPova tea (Yunan Black,
Herbal Cherry Black, Earl Grey, Herbal Bengal Chai, Herbal Masala Chai and Decaf
English Breakfast), ViPova Columbian Supremo Coffee, ViPova Hot Chocolate and
Lexaria Energy Foods Chocolate Berry Date and Cashew Berry Date protein-energy
bars.
Six healthy human subjects (3 male and 3 female) between the
ages of 22 and 65 years of age were recruited for the study. Subjects were
screened for cardiovascular and allergic response to hemp products, were
non-smokers and did not have any history of substance or alcohol abuse. One
product was studied per day across all six subjects, with each subject consuming
a full product serving size. Subjects were required to refrain from eating food
or using vape products for at least 12 hours before test article administration
on each day of the study. Nitric oxide levels in the test subjects were assessed
using a commercially available, colorimetric test kit designed to quantify
systemic nitric oxide via a detectable salivary marker. Immediately before test
article administration each day, all subjects were required to demonstrate a
negative baseline nitric oxide saliva test. Subjects were considered to have a
negative test strip reading at a level of 20 µM according to the test strip
scale, and positive readings anywhere above this. Subjects performed salivary
nitric oxide testing at 15, 30, 45 and 60 minutes post-consumption of each
product. All subjects remained sedentary from baseline through to the completion
of testing for each product.
On January 28, 2016, Lexaria signed a distribution agreement
with Telluride Coffee Roasters, LLC.
On May 14, 2016, the Company entered into a Licensing Agreement
allowing the Licensee, for a two-year period, to utilize the Companys
technology to create, test, manufacture, and sell marijuana-infused consumable
and/or topical products, in the state of Colorado, with an option of extending
the terms of the Licensing Agreement to Washington, Oregon, and California. In
addition to the granting of the license, the Company will provide support
services to the Licensee in connection with the use of the Companys technology
during the term of the Licensing Agreement. The Licensing Agreement is the first
contracted, predictable, and significant revenue stream to be achieved as a
direct result of Lexarias technological advantage in the marketplace. Under the
terms of the Licensing Agreement, the Licensee will pay a minimum of $122,000 in
pre-defined staged payments to Lexaria over the initial two-year term. As per
the Licensing Agreement, if the Licensee were to introduce certain product lines
utilizing Lexarias technology in each of the four states contemplated, Lexaria
could expect to receive a maximum of $1,064,000 over approximately 3.5 years,
and the Licensee would enjoy semi-exclusivity to introduce its products in each
of those states.
The Company does not know and cannot know whether these
strategies will be successful, or if successful, how long it will take to gain
consumer acceptance and customer loyalty. It can be a challenge to be successful
by introducing new consumer products to a competitive retail marketplace, and we
can offer no assurances that our products will be a commercial success.
The continuation of our business interests in these sectors is
dependent upon obtaining further financing, a successful programs of
development, and, ultimately, achieving a profitable level of operations. The
issuance of additional equity securities by us could result in a significant
dilution in the equity interests of our current stockholders. Obtaining
commercial loans, assuming those loans would be available, will increase our
liabilities and future cash commitments.
There are no assurances that we will be able to obtain further
funds required for our continued operations. As noted herein, we are pursuing
various financing alternatives to meet our immediate and long-term financial
requirements. There can be no assurance that additional financing will be
available to us when needed or, if available, that it can be obtained on
commercially reasonable terms. If we are not able to obtain the additional
financing on a timely basis, we will be unable to conduct our operations as
planned, and we will not be able to meet our other obligations as they become
due. In such event, we will be forced to scale down or perhaps even cease our
operations. There is significant uncertainty as to whether we can obtain
additional financing.
Our business plan does not anticipate that we will hire a large
number of employees or that we will require extensive office space. We expect to
be able to utilize contracted third parties for most of our production and
distribution needs, instead focusing on our capital on higher value added
aspects of the business such as research and development, and scientific
testing. We have no current plans to build our own production facility.
14
Our company relies on the business experience of our existing
management, on the technical abilities of consulting experts, and on the
technical and operational abilities of its operating partner companies to
evaluate business opportunities.
Competition
The legal marijuana industry is comprised of several
sub-sectors, and is legal under different guidelines in many states though it
remains illegal under most federal laws. Notwithstanding, the overall sector is
generally recognized to be one of the fastest growing in the USA, with
state-legal revenue of over $4 billion in 2015. Independent projections and
publicized reports expect revenue of $20 billion or more in 2020, both as the
sector gains in credibility and acceptance, and as more and more states legalize
either medical use or adult recreational use; or both. In any fast growing
industry, competition is expected to be both strong and also difficult to
evaluate as to the most effective competitive threats. While we are an early
adopter within the cannabinoid delivery sector, there are already reports of
more than 300 public companies that have claimed to be involved in the sector in
some fashion; and an unknown number of private companies. Our current strategies
may prove to be ineffective as the sector grows and matures, and if so, we will
have to adapt quickly to changing sectoral circumstances.
Competition in alternative health sectors and in consumer
products in the USA is fierce. We expect to encounter competitive threats from
existing participants in the sector and new entrants. Although PoViva Tea LLC
has filed patent pending applications to protect intellectual property, there is
no assurance that patents will be granted nor that other firms may not file
superior patents pending. Food supplements, organic foods, and health food
markets are all well established and our Company will face many challenges
trying to enter these markets.
Compliance with Government Regulation
At least 24 States in the USA have passed some form of
legislation related to that states permission to grow, cultivate, sell or use
marijuana either for medical purposes or for recreational or adult use
purposes; or both. The various state legislation is not necessarily harmonious
with one another, leading to potential conflicts between state laws. It is most
often not legal to transport cannabis-related products across state lines.
Lexaria does not touch the plant in any location within or
outside of the USA. We comply with federal law that provides for certain
exemptions for agricultural (industrial) hemp and certain byproducts to be
manufactured and sold in the US. Our technology may have applications within the
legal marijuana sector and we may seek to license that technology to companies
that have met and comply with state regulations for the sale or distribution of
cannabis related products in any particular jurisdiction.
Lexarias patented technology may also have application in
completely separate sectors such as vitamins, non-steroidal anti-inflammatories,
and nicotine. We have no products nor operations in any of these sectors today.
If we enter any of these sectors at any time, we will be exposed to and of
necessity will have to comply with, all local, state and federal regulations in
each of those sectors. As a result of the possibility of Lexaria being involved
in a number of disparate business sectors, compliance with government
regulations could require significant resources and expertise from our
company.
Our Planned Medical Marijuana Production Operations
On June 7, 2013 the Government of Canada implemented then-new
legislation, the Marijuana for Medical Purposes Regulations (MMPR), concerning
the production and sale of medical marijuana. The MMPR permited the licensing of
commercial growers beginning April 1, 2014, while eliminating existing
regulations permitting the production of medical marijuana on a personal-use
basis. The revised regulations created conditions for a commercial industry in
Canada that is responsible for medical marijuana production and distribution, by
eliminating small-scale, personal-use production. Commercial growers are now
able to submit applications to Health Canada for the production of medical
marijuana and, if licensed, supply patients who qualify for the product at a
price that would be established by market forces and at the discretion of
producers. As of November 2016, 36 producers have become licensed under the
latest versions of Canadian regulations.
15
On June 26, 2015, we entered into a share purchase agreement
with Shaxon Enterprises Ltd. and Enertopia Corp. to sell our 49% interest in our
Burlington, Ontario medical marijuana project application, including the MMPR
application (no. 10MMPR0610) for our proposed production facility. The
Burlington MMPR license application has continued in the application process
under new ownership. Pursuant to the agreement, the joint venture received a
non-refundable $10,000 deposit and is entitled to receive up to $1,500,000 in
milestone payments upon the Burlington facility becoming licensed under the
MMPR. These monies would be split 51% to Enertopia and 49% to our Company.
Notwithstanding the foregoing, we can neither guarantee nor provide a meaningful
time estimate regarding the grant of a production license for the Burlington
facility and at this time believe it may be unlikely to be awarded.
Since June 12, 2015 the Company has had no direct involvement
or ownership interest in any active or prospective operations or permit
applications under the MMPR. We have no further plans at ths time to apply for a
license in any jurisdiction for the production or sale of legal medical
marijuana.
Market for Medical Marijuana in Canada
It is estimated by Health Canada that the overall market for
medical marijuana in Canada under the new MMPR will be approximately $1.3
billion per year by 2024 (source: Health Canada/Canadian Broadcasting
Corporation). Health Canada projects that the number of licensed users will
increase to over 450,000 by 2024. Health Canada formerly sold medical marijuana,
produced on contract by Prairie Plant Systems (formerly the only licensed
producer in Canada), for $5 a gram. It is estimated that the price per gram
under the new licensing system will average $7.60 per gram as producers set
prices without interference from government (source Health Canada/Canadian
Broadcasting Corporation).
Despite these estimates the medical marijuana market is
relatively new and largely unproven. The adoption rate of commercial medical
marijuana by qualified patients is difficult to determine but a portion
(approximately 13%) of the qualified patient population is already conditioned
to purchasing government contracted producers under the old system (source:
Health Canada). Furthermore, we anticipate that the convenience of a wide
selection of medical marijuana strains delivered directly to patients in a
discrete and concealed package will be attractive. Healthcare practitioners are
key stakeholders as they will be signing and providing the medical documentation
needed for patients to register with commercial producers. Regulations under the
MMPR are not significantly different for healthcare practitioners already
familiar with the process under the former MMAR. Licensed producers are held
responsible for quality of the product provided as the MMPR outlines strict
rules for quality assessment and control, cleanliness, manufacturing, and
pesticide use. Security and diversion to the black market remain a concern but
MMPR outlines strict rules for segregation of duties and security clearances,
background checks for employees and officers, tracking of product in and out of
the premises, and camera surveillance.
The Use of Marijuana for Medical Purposes (source Cantech
Letter: Canadas Medical Marijuana Industry: A Top Down Look)
The marijuana or cannabis plant, aka cannabis sativa, contains
more than 80 cannabinoids, a group of chemical compounds which includes delta
9-tetrahydrocannabinol (THC) and cannabidiol (CBD). Research has shown that THC
and CBD influence different regions of the central nervous system and have
different effects on cannabis users [Borgwardt, Biol Psychiatry, 2008]. Most of
the psychoactive effects associated with the use of cannabis are caused by THC,
whereas CBD has been shown to have anti-anxiety, anti-nausea, anti-inflammatory,
and anti-psychotic effects [Bergamaschi, Curr Drug Saf., 2011; Niesink, Front
Psychiatry, 2013]. Cannabis smoking often leads to adverse effects such as
increases and fluctuations in heart rate and blood pressure, euphoria, anxiety,
and impairment of cognition and memory. Cannabis also contains a similar array
of detrimental and carcinogenic compounds compared to cigarette smoke, some of
which are present even at higher concentrations [Leung, J Am Board Fam Med,
2011].
Medical marijuana is used and has been tested in a variety of
indications. In the last ten years, there have been estimated 300 individually
registered trials used cannabis, THC, or CBD as the intervention. Excluding
addiction, the indication that accounted for the majority (42%) of trials,
medical marijuana has been tested in a wide range of indications to help
patients cope with pain not only from disease itself, but also for relief from
strong and sometimes toxic medication, such as chemotherapy. Neurological
disorders, mental health, muscle and back problems, and inflammation (such as
gastrointestinal disorders) are common indications under study.
16
Current Status of our Previous Medical Marijuana Business
Following the announcement of the MMPR in June, 2013, our
management began identifying and evaluating opportunities for entry into the
medical marijuana industry in Canada. We do not currently have any direct
involvement in marijuana related activities in the United States or Canada.
Enertopia Joint Venture
On May 28, 2014, our company and Enertopia Corp. entered into a
definitive agreement to develop a joint business for the production,
manufacture, propagation, import/export, testing, research and development of
marijuana in the Province of Ontario under the MMPR. Pursuant to the Agreement,
ownership, revenues, and liability related to the Joint Venture were to be
divided 51% to Enertopia and 49% to Lexaria. Expenses incurred by the joint
venture would be allocated 45% to Enertopia and 55% to Lexaria. Enertopia was
responsible for management of the joint venture for as long as it maintained
majority ownership. Lexaria and Enertopia contributed $55,000 and $45,000 to the
joint venture, respectively. The joint venture identified a production location
in Burlington, Ontario and received municipal approval for the site in July,
2014. We intended to engage an architect to design the production facility upon
acceptance of our application. Construction was anticipated to cost
approximately $3,000,000 and Lexaria would have been responsible for $1,650,000
of this cost. Unable to estimate when a production license might be granted by
Health Canada, the joint venture sought assurances from Health Canada prior to
commencement of construction. In the event that Health Canada did not grant a
production license by May 27, 2015, the joint venture was to terminate. On
August 1, 2014, through our wholly owned subsidiary Lexaria Canpharm Corp., we
signed an extension to the letter of intent with 1475714 ONTARIO INC. and Thor
Pharma Corp. (a subsidiary of Enertopia Corp.) to secure a 5-year lease on the
Burlington, Ontario facility for our Burlington joint venture. The proposed
Burlington, Ontario facility comprised of 30,000 ft², with Lexaria and Enertopia
having acquired a right of first refusal for another 45,000 square feet totaling
75,000 ft² to accommodate future growth. Planned production areas have 22 foot
ceilings which could allow for the possibility of a 2nd mezzanine level in many
areas for further expansion. The production target for the facility based on
30,000 ft² (with approximately 50% devoted to production space) was
approximately 10,000 kilograms per year.
By November 30, 2014, our Burlington joint venture had
announced that its application to Health Canadas for the Burlington facility
had advanced from preliminary to enhanced screening. By December 12, 2014, the
joint venture was extended to June 12, 2015.
On June 11, 2015, we entered into a Letter of Intent dated June
10, 2015 with Shaxon Enterprises Ltd. to sell our 49% interest in the Burlington
joint venture, including our interest in MMPR application number 10QMM0610 for
the proposed Burlington, Ontario production facility. Subsequent to the LOI with
Shaxon Enterprises Ltd., our joint venture agreement with Enertopia which was
entered into on May 28, 2014 was terminated due to the pending sale of the
project. As a result of the termination, 500,000 restricted and escrowed common
shares of Lexaria issued to Enertopia at a deemed price of $0.40 were returned
to treasury and cancelled. The Enertopia and Lexaria Master Joint Venture
Agreement entered into on March 5, 2014 is still effective and governs the
relationship between our Company and Enertopia.
On June 26, 2015, we signed a Definitive agreement to sell our
interest in the Burlington joint venture along with the MMPR application number
10MMPR0610. The Burlington MMPR license application will continue in the
application process under new ownership. Pursuant to the agreement, the joint
venture received a non-refundable $10,000 deposit and is entitled to receive up
to $1,500,000 in milestone payments upon the Burlington facility becoming
licensed under the MMPR. These monies would be split 51% to Enertopia and 49% to
Lexaria. Notwithstanding the foregoing, we can neither guarantee nor provide a
meaningful time estimate regarding the grant of a production license for the
Burlington facility. There is no assurance that any monies will in fact ever be
received from our sale of the license application.
Marijuana Production in the United States
In the United States it is still illegal under federal law to
grow, cultivate and sell medical or adult use marijuana. However more than
twenty-five states have approved medical marijuana for use and at least eight
states have approved adult use regulations. The United States Federal government
justice department has released memos that will respect the individual states
where strict guidelines are followed and enforced so that the health, safety and
security are protected at all times by state authorities. If the individual
state framework fails to protect the public the Federal government will act in
enforcing the controlled substances act of 1970 and the DEA will enforce
the federal law.
17
As at the date of document, our company has not entered into
any prospective or definitive arrangements to produce or distribute marijuana
products in the United States and has no intention of engaging in such marijuana
related activities in the United States. However, our company continually
reviews opportunities and monitors legal and regulatory developments related the
medical marijuana sector in both Canada and the United States. We anticipate
that we will re-evaluate our participation in the United States medical
marijuana sector in the event that medical marijuana production becomes
federally sanctioned and, in the meantime, we plan to limit our foray into the
marijuana industry to only out-licensing of our technology to licensed
producers.
On November 8 2016 referendums held in various US states
increased those areas in the USA where either medical or recreational use
marijuana was state-legal. More than 50% of the US population now lives in a
state where either medical or recreational marijuana use is permitted by state
law, although it is still banned by US federal laws.
Employees
We primarily use sub-contractors and consultants in the medical
marijuana operations and alternative health products.
On November 27, 2008, we entered into a consulting agreement
with CAB Financial Services Ltd., a British Columbia company. The consulting
services provided by CAB Financial are on a continuing basis for a consideration
of CAD$8,000 per month plus applicable taxes. CAB Financial is a consulting
company controlled by our chief executive officer, Christopher Bunka. Effective
December 1, 2014, the Company entered into a new consulting agreement for
consulting services of $10,000 a month plus GST.
On May 12, 2009, we entered into a six-month consulting
agreement with BKB Management Ltd., a British Columbia company for a
consideration of CAD$4,500 per month plus applicable taxes. Effective January 1,
2011, the consideration was increased to CAD$5,500 plus applicable taxes. BKB
Management is a consulting company controlled by our chief financial officer,
Bal Bhullar. Effective December 1, 2014, the Company entered into a new
consulting agreement for consulting services of CAD$7,500 a month plus GST. Ms.
Bhullar resigned as the Companys chief financial officer effective April 29,
2016.
On August 5, 2010 we entered into a three-month management
agreement with Tom Ihrke for Mr. Ihrke to act as the senior vice-president,
business development for our company for consideration of $3,125 per month. On
December 2, 2010, we amended the agreement to be month-to-month. On October 3,
2011 Mr. Ihrke and our company amended the agreement whereby his title changed
to manager, business development for a monthly consulting fee of $3,125.
Effective January 15, 2012, the consulting agreement was decreased to $10 a
month. Effective April 1, 2014, the amended consulting agreement was increased
to $5,000 per month. Effective December 23, the Company entered into a new
Executive Management consulting agreement for consulting services of $3,000 a
month. Mr. Ihrke tendered his resignation on March 8, 2016.
On September 1, 2014, the Company entered into a contract with
M&E Services Ltd.., wholly owned company by Allan Spissinger as Controller
for CAD$2,500 plus GST. This contract was amended on December 1, 2014 to
CAD$3,400 a month plus GST.
The Company appointed Mr. John Docherty as President of Lexaria
effective April 15, 2015. The Company executed a twenty-four-month consulting
contract with Docherty Management Limited, solely owned by Mr. John Docherty
with monthly compensation of CAD$12,500 and shall increase to a total of
CAD$15,000 per month effective at that time when the Company has $1,000,000 or
more in cash in its bank accounts, and continue at CAD$15,000 per month from
that moment until the termination or completion of the contract. The Company may
pay Mr. Docherty a bonus from time to time, at its sole discretion. Mr. Docherty
will be entitled to receive common stock-based and stock option based bonuses
upon achieving certain milestones during the time of his consultancy with the
Company. These milestones are:
-
Upon signing: A grant of 500,000 stock options priced one-cent above
market prices at the time of award. (granted).
-
90 Days after signing: A grant of 500,000 restricted common shares
(Completed - 420,000 restricted common shares issued with cash payment of
$16,000, as mutually agreed to between the parties).
18
-
Twelve months after signing: A grant of 300,000 stock options priced
one-cent above market prices at the time of award (granted).
-
18 months after signing: A grant of 300,000 restricted common shares
(252,000 restricted common shares issued in October 2016 with cash payment of
$6,240, as mutually agreed to between the parties).
-
During the first 12 months after signing; for combined Lexaria Energy and
ViPova products and including all combined sales efforts, achieving
non-refundable sales of $200,000 to any single customer in any consecutive
60-day period would result in a restricted common share award of 100,000
Company shares (expired); and, after the first 12 months after signing and
expiring 24 months after signing; for combined Lexaria Energy and ViPova
products and including all sales efforts, achieving non-refundable sales of
$200,000 to any single customer in any consecutive 60-day period would result
in a restricted common share award of 50,000 Company shares; this clause is
limited to one payment per customer during the 24-month period, but payable on
each customer that meets these sales thresholds;
-
During the first 12 months after signing; for combined Lexaria Energy and
ViPova products and including all combined sales efforts, achieving non-
refundable sales of $500,000 in any fiscal quarter would result in a
restricted common share award of 200,000 Company shares (expired); and, after
the first 12 months after signing and expiring 24 months after signing; for
combined Lexaria Energy and ViPova products and including all sales efforts,
achieving non-refundable sales of $500,000 in any fiscal quarter would result
in a restricted common share award of 100,000 Company shares; this clause is
limited to one payment per fiscal quarter;
-
During the time this Agreement remains in effect, for each new provisional
patent application substantially devised by Mr. Docherty and successfully
created, written and filed with the US Patent Office for Company-owned
intellectual property, a restricted common share award of 250,000 Company
shares. This clause is not limited to the frequency of payment but each patent
application is to be approved by the Board of Directors of the Company, in
advance. During the year ended August 31, 2016, the Company issued to Mr.
Docherty, 210,000 restricted common shares and further accrued $4,000 combined
in lieu of issuance of 250,000 restricted common shares, as mutually agreed to
between the parties.
We do not expect any material changes in the number of
employees over the next 12 month period although individual personnel changes
and fluctuations should always be expected. We do and will continue to outsource
contract employment as needed. However, with product advancement or retial
acceptance of our new products, we may need to retain additional employees
particularly in the fields of product manufacturing and development, and in
sales and distribution. It is not possible to accurately project potential needs
into the future based on circumstances that may or may not occur.
Research and Development
We have incurred $9,024 in research and development
expenditures over the last fiscal year. Subject to successful financing efforts,
we expect to conduct additional research and development, and conduct additional
scientific testing, in the upcoming fiscal year. Exact programs remain undefined
at this time and will be tightly related to our financial ability to undertake
such steps.
However our plans include
in vitro
absorption tests of
our patented technology of molecules such as Vitamin E; Ibuprofen; Nicotine;
and, THC. We also hope to conduct our first ever
in vivo
absorption tests
on CBD and on THC, all curing the upcoming fiscal year if budgets allow.
Depending on how many of these tests we undertake, we could require budgets of
as much as $500,000, or as little as $35,000, to do so.
Subsidiaries
We have one wholly owned subsidiary, Lexaria CanPharm Corp., a
Canadian corporation. We also have a 51%-owned subsidiary Poviva Tea, LLC which
was incorporated on December 12, 2014, under the laws of the State of Nevada.
Item
1A. Risk Factors
Much of the information included in this quarterly report
includes or is based upon estimates, projections or other "forward looking
statements". Such forward looking statements include any projections or
estimates made by us and our management in connection with our business
operations. While these forward-looking statements, and any assumptions upon
which they are based, are made in good faith and reflect our current judgment
regarding the direction of our business, actual results will almost always vary, sometimes materially,
from any estimates, predictions, projections, assumptions or other future
performance suggested herein.
19
Risks Associated with Our Business
Because there is no assurance that we will generate material
revenues, we face a high risk of business failure.
There can be no assurance that our current or future products
will be successful, and we cannot be sure that our overall business model within
any particular sector will ever come to fruition, and if they do, will not
decline over time. We may not recover all or any portion of our capital
investment in product development, marketing, or other aspects of the business.
Although we will exercise due consideration in our development of new products,
and the marketing of them, ultimate consumer acceptance of these products is not
reliably forecastable.
In addition, our product development plans may be curtailed,
delayed or cancelled as a result of lack of adequate capital and other factors,
such as weather, compliance with governmental regulations, current and
forecasted prices for input costs of food products and changes in the estimates
of costs to complete the projects. We will continue to gather information about
our planned products, and it is possible that additional information may cause
our company to alter our schedule or determine that a product should not be
pursued at all. You should understand that our plans regarding our products are
subject to change.
Our revenues now are generated from being a food sciences and
products company. We should be considered to be a start-up: the revenue
recognized for the year ended August 31, 2016 was $40,718.
The food industry is highly competitive and there is no
assurance that we will be successful in developing or successfully selling
products.
The food industry is intensely competitive. We compete with
numerous individuals and companies, including many food manufacturing and
production companies, which have substantially greater technical, financial and
operational resources and staff. Accordingly, there is a high degree of
competition for desirable distribution channels, shelf space and salespeople
in both the food industries as well as the legal cannabis industries. We cannot
predict if the necessary funds can be raised to assist in our development of any
distribution channels that may be helpful to our ability to generate sales and
potential profits.
There can be no assurance that we will develop any product
that will meet with widespread consumer acceptance.
Both new and established food and cannabis products fail to
generate consumer interest on a regular basis. There is no assurance that a food
or cannabis product that is successfully adopted by consumers at one time; will
still be in demand at a future time. If we cannot develop and sell products in
commercial quantities, our business will fail.
Even if we develop food or intellectual property-based
products or revenue streams, the potential profitability of each depends upon
factors beyond the control of our company.
The potential profitability of food products and of
intellectual property revenue streams is dependent upon many factors beyond our
control. For instance, prices and markets for food products are unpredictable,
highly volatile, potentially subject to controls or any combination or other
factors, and respond to changes in domestic, international, political, social
and economic environments. These changes and events may materially affect our
future financial performance. These factors cannot be accurately predicted and
the combination of these factors may result in our company not receiving an
adequate return on invested capital.
In addition, a product or technology that is initially
successful and possibly even profitable may not remain so due to changes in
consumer demand, regulatory environments, or other causes. There is no assurance
that an initially successful product or technology will remain so.
20
Our failure to protect our intellectual property may have a
material adverse effect on our ability to develop and commercialize our products
Because patents involve complex legal and factual questions,
the issuance, scope, validity, and enforceability of patents cannot be predicted
with certainty.
Some of our patent pending applications may not be granted as
patents. Even if patents are issued, they may not be issued with claims of
sufficient breadth to protect our nutrient infusion technology or may not
provide us with competitive advantage against competititors with similar
products or technologies. Issued patents may be challenged, invalidated, or
cirmuvented. If patents issued to us are invalidated or found to be
unenforeceable, we could lose the ability to exclude others from making, using
or selling the inventions claimed. Morever, an issued patent does not give us
the right to use the patented technology or commercialize a product using the
technology. Third parties may have blocking patents that could be used to
prevent us from developing our products, selling our products, or
commercializing our nutrient infusion technology. Others may also independently
develop products or technologies similar to those that we have developed or may
reverse engineer or discover our trade secrets through proper means.
Enforcing a claim that a third party infringes on, has
illegally obtained or is using an intellectual property right, is expensive and
time-consuming and the outcome is unpredictable. In addition, enforcing such a
claim could divert managements attention from our business. If any intellectual
property rights were to be infringed, disclosed to, or independently developed
by a competitor, our competitive position could be harmed. Any adverse outcome
of such litigation or settlement of such dispute could subject us to significant
liabilities and could put one or more of our patent pending applications at risk
of being invalidated.
Furthermore, because of the substantial amount of discovery
required in connection with intellectual property litigation, there is risk that
some of our confidential information could be compromised. This disclosure could
provide our competitors with access to our proprietary information and may harm
our competitive position.
The marketability of food products will be affected by
numerous factors beyond our control which may result in us not receiving an
adequate return on invested capital to be profitable or viable.
The marketability of food products will be affected by numerous
factors beyond our control. These factors include market fluctuations in
consumer preferences for various food items based on factors such as pricing,
macro trends for certain ingredients or flavors, ruling by regulators on health
issues associated with certain foods, and more. The exact effect of these
factors cannot be accurately predicted, but the combination of these factors may
result in us not receiving an adequate return on invested capital to be
profitable or viable.
Both food products and cannabis products are subject to
comprehensive regulation which may cause substantial delays or require capital
outlays in excess of those anticipated causing an adverse effect on our
company.
Food production and safety operations, and cannabis products
and sales operations, are subject to federal, state, and local laws relating to
the protection of human health and safety. Food production and cannabis
operations are each also subject to federal, state, and local laws and
regulations which seek to maintain health and safety standards through a wide
variety of regulations. Various permits from government bodies may be required
by us in order to conduct our business. Regulations and standards imposed by
federal, provincial, or local authorities may be changed at any moment in time
and any such changes may have material adverse effects on our activities.
Changes in regulations are impossible to foresee and could be disruptive or
destructive to our business plans and execution. Moreover, compliance with such
laws may cause substantial delays or require capital outlays in excess of those
anticipated, thus causing an adverse effect on us. Additionally, we may be
subject to liability for contaminants or other damages. To date, we have not
been required to spend any material amount on compliance with environmental
regulations. However, we may be required to do so in the future and this may
affect our ability to expand or maintain our operations.
21
If we are unable to hire and retain key personnel, we may
not be able to implement our business plan.
Our success is largely dependent on our ability to hire highly
qualified personnel. This is particularly true in those parts of our business
that are related to intellectual property generation or exploitation. These
individuals are in high demand and we may not be able to attract the personnel
we need. In addition, we may not be able to afford the high salaries and fees
demanded by qualified personnel, or may lose such employees after they are
hired. Failure to hire key personnel when needed, or on acceptable terms, would
have a significant negative effect on our business.
We are not the "operator" of vertically integrated food
production facilities, and so we are exposed to the risks of our third-party
operators.
We rely on the expertise of contracted third-parties for their
judgment, experience and advice related to the manufacturing and/or packaging of
our food products. We can give no assurance that these third party operators or
consultants will always act in our best interests, and we are exposed as a third
party to their operations and actions and advice in those operations and
activities in which we are contractually bound.
Our management has limited experience and training in the
food processing and manufacturing industries, and in the cannabis products
industries, and could make uninformed decisions that negatively impact our
operations and our company.
Because our management has limited experience and training in
the food processing and manufacturing industry, and in the cannabis products
industry, we may not have sufficient expertise to make informed best practices
decisions regarding our operations. It is possible that, due to our limited
knowledge, we might elect to undergo manufacturing processes and incur financial
burdens that a more experienced food manufacturing team might elect not to
complete. Our ability to internally evaluate food and cannabis operations and
opportunities could be less thorough than that of a more highly trained
management team.
Our independent certified public accounting firm, in the
notes to the audited financial statements for the year ended August 31, 2016
states that there is a substantial doubt that we will be able to continue as a
going concern.
We have experienced significant losses since inception. Failure
to arrange adequate financing on acceptable terms and to achieve profitability
would have an adverse effect on our financial position, results of operations,
cash flows and prospects. Accordingly, there is substantial doubt that we will
be able to continue as a going concern.
The possession, cultivation and distribution of marijuana
may under certain circumstances lead to prosecution under United States federal
law, which may cause our business to fail.
All applicable Regulations, in the United Sates, over 20
states, including our state of incorporation, Nevada, have approved and regulate
medical marijuana use. Similarly, four states have approved and regulate
non-medical marijuana use by adults. However, it remains illegal under United
States federal law to grow, cultivate or sell marijuana for any purpose. In that
regard, the United States Justice Department has released the COLE Memorandum of
8-29-13 which states that the Justice Department will not prioritize the
prosecution of marijuana related activities authorized under state laws provided
that state authorities implement and enforce strict guidelines to ensure the
health, safety and security of the public. Where the individual state framework
fails to protect the public, the Justice Department has instructed federal
prosecutors to enforce the Controlled Substances Act of 1970. The Department of
Justice has not, to our knowledge, published any policy or guidance specifically
regarding the participation of a United States corporation in lawful medical
marijuana related activities outside of the United States.
We do not currently, nor at any time in our corporate history
have we ever cultivated, grown, processed, manufactured or sold marijuana in any
location. Although we believe this fact to provide protection against
prosecution related to marijuana legislation, we cannot provide any assurance to
that effect. We do not hold a license in any jurisdiction enabling us to grow or
sell marijuana or cannabis related edibles, but because of our business model we
do not feel that is a barrier to entry for us. Instead, we plan to license our
technology related to bio-absorption of THC, to those entities that do have valid licenses in various North American jurisdictions to sell
cannabis related edibles. If we are unable to license our technology to any
valid license holders, then we may be shut out of this market.
22
Our company has no operating history and an evolving
business model. which raises doubt about our ability to achieve profitability or
obtain financing.
Our company has no significant history of operations in the
legal medical marijuana sector, the legal hemp oil infused products sector, or
in the food products sector. Moreover, our business model is still evolving and
subject to change. Our company's ability to continue as a going concern is
dependent upon our ability to obtain adequate financing and to reach profitable
levels of operations. In that regard we have no proven history of performance,
earnings or success. There can be no assurance that we will achieve
profitability or obtain future financing.
Uncertain demand for our products may cause our business
plan to be unprofitable.
Demand for medical marijuana and for cannabis or hemp related
products is dependent on a number of social, political and economic factors that
are beyond the control of our company. While we believe that demand for
marijuana and hemp products will continue to grow across North America, there is
no assurance that such increase in demand will happen or that our endeavors will
be profitable.
We may not acquire market share or achieve profits due to
competition in our industries.
Our company operates in highly competitive marketplaces with
various competitors. Increased competition may result in reduced gross margins
and/or loss of market share, either of which would seriously harm its business
and results of operations. Management cannot be certain that the company will be
able to compete against current or future competitors or that competitive
pressure will not seriously harm its business. Some of our company's competitors
are much larger and have greater access to capital, sales, marketing and other
resources. These competitors may be able to respond more rapidly to new
regulations or devote greater resources to the development and promotion of
their business model than the company can. Furthermore, some of these
competitors may make acquisitions or establish co-operative relationships among
themselves or with third parties in the industry to increase their ability to
rapidly gain market share.
Conflicts of interest between our company and our directors
and officers may result in a loss of business opportunity.
Our directors and officers are not obligated to commit their
full time and attention to our business and, accordingly, they may encounter a
conflict of interest in allocating their time between our future operations and
those of other businesses. In the course of their other business activities,
they may become aware of investment and business opportunities which may be
appropriate for presentation to us as well as other entities to which they owe a
fiduciary duty. As a result, they may have conflicts of interest in determining
to which entity a particular business opportunity should be presented. They may
also in the future become affiliated with entities, engaged in business
activities similar to those we intend to conduct.
In general, officers and directors of a corporation are
required to present business opportunities to a corporation if:
-
The corporation could financially undertake the opportunity;
-
The opportunity is within the corporations line of business; and
-
It would be unfair to the corporation and its stockholders not to bring
the opportunity to the attention of the corporation.
We have adopted a code of ethics that obligates our directors,
officers and employees to disclose potential conflicts of interest and prohibits
those persons from engaging in such transactions without our consent. Despite
our intentions, conflicts of interest may nevertheless arise which may deprive
our company of a business opportunity, which may impede the successful
development of our business and negatively impact the value of an investment in
our company.
23
The speculative nature of our business plan may result in
the loss of your investment.
Our operations are in the start-up stage only, and are
unproven. We may not be successful in implementing our business plan to become
profitable. There may be less demand for our services than we anticipate. There
is no assurance that our business will succeed and you may lose your entire
investment.
Changing consumer preferences may cause our planned products
to be unsuccessful in the marketplace.
The decision of a potential client to purchase our products may
be motivated by cultural phenomena or by perceived health or nutritional
benefits. The cultural desirability or popularity of hemp related products is
subject to change due to factors beyond our immediate control. Similarly, the
perceived nutritional or health related benefits of our products are subject to
change in light of continuing research or the introduction of competitive
products. Changes in consumer and commercial preferences, or trends, toward or
away from cannabis or hemp related products would have a corresponding impact on
the development of the market for our current and planned products. There can be
no assurance that the products supplied by our company and or its partners will
be successful in establishing or maintaining a significant share of the consumer
market.
General economic factors may negatively impact the market
for our planned products.
The willingness of businesses to spend time and money on
non-essential food and health products may be dependent upon general economic
conditions; and any material downturn may reduce the likelihood of consumers
incurring costs toward what some may consider a discretionary expense item.
Willingness by customers to buy our products may be dependent upon general
economic conditions and any material downturn may reduce the potential
profitability of the food sciences or medical marijuana business sectors.
A wide range of economic and logistical factors may
negatively impact our operating results.
Our operating results will be affected by a wide variety of
factors that could materially affect revenues and profitability, including the
timing and cancellation of customer orders and projects, competitive pressures
on pricing, availability of personnel, and market acceptance of our services. As
a result, we may experience material fluctuations in future operating results on
a quarterly and annual basis which could materially affect our business,
financial condition and operating results.
Loss of consumer confidence in our company or in our
industry may harm our business.
Demand for our services may be adversely affected if consumers
lose confidence in the quality of our services or the industrys practices.
Adverse publicity may discourage businesses from buying our services and could
have a material adverse effect on our financial condition and results of
operations.
Unethical business practices may compromise the growth and
development of our business.
The production and sale of medical marijuana is an emerging
industry in which business practices are not yet standardized and are subject to
frequent scrutiny and evaluation by federal, state, provincial, and municipal
authorities, academics, and media outlets, among others, Although we intend to
develop our business in accordance with best ethical practices, we may suffer
negative publicity if we, our partners, contractors, or customers are found to
have engaged in any environmentally, insensitive practices or other business
practices that are viewed as unethical.
The failure to secure customers may cause our operations to
fail.
We currently do not have many long-term agreements with any
customers. Many of our products and services may be provided on a onetime
basis. Accordingly, we will require new customers on a continuous basis to
sustain our operations.
24
We could be required to enter into fixed price contracts
which will expose us to significant market risk.
Fixed price contracts require the service provider to perform
all agreed services for a specified lump-sum amount. We anticipate a material
percentage of our services will be performed on a fixed price basis. Fixed price
contracts expose us to some significant risks, including under-estimation of
costs, ambiguities in specifications, unforeseen costs or difficulties, and
delays beyond our control. These risks could lead to losses on contracts which
may be substantial and which could adversely affect the results of our
operations.
If we fail to effectively and efficiently advertise, the
growth of our business may be compromised.
The future growth and profitability of our food products
business will be dependent in part on the effectiveness and efficiency of our
advertising and promotional expenditures, including our ability to (i) create
greater awareness of our services, (ii) determine the appropriate creative
message and media mix for future advertising expenditures, and (iii) effectively
manage advertising and promotional costs in order to maintain acceptable
operating margins. There can be no assurance that we will experience benefits
from advertising and promotional expenditures in the future. In addition, no
assurance can be given that our planned advertising and promotional expenditures
will result in increased revenues, will generate levels of service and name
awareness or that we will be able to manage such advertising and promotional
expenditures on a cost-effective basis.
Our success is dependent on our unproven ability to attract
qualified personnel.
We will depend on our ability to attract, retain and motivate
our management team, consultants and other employees. There is strong
competition for qualified technical and management personnel in the food science
sector, and it is expected that such competition will increase. Our planned
growth will place increased demands on our existing resources and will likely
require the addition of technical personnel and the development of additional
expertise by existing personnel. There can be no assurance that our compensation
packages will be sufficient to ensure the continued availability of qualified
personnel who are necessary for the development of our business.
Without additional financing to develop our business plan,
our business may fail.
Because we have generated only minimal revenue from our
business and cannot anticipate when we will be able to generate meaningful
revenue from our business, we will need to raise additional funds to conduct and
grow our business. We do not currently have sufficient financial resources to
completely fund the development of our business plan. We anticipate that we will
need to raise further financing. We do not currently have any arrangements for
financing and we can provide no assurance to investors that we will be able to
find such financing if required. The most likely source of future funds
presently available to us is through the sale of equity capital. Any sale of
share capital will result in dilution to existing security-holders.
We may not be able to obtain all of the licenses necessary
to operate our business, which would cause our business to fail.
Our operations may require licenses and permits from various
governmental authorities to conduct our business activities. We believe that we
will be able to obtain all necessary licenses and permits under applicable laws
and regulations for our operations and believe we will be able to comply in all
material respects with the terms of such licenses and permits. However, such
licenses and permits are subject to change in various circumstances. There can
be no guarantee that we will be able to obtain or maintain all necessary
licenses and permits.
If we fail to effectively manage our growth our future
business results could be harmed and our managerial and operational resources
may be strained.
As we proceed with our business plan, we expect to experience
significant and rapid growth in the scope and complexity of our business. We
will need to add staff to market our services, manage operations, handle sales
and marketing efforts and perform finance and accounting functions. We will be
required to hire a broad range of additional personnel in order to successfully
advance our operations. This growth is likely to place a strain on our
management and operational resources. The failure to develop and implement
effective systems, or to hire and retain sufficient personnel for the
performance of all of the functions necessary to effectively service and
manage our potential business, or the failure to manage growth effectively,
could have a materially adverse effect on our business and financial
condition.
25
Risks Associated with Our Common Stock
Trading on the OCTQB and CSE may be volatile and sporadic,
which could depress the market price of our common stock and make it difficult
for our stockholders to resell their shares.
Our common stock is quoted on the OTCQB electronic quotation
service operated by OTC Markets Group Inc. Trading in stock quoted on the OTCQB
is often thin and characterized by wide fluctuations in trading prices, due to
many factors that may have little to do with our operations or business
prospects. This volatility could depress the market price of our common stock
for reasons unrelated to operating performance. Moreover, the OTCQB is not a
stock exchange, and trading of securities on the OTCQB is often more sporadic
than the trading of securities listed on a quotation system like Nasdaq or a
stock exchange like Amex. Accordingly, shareholders may have difficulty
reselling any of the shares.
Our stock is a penny stock. Trading of our stock may be
restricted by the Securities and Exchange Commissions penny stock regulations
which may limit a stockholders ability to buy and sell our stock.
Our stock is a penny stock. The Securities and Exchange
Commission has adopted Rule 15g-9 which generally defines penny stock to be
any equity security that has a market price (as defined) less than $5.00 per
share or an exercise price of less than $5.00 per share, subject to certain
exceptions. Our securities are covered by the penny stock rules, which impose
additional sales practice requirements on broker-dealers who sell to persons
other than established customers and accredited investors. The term
accredited investor refers generally to institutions with assets in excess of
$5,000,000 or individuals with a net worth in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document in a form prepared by the Securities and Exchange Commission which
provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction and monthly account
statements showing the market value of each penny stock held in the customers
account. The bid and offer quotations, and the broker-dealer and salesperson
compensation information, must be given to the customer orally or in writing
prior to effecting the transaction and must be given to the customer in writing
before or with the customers confirmation. In addition, the penny stock rules
require that prior to a transaction in a penny stock not otherwise exempt from
these rules, the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchasers written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor interest
in and limit the marketability of our common stock.
The Financial Industry Regulatory Authority, or FINRA, has
adopted sales practice requirements which may also limit a stockholders ability
to buy and sell our stock.
In addition to the penny stock rules described above, FINRA
has adopted rules that require that in recommending an investment to a customer,
a broker-dealer must have reasonable grounds for believing that the investment
is suitable for that customer. Prior to recommending speculative low priced
securities to their non-institutional customers, broker-dealers must make
reasonable efforts to obtain information about the customers financial status,
tax status, investment objectives and other information. Under interpretations
of these rules, FINRA believes that there is a high probability that speculative
low priced securities will not be suitable for at least some customers. FINRA
requirements make it more difficult for broker-dealers to recommend that their
customers buy our common stock, which may limit your ability to buy and sell our
stock and have an adverse effect on the market for our shares.
26
Because we do not intend to pay any dividends on our shares,
investors seeking dividend income or liquidity should not purchase our
shares.
We have not declared or paid any dividends on our shares since
inception, and do not anticipate paying any such dividends for the foreseeable
future. We presently do not anticipate that we will pay dividends on any of our
common stock in the foreseeable future. If payment of dividends does occur at
some point in the future, it would be contingent upon our revenues and earnings,
if any, capital requirements, and general financial condition. The payment of
any common stock dividends will be within the discretion of our Board of
Directors. We presently intend to retain all earnings to implement our business
plan; accordingly, we do not anticipate the declaration of any dividends for
common stock in the foreseeable future.
Investors seeking dividend income or liquidity should not
invest in our shares.
Because we can issue additional shares, purchasers of our
shares may incur immediate dilution and may experience further dilution.
We are authorized to issue up to 220,000,000 shares. The board
of directors of our company has the authority to cause us to issue additional
shares, and to determine the rights, preferences and privileges of such shares,
without consent of any of our stockholders. Consequently, our stockholders may
experience more dilution in their ownership of our company in the future.
Other Risks
Protection against environmental risks.
We believe that our operations comply, in all material
respects, with all applicable environmental regulations.
Our operating partners maintain insurance coverage customary to
the industry; however, we are not fully insured against all possible
environmental risks.
Any change to government regulation/administrative practices
may have a negative impact on our ability to operate and our
profitability.
The laws, regulations, policies or current administrative
practices of any government body, organization or regulatory agency in the
United States, Canada, or any other jurisdiction, may be changed, applied or
interpreted in a manner which will fundamentally alter the ability of our
company to carry on our business.
The actions, policies or regulations, or changes thereto, of
any government body or regulatory agency, or other special interest groups, may
have a detrimental effect on us. Any or all of these situations may have a
negative impact on our ability to operate and/or our profitably.
Our by-laws contain provisions indemnifying our officers and
directors against all costs, charges and expenses incurred by them.
Our by-laws contain provisions with respect to the
indemnification of our officers and directors against all costs, charges and
expenses, including an amount paid to settle an action or satisfy a judgment,
actually and reasonably incurred by him, including an amount paid to settle an
action or satisfy a judgment in a civil, criminal or administrative action or
proceeding to which he is made a party by reason of his being or having been one
of our directors or officers.
27
Investors interests in our company will be diluted and
investors may suffer dilution in their net book value per share if we issue
additional shares or raise funds through the sale of equity securities.
Our constating documents authorize the issuance of 220,000,000
shares of common stock with a par value of $0.001. In the event that we are
required to issue any additional shares or enter into private placements to
raise financing through the sale of equity securities, investors interests in
our company will be diluted and investors may suffer dilution in their net book
value per share depending on the price at which such securities are sold. If we
issue any such additional shares, such issuances also will cause a reduction in
the proportionate ownership and voting power of all other shareholders. Further,
any such issuance may result in a change in our control.
Our by-laws do not contain anti-takeover provisions, which
could result in a change of our management and directors if there is a take-over
of our company.
We do not currently have a shareholder rights plan or any
anti-takeover provisions in our By-laws. Without any anti-takeover provisions,
there is no deterrent for a take-over of our company, which may result in a
change in our management and directors.
As a result of a majority of our directors and officers are
residents of other countries other than the United States, investors may find it
difficult to enforce, within the United States, any judgments obtained against
our company or our directors and officers.
Other than our operations offices in Vancouver and Kelowna,
British Columbia, we do not currently maintain a permanent place of business
within the United States. In addition, a majority of our directors and officers
are nationals and/or residents of countries other than the United States, and
all or a substantial portion of such persons assets are located outside the
United States. As a result, it may be difficult for investors to enforce within
the United States any judgments obtained against our company or our officers or
directors, including judgments predicated upon the civil liability provisions of
the securities laws of the United States or any state thereof.
Trends, risks and uncertainties.
We have sought to identify what we believe to be the most
significant risks to our business, but we cannot predict whether, or to what
extent, any of such risks may be realized nor can we guarantee that we have
identified all possible risks that might arise. Investors should carefully
consider all of such risk factors before making an investment decision with
respect to our common shares.
Item
1B. Unresolved Staff
Comments
As a smaller reporting company, we are not required to
provide the information required by this Item.
Item
2.
Properties
Executive Offices
The address of our principal executive office is 156 Valleyvie
Road, Kelowna BC Canada V1X3M4, where we share ~1,200 square feet of office
space, which includes several office for a monthly rental of CAD$826. Our
telephone number is (250) 765 6424. We have an additional administrative office
space in Langley British Columbia and Phoenix Arizona at nominal costs. Our
current locations provide adequate office space for our purposes at this stage
of our development.
Resource Properties
On November 26 2014 our company sold all of our working
interests in Belmont Lake, Mississippi and at that moment no longer owned any
natural resource assets.
28
Significant Acquisitions and Dispositions
On November 26, 2014, our company sold all its working
interests in Belmont Lake.
The Purchase and Sale Agreement was executed on November 26,
2014, by and between our company and Cloudstream, Belmont Lake LP for the
purchase and sale of oil and gas working interests, net revenue interests and
other interests in Belmont Lake, Mississippi for total consideration of
$1,400,000. The closing date of the Purchase and Sale Agreement was December 5,
2014.
On November 12, 2014, the Company has signed an agreement with
PoViva and acquired 51% of PoViva with an initial consideration of $50,000.
Lexaria serves as the Manager of Business Operations of PoVivas Teas. As
Manager, Lexaria oversees most aspects of the business including, but not
limited to, Accounting, Marketing, Capital Investment, Capital Raising,Sales,
Branding, Advertising and Fulfillment. The Founders served until 2015 as
Production Manager and were responsible for all aspects of production, product
quality, licensing, testing, and product legality. It is also expected that both
parties to this Agreement will assist the other to fulfill their obligations as
needed and the cost of business will be borne by revenues earned by the company
and general corporate funds
On June 26, 2015, we entered into a definitive agreement with
our joint venture partner Enertopia Corp., and Shaxon Enterprises Ltd. to sell
our 49% interest in the Burlington Joint Venture and the MMPR application number
10MMPR0610. The Burlington MMPR license application will continue in the
application process under new ownership. Pursuant to the agreement, the joint
venture received a non-refundable $10,000 deposit and is entitled to receive up
to $1,500,000 in milestone payments upon the Burlington facility becoming
licensed under the MMPR. All payments made pursuant to the Definitive Agreement
would be divided 51% to Enertopia Corp. and 40% to our Company. Notwithstanding
the foregoing, we can neither guarantee nor provide a meaningful time estimate
regarding the grant of a production license for the Burlington facility.
Item
3. Legal
Proceedings
We know of no other material, existing or pending legal
proceedings against our company, nor are we involved as a plaintiff in any other
material proceeding or pending litigation. There are no other proceedings in
which any of our directors, executive officers or affiliates, or any registered
or beneficial stockholder, is an adverse party or has a material interest
adverse to our interest.
Item
4. Mine
Safety Disclosures
None.
PART II
Item
5.
Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Our common shares are quoted on the Over-the-Counter Bulletin
Board under the symbol LXRP. Our common shares are also quoted on the Canadian
Securities Exchange under the symbol LXX. The following quotations, obtained
from Yahoo Finance, reflect the high and low bids for our common shares as
quoted on the Over-the-Counter Bulletin Board based on inter-dealer prices,
without retail mark-up, mark-down or commission and may not represent actual
transactions.
29
The high and low bid prices of our common stock for the periods
indicated below are as follows:
OTC Bulletin
Board
(1)
|
Quarter Ended
|
High
|
Low
|
October 31, 2013
|
$0.10
|
$0.0413
|
January 31, 2014
|
$0.074
|
$0.0325
|
April 30, 2014
|
$0.785
|
$0.042
|
July 31, 2014
|
$0.434
|
$0.14
|
August 31, 2014
|
$0.14
|
$0.102
|
November 30, 2014
|
$0.12
|
$0.04
|
Feb 28, 2015
|
$0.12
|
$0.07
|
May 31, 2015
|
$0.225
|
$0.076
|
August 31, 2015
|
$0.27
|
$0.13
|
November 30, 2015
|
$0.235
|
$0.111
|
Feb 28, 2016
|
$0.28
|
$0.08
|
May 31, 2016
|
$0.169
|
$0.08
|
August 31, 2016
|
$0.154
|
$0.08
|
(1)
Over-the-counter market quotations reflect
inter-dealer prices without retail mark- up, mark-down or commission, and
may not represent actual transactions.
|
As of November 24, 2016, there were 58 holders of record of our
common stock. As of such date, 52,371,013 shares of common stock were issued and
outstanding.
Our common shares are issued in registered form. Computershare,
2nd Floor, 510 Burrard Street, Vancouver, BC V6C 3B9 (Telephone: 604-661-9400;
Facsimile: 604-661-9549) is the transfer agent for our common shares.
Nevada Agency and Trust Company, 50 West Liberty Street, Suite
880, Reno, Nevada 89501 (Telephone: 775.322.0626; Facsimile: 775.322.5623) is
our registrar.
Dividend Policy
We have not paid any cash dividends on our common stock and
have no present intention of paying any dividends on the shares of our common
stock. Our current policy is to retain earnings, if any, for use in our
operations and in the development of our business. Our future dividend policy
will be determined from time to time by our board of directors.
Recent Sales of Unregistered Securities
Other than set out below, we did not sell any equity securities
which were not registered under the Securities Act during the year ended August
31, 2016 that were not otherwise disclosed on our quarterly reports on Form 10-Q
or our current reports on Form 8-K filed during the year ended August 31, 2016.
On September 16, 2015, the Companys Board appointed Mr. Ted
McKechnie as a Director of the Company. Upon Mr. McKechnies appointment the
Company issued to him, 100,000 common shares of the Company valued at $19,000.
The Company also granted 100,000 stock options to Mr. Ted McKechnie. The
exercise price of the stock options is $0.19 and they expire on September 16,
2020. The number of common shares and stock options were updated pursuant to
forward stock split on December 16, 2015, described below.
On November 18, 2015, the Company announced its Board of
Directors approved a forward stock split of 1.1 new shares for every existing
common share held. Upon effect of the forward stock split our authorized capital
increased to 220,000,000 shares of common stock, par value $0.001 and our issued
and outstanding shares increased from 39,952,984 to 43,948,282 shares of common
stock, with a par value of $0.001. The reverse stock split was reviewed by the
Financial Industry Regulatory Authority ("FINRA") and the Canadian
Securities Exchange and was approved for filing with an effective date of
December 16, 2015. The forward split became effective with the OTC Markets at
the opening of trading on December 16, 205 under the symbol LXRPD. The "D" was
placed on our ticker symbol for 20 business days and subsequently removed. Our
new CUSIP number is 52886N307.
30
On December 10, 2015, Lexaria closed a private placement by
issuing 500,000 units at a price of $0.18 per unit for gross proceeds of
$90,000. Each unit consisted of one common share of the Company and one-half,
transferable share purchase warrant. Each full warrant is exercisable into one
further share at a price of $0.30 per share for a period of 24 months following
closing. A cash finders fee for $2,520 was paid to Leede Financial Markets
Ltd.; and 14,000 broker warrants with an exercise price of $0.30 for a period of
24 months were also issued to Leede Financial Markets Ltd. The number of common
shares and share purchase warrants was updated as a result of the forward stock
split on December 16, 2015.
On December 14, 2015, Lexaria signed an Investor Relations
contract with Radius Consulting Inc. for a 45-day term. Radius received $2,500
and 50,000 common shares valued at $9,500. Such common shares were adjusted for
the forward stock split closing on December 16, 2015.
On March 8, 2016, the Company closed a private placement
offering of a convertible debenture in the aggregate amount of $45,000. The
convertible debenture matures on August 31, 2020 with an interest rate of 10%
per annum (on a simple basis) and is convertible at (i) $0.12 per share at any
time prior to August 31, 2016 (ii) $0.15 per share at any time prior to August
31, 2017; (iii) $0.20 per share at any time prior to August 31, 2018 or, at the
sole option of the holder, a price equal to a 20% discount to the 10-day average
closing price of the shares prior to the date of conversion (the Average
Price) provided that the Average Price is less than $0.20 and provided further
that the conversion price shall not be less than $0.15; (iv) $0.25 per share at
any time prior to August 31, 2019 or, at the sole option of the holder, the
Average Price provided that the Average Price is less than $0.25 and provided
further that the conversion price shall not be less than $0.15; and (v) $0.30
per share at any time prior to August 31, 2020 or, at the sole option of the
holder, the Average Price provided that the Average Price is less than $0.30 and
provided further that the conversion price shall not be less than $0.15.
On April 15, 2016, pursuant to the consulting agreement with
Mr. John Docherty, the Company issued 210,000 common shares for services
rendered as the President of the Company. We also issued 300,000 stock options,
expiring on April 15, 2021, with an exercise price of $0.11 per share, to Mr.
Docherty, and agreed to pay him cash compensation of US$4,000.
On April 15, 2016, the Company closed a private placement of
750,000 units at a price of $0.08 per unit for gross proceeds of $60,000. Each
unit consisted of one common share of the Company and one non-transferrable
share purchase warrant, entitling the holder to purchase one additional common
share in the capital of the Company for a period of 18 months at an exercise
price of $0.15 per share. The Company also issued 8,750 broker warrants to
Haywood Securities Ltd. The broker warrants have a term of 18 months and are
each exercisable into one common share of the Company at a price of $0.15.
On June 6, 2016, the Company issued 25,000 stock options to a
consultant of the Company vesting immediately, with an exercise price of $0.14
per share and expiring on June 3, 2021.
On June 6, 2016, the Company engaged the marketing and investor
relations services of Frontier Merchant Capital Group (Frontier) for a period
of one year. Lexaria issued 300,000 stock options with an exercise price of
$0.14, vesting immediately, for this 12-month period.
On June 6, 2016, a Company closed a private placement of
700,000 units priced at $0.11 per unit for gross proceeds of $77,000. Each unit
consists of one common share of the Company and one-half of a non-transferrable
share purchase warrant, with each warrant entitling the holder to purchase one
additional common share of the Company for a period of three years, at a
purchase price of $0.14 per share.
On July 21, 2016, the Company announced it entered into two
agreements; first with PPMT Strategic Group, Inc, a strategic consulting group,
with capabilities that include, Mergers & Acquisitions advisory services,
Sales and Marketing, Industry Partnering, Compliance and Executive CFO services,
the second with Terra Nova Capital Partners, Inc, a boutique investment and
merchant banking firm. The Company issued to PPMT 250,000 restricted common
shares as initial payment under the agreement. PPMT will receive 250,000
warrants to purchase common shares each month until the end of the agreement,
with a fixed floor price and otherwise subject to normal regulatory conditions.
31
On July 25, 2016, the Company announced it entered into a
$50,000 loan agreement for 15 months, with an interest-free holiday for the
first 3 months; if the loan is repaid within 3 months no interest will be due.
For the final 12 months of the term, Lexaria will pay 8% simple interest. This
secured loan is not convertible. The loan is provided by CAB Financial Services
Ltd, which is a private holding company wholly-owned by the CEO of the Company.
On August 11, 2016, the Company announced it closed a private
placement equity financing for 1,558,525 equity units priced at $0.06; each
equity unit consisting of one common share of the Company and one
non-transferable share purchase warrant, each warrant entitling the holder to
purchase one additional common share of the Company for a period of two years
from the date of issuance, at a purchase price of $0.14; in order to raise gross
proceeds of $93,512.
On August 31, 2016, the Company announced it has closed a
private placement equity financing for 3,266,666 equity units priced at $0.06;
each equity unit consisting of one common share of the Company and one
non-transferable share purchase warrant, each warrant entitling the holder to
purchase one additional common share of the Company for a period of two years
from the date of issuance, at a purchase price of $0.14; in order to raise gross
proceeds of $196,000, of which $93,500 was collected during Septembe and October
2016. Placement fees of $1,200 were paid and 50,000 broker warrants issued in
connection with this tranche of the private placement.
Equity Compensation Plan Information
We have no long-term incentive plans other than the stock
option plans described below:
2007 Equity Plan
On April 25, 2007, our shareholders approved our 2007 Equity
Incentive Stock Option Plan.
The 2007 Plan permits our company to issue up to 500,000 shares
of our common stock to eligible employees and directors of our company upon the
exercise of stop options granted under the 2010 Plan.
2010 Equity Compensation Plan
On February 26, 2010, our shareholders approved and adopted our
2010 equity incentive plan.
The 2010 Plan permits our Company to issue up to 1,800,000
shares of our common stock to directors, officers, employees and elegible
consultants of our Company upon exercise of stock optins granted under the 2010
plan.
2014 Stock Option Plan
On June 11, 2014, our shareholders approved and adopted our
companys 2014 Stock Option Plan which permits our company to grant up to an
aggregate of 3,500,000 options to acquire shares of our common stock, to
directors, officers, employees and consultants of our company.
The Board may amend, subject to the approval of any regulatory
authority whose approval is required, suspend or terminate this Plan or any
portion thereof. No such amendment, suspension or termination shall alter or
impair any outstanding unexercised Options or any rights without the consent of
such Participant. If this Plan is suspended or terminated, the provisions of
this Plan and any administrative guidelines, rules and regulations relating to
this Plan shall continue in effect for the duration of such time as any Option
remains outstanding.
32
Equity Compensation Plan Information
|
Plan
category
|
Number of securities
to be issued upon
exercise of
outstanding
options,
warrants and rights
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
Number of securities
remaining
available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column
(a))
|
Equity compensation plans not approved by
shareholders
|
Nil
|
Nil
|
Nil
|
Equity compensation plans approved
byshareholders:
|
|
|
|
2007 Equity
compensation plan
|
Nil
|
Nil
|
550,000
|
2010 Equity
compensation plan
|
247,500
|
$0.10
|
1,732,500
|
2014 Stock
Option Plan
approved by security holders
|
3,237,500
|
$0.14
|
612,500
|
Total
|
3,485,000
|
$0.14
|
2,895,000
|
Convertible Securities
As of August 31, 2016, we had outstanding options to purchase
3,485,000 shares of our common stock exercisable between prices of $0.10 and
$0.25. In December 2015 we experienced a 1.1 for 1.0 forward stock split that
adjusted quantities and strike prices of all previously granted options. Those
adjustments are reflected herein.
On September 16, 2015, the Company granted 110,000 stock
options to a Director of the Company. The exercise price is $0.17, vested
immediately, and expiring on September 16, 2020.
On April 15, 2016, the Company granted 300,000 stock options to
a Officer of the Company. The exercise price is $0.11, vested immediately, and
expiring on April 15, 2021.
On June 3, 2016, the Company granted 300,000 stock options to a
consultant to the Company. The exercise price is $0.14, vested immediately, and
expiring on June 3, 2021.
On June 3, 2016, the Company granted 25,000 stock options to a
consultant to the Company. The exercise price is $0.14, vested immediately, and
expiring on June 3, 2021.
Purchases of Equity Securities by the Issuer and Affiliated
Purchasers
We did not purchase any of our shares of common stock or other
securities during our fiscal year ended August 31, 2016.
Item
6.
Selected Financial Data
As a smaller reporting company, we are not required to
provide the information required by this Item.
33
Item
7.
Managements 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".
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,
2016), we intend to:
-
continue sales and marketing efforts for ViPova , Lexaria and new product
lines
-
identify and secure sources of equity and/or debt financing for patent
applications;
-
identify and secure sources of equity and/or debt financing for additional
line of products for health and wellness;
-
identify and secure sources of equity and/or debt financing for research
and development
Our plans are dependent upon our ability to obtain sufficient
capital to execute and during the previous year we did not 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 the
following operating expenses during this period:
Estimated Funding Required During the 12 Months beginning
September 1, 2016
Expense
|
Amount
|
Estimated
|
|
($)
|
Completion/Due
|
|
|
Date
|
|
|
|
Research and Development of additional
products
|
70,000
|
12 months
|
|
|
|
Patent applications and trademark
|
150,000
|
30 months
|
|
|
|
Marketing and Sales
|
200,000
|
12 months
|
|
|
|
Consulting Fees (~50% is officers and
directors)
|
900,000
|
12 months
|
|
|
|
Professional fees
|
160,000
|
12 months
|
|
|
|
Rent
|
20,000
|
12 months
|
|
|
|
Other general administrative expenses
(including travel, insurance, conferences, and fees)
|
240,000
|
12 months
|
|
|
|
Interest Expense
|
10,000
|
12 months
|
|
|
|
Total
|
1,750,000
|
|
12 Month Outlook for Current Product Line, Product
Development & Design, Patents
As at August 31, 2016, we had a working capital surplus of
$76,285 and cash on hand of $93,409. We therefore estimate that we will be
required to raise approximately $1,600,000 in cash to finance our planned
expenditures for the 12 months beginning September 1, 2016. In the uncertain
event that we are unable to raise sufficient funds to execute our current
business plan, or in the uncertain event that all of our debt obligations become
due, we will be required to scale back our operations to prioritize immediate and necessary expenses.
These necessary expenses include professional fees and general and
administrative expenses necessary to satisfy our public reporting
requirements.
34
Our business strategy involves several elements. We intend to
prioritize our revenue generating efforts in 2016/17 on technology licensing,
with a secondary focus on our consumer food products enriched with full spectrum
hemp oil.
Our patented technology was developed to aid absorption and
bioavailability of certain payload molecules, including cannabinoids such as
cannabidiol (CBD) and tetrahydrocannabinol (THC). CBD is not psychoactive and
may have desirable qualities, and is found in plant species such as hemp,
cannabis, and Echinacea. Our technology appears to improve absorption and
bioavailability of CBD into human epi-intestinal cells. We are developing a line
of food products fortified with full spectrum hemp oil that contains
cannabinoids such as CBD, but contains less than 0.3% THC. Because of the low
amounts of THC, and because the hemp oil is derived from legally imported hemp,
the products are legal under Federal law.
We first began selling trial amounts of ViPova branded black
tea fortified with hemp oil and utilizing our technology, in January 2015. In
August 2015 we added six new flavors of tea to expand the brands reach.
We also began offering our first coffee and hot chocolate also
fortified with full 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 perhaps packaging, etc.
Offering a variety of self-made beverages to the consumers helps us to establish
the ViPova brand and may also help us to develop relationships with retail
distributors who are less likely to place orders from manufacturers that can
only offer a single product.
Generating meaningful revenue from product sales will be
challenging and will rely in part on our ability to achieve widespread retail
distribution access. We are also investigating the possibility of generating
sales from international markets, in those locations where hemp oil fortified
foods are permissible by law.
ViPova branded products are owned by our 51%-owned Poviva Tea
LLC subsidiary.
While the ViPova line is focused on a coffee house
experience, the Lexaria Energy line is focused on athletic performance and
active lifestyle needs. The first Lexaria Energy product is believed to be
unique or nearly so: a protein energy bar utilizing our technology to fortify
with full spectrum hemp oil. We first offered the Lexaria Energy Bar for sale in
November, 2015.
Lexaria Energy branded products are owned 100% by Lexaria Corp.
A manufacturing facility was contracted to produce the bar in
2015. The Lexaria Energy Bar was manufactured with two slightly different
recipes, each of which relies exclusively or almost exclusively on sugars
derived from natural fruits and berries; each of which is gluten free and
contains no artificial sweeteners, flavors, colors, or preservatives. One recipe
delivered more protein and fiberper serving while the other recipe delivers
proportionately more carbohydrates as an energy enhancement. Recipes have
evolved and at the time of this report the Company had no inventories of protein
bars to be offered for sales, and was negotiating for a suitable 2016/17
manufacturing facility and prices.
Our strategy was to encourage online sales via a dedicated
website, and also to encourage fitness enthusiasts to become aware of the
Lexaria Energy Bars at fitness clubs and gyms, which they are likely to
frequent. We did pursue traditional grocery store, convenience store, and
roadside store distribution channels in 2016 with some success but limited due
to our lack of an established distribution system.
It is our intention, subject to sufficient funding being
available, to develop additional fitness-style products in 2017 under the
Lexaria Energy brand, such as protein powders for shakes or smoothies, and
protein energy drinks. We are also pursuing other product development and expect
to launch new products.
We believe the range of products available and under
development are sufficient to prepare for revenue growth and potentially
profitable long term operations if we are able to generate sufficient consumer
demand and obtain sufficiently widespread retail distribution locations.
35
Meanwhile our business strategy contains a second element that
involves the further development and licensing of our intellectual property of
molecule delivery that enhances bioactivity or absorption.
At this time we are not planning to offer for sale any products
containing THC in quantities higher than 0.3%. However we envision licensing
our technology to companies legally licensed to offer THC products in the states
or jurisdictions where they do business. (We also plan to license our technology
to other companies for the delivery of molecules other than THC or
cannabinoids.) We will attempt to communicate the benefits of our technology to
potential licensing partners, i.e. with higher absorption levels a manufacturer
could infuse smaller amounts of active molecules into a product, thus reducing
their manufacturing input costs. We believe this to a meaningful competitive
advantage that may lead to the potential to generate licensing revenue, and will
pursue these opportunities within the THC market both within the USA and also
internationally, in those locations where it is legal and regulated by
government.
We would not ourselves be selling any THC products we would
only be licensing technology to already-licensed participants in valid
jurisdictions. We expect a low number of licensees initially and currently have
agreements with two such licensees and additional letter of intents.
Subject to available funding, 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, THC, NSAIDs, Vitamins,
and Nicotine to substantiate the effectiveness of our invention. More than
simply satisfying scientific curiosity, successful tests could lead to increased
awareness and acceptance of our technology as a meanginful 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.
We will pursue technology licensing opportunities as a method
of generating highly profitable revenue streams over long periods of time. In
addition, while one of our patent applications has been granted by the USPTO,
our remaining patent applications have not yet been granted. It is not possible
to forecast with certainty when, or if, our remaining patent pendings will
become granted patents. 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 very 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.
Results of Operations for our Year Ended August 31, 2016
and August 31, 2015
Our net loss and comprehensive loss for the year ended August
31, 2016, for the year ended August 31, 2015 and the changes between those
periods for the respective items are summarized as follows:
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
August 31,
|
|
|
August 31,
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Revenue
|
|
40,718
|
|
|
14,702
|
|
|
26,016
|
|
General and administrative
|
|
1,272,352
|
|
|
1,968,089
|
|
|
(705,532
|
)
|
Interest expense
|
|
2,250
|
|
|
31,544
|
|
|
(29,294
|
)
|
Consulting fees
|
|
565,543
|
|
|
835,655
|
|
|
(270,112
|
)
|
Professional Fees
|
|
133,860
|
|
|
98,751
|
|
|
35,109
|
|
Net
loss
|
|
(1,277,249
|
)
|
|
(1,934,352
|
)
|
|
666,898
|
|
Revenue
Consumer product sales represent the majority of the $40,718 in
revenues during the year ended August 31, 2016. Although revenues are higher
than the previous year they did not meet our expectations. Consumer product
sales revenues were lower than expected primarily due to challenges in securing
expansive distribution opportunities, in a brand new emerging market sector:
hemp oil fortified foods. Also included in reported revenues are the Companys
first technology licensing revenues. Such revenues were recognized ratably over
the term of the licensing agreement as the Company is required to provide
additional support services during the term and is in a very early stage of this
revenue cycle to identify a vendor-specific objective evidence of fair value of such
services. The Company actually received license fees of $20,000 during fiscal
2016 of which only $7,500 was recognized in revenue in the year ending August
31, 2016.
36
As fiscal 2016 came to a close, hemp oil fortified foods, and
hemp seed products, were gaining consumer acceptance and provide a reason to
believe that sales could increase. Those trends should support higher potential
consumer product sales. However, at the time of this report the Company had
extinguished its supplies of certain products like protein bars and the lack of
inventory is a negative impact on consumer product sales potential.
For 2017 the Company expects to derive ever larger proportions
of its revenues from technology licensing to third parties. At August 31, 2015
the Company had zero technology licensing agreements entered. At the time of
this report the Company had entered two (2) definitive license agreements, and
had entered letters of intent for two additional license agreements. The Company
also has several sets of negotiations ongoing for additional technology
licensing agreements and has also entered into an Memorandum of Understanding to
form a joint venture to develop, produce, and sell a line of healthy edible
cannabinoid products using our patented technology. It is the Companys view
that the October 2016 award of its first patent will be a positive step in
enabling the generation of more significant revenues during 2017.
General and Administrative
Our general and administrative expenses decreased by $695,737
during the year ended August 31, 2016. The decrease in our general and
administrative expenses was largely due to cost saving measures implemented
wherever possible. Examples are many and include fewer consulting employees;
consolidation of offices; reduced new product development and more. Not all the
cost saving measures are expected to be permanent for example the Company will
require additional administrative support if it successfully develops new
distribution channels for its consumer products; or many additional technology
licensing agreements that will require certain management inputs.
We also did not spend significant funds on research and
development activities during fiscal 2016 but expect those costs to rise in the
upcoming years upon availability of additional financing.
Our non-cash stock-based compensation also decreased in fiscal
2016 due to fewer stock options granted.
Interest Expense
Interest expense for the year ended August 31, 2016 was only
$2,250, compared to $31,544 in the previous year, and $134,236 during the year
ended August 31, 2014. The large decrease in interest expenses are the result of
eliminating of most corporate debt as we transitioned away from being an oil and
gas producer. During the year ended August 31, 2016 we increased our corporate
debt levels and thus expect our interest expense in the 2017 fiscal year to be
slightly higher but not approaching 2015 levels.
Consulting fees
Our consulting fees were lower during the year ended August 31,
2016 due to the involvement of fewer consultants, including the resignation of
our former CFO. Our executives are typically hired and compensated as
consultants and costs associated with those agreements comprise the largest
majority of our consulting fees expense.
Professional Fees
Our professional fees increased by $35,109 during fiscal 2016
primarily due to additional financial reporting preparation and audit fees from
our third party service providers.
37
Liquidity and Financial Condition
|
|
August 31
|
|
|
August 31
|
|
Working Capital
|
|
2016
|
|
|
2015
|
|
|
|
$
|
|
|
$
|
|
Current assets
|
|
510,166
|
|
|
674,733
|
|
Current
liabilities
|
|
433,881
|
|
|
55,125
|
|
Working capital balance
|
|
76,285
|
|
|
619,608
|
|
The Companys working capital balance decreased during the year
ended August 31, 2016 as a result of its cash spent during the year and also due
to the significant accrued management consulting fees.
|
|
Year Ended
|
|
|
|
August 31
|
|
|
August 31
|
|
Cash flows
|
|
2016
|
|
|
2015
|
|
|
|
$
|
|
|
$
|
|
Cash flows (used in) provided by operating
activities
|
|
(660,856
|
)
|
|
(1,501,027
|
)
|
Cash flows (used in) provided by investing activities
|
|
(20,102
|
)
|
|
684,817
|
|
Cash flows (used in) provided by financing activities
|
|
514,292
|
|
|
373,255
|
|
Increase
(decrease) in cash
|
|
(166,666
|
)
|
|
(442,955
|
)
|
Operating Activities
Net cash used in operating activities was $660,856 for the year
ended August 31, 2016 compared with cash used in operating activities of
$1,501,027 during the same period in 2015. This difference was largely due to
the reduced costs pertaining to consulting, advertising and promotion, research
and development, and travel.
Investing Activities
Net cash used in investing activities was $20,102 for the year
ended August 31, 2016 primarily due to the Companys cost incurred related to
its patent applications. During the year ended August 31, 2015, the Company
received $684,817 from investing activities primarily due to the sale of Belmont
Lake oil field in Mississippi.
Financing Activities
Net cash provided from financing activities was $514,292 during
the year ended August 31, 2016 compared to net cash provided of $373,255 during
the same period in 2015. During fiscal 2015, the Company repaid its loans
whereas during fiscal 2016, we entered into additional convertible debenture
agreement as well as a loan agreement with our Chief Executive Officer. We
raised $419,292 from equity private placements in fiscal 2016 compared to
$471,997 in fiscal 2015.
Contractual Obligations
As a smaller reporting company, we are not required to
provide tabular disclosure obligations.
Going Concern
The financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
applicable to a going concern, which contemplates the realization of assets and
the satisfaction of liabilities and commitments in the normal course of
business. Our company has a net loss attributable to its shareholders of
$1,214,773 for the year ended August 31, 2016 (August 31, 2015: $1,770,500) and
at August 31, 2016 had a deficit of $11,300,662 (August 31, 2015: $10,085,889).
Our company has working capital balance of $76,285 as at August 31, 2016 (August
31, 2015 surplus: $619,608). Our company requires additional funds to maintain
our existing operations and to acquire new business assets. These conditions
raise substantial doubt about our companys ability to continue as a going concern. Managements 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 we will be available at acceptable terms. The outcome
of these matters cannot be predicted at this time.
38
At this time, we cannot provide investors with any assurance
that we will be able to raise sufficient funding from the sale of our common
stock or through a loan from our directors to meet our obligations over the next
twelve months. We do not have any arrangements in place for any future debt or
equity financing.
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. Preparing consolidated financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenue, and expenses. These estimates
and assumptions are affected by managements application of accounting policies.
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 3 to our audited annual consolidated financial statements included
herein.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (the
FASB) issued a new standard related to the revenue recognition. Under the new
standard, recognition of revenue occurs when a customer obtains control of
promised goods or services in an amount that reflects the consideration which
the entity expects to receive in exchange for those goods or services. In
addition, the standard requires disclosure of the nature, amount, timing, and
uncertainty of revenue and cash flows arising from contracts with customers. The
FASB has recently issued several amendments to the standards, including
clarification on the accounting for licenses of intellectual property and
identifying performance obligations.
The guidance permits two methods of adoption: retrospectively
to each prior reporting period presented (full retrospective method), or
retrospectively with the cumulative effect of initially applying the guidance
recognized at the date of initial application (the cumulative catch-up
transition method). The Company will apply the full retrospective approach to
adopt the standard but does not anticipate that this standard will have a
material impact on its consolidated financial statements.
In August 2014, the FASB issued new guidance on determining
when and how to disclose going concern uncertainties in the financial
statements. The new guidance requires management to perform interim and annual
assessments of an entitys ability to continue as a going concern within one
year of the date the financial statements are issued. An entity must provide
certain disclosures if conditions or events raise substantial doubt about its
ability to continue as a going concern. The guidance is effective for annual
periods ending after December 15, 2016 and interim periods thereafter. Early
adoption is permitted. Upon adoption, the Company does not believe this guidance
will have a material impact on its consolidated results of operations or
financial position.
In January 2015, the FASB issued ASU 2015-01, Income
Statement-Extraordinary and Unusual Items (Subtopic 225-20), Simplifying Income
Statement Presentation by Eliminating the Concept of Extraordinary Items, which
eliminates the concept of extraordinary items. Under this new guidance, entities
will no longer be required to separately classify, present and disclose
extraordinary events and transactions. The amendments in this update are
effective for annual and interim periods beginning after December 15, 2015. The
Company is evaluating the impact of ASU 2015-01 but does not believe that it
will have a material impact on its consolidated financial statements.
In February 2015, the FASB issued ASU No. 2015-02,
Consolidation (Topic 810): Amendments to the Consolidation Analysis ("ASU
2015-02"). ASU 2015-02 makes several modifications to the consolidation guidance
for variable interest entities ("VIEs") and general partners' investments in
limited partnerships, as well as modifications to the evaluation of whether limited partnerships are VIEs or voting interest
entities. It is effective for annual and interim periods beginning after
December 15, 2015. The Company is currently evaluating the impact of this
standard but does not believe that it will have a material impact on its
consolidated financial statements.
39
In April 2015, FASB issued ASU 2015-03, Simplifying the
Presentation of Debt Issuance Costs (ASU 2015-03). In August 2015, FASB issued
ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs
Associated with Line-of-Credit Arrangements (ASU 2015-15). ASU 2015-03
requires that debt issuance costs be presented in the balance sheet as a
deduction from the carrying amount of the debt. ASU 2015-15 allows an entity to
present debt issuance costs associated with a revolving line of credit
arrangement as an asset, regardless of whether a balance is outstanding. The
recognition and measurement guidance for debt issuance costs are not affected by
ASU 2015-03 or ASU 2015-15. These ASUs are effective for annual reporting
periods beginning after December 15, 2015, including interim periods within that
reporting period. The new standard will not affect the Companys financial
statements.
In April 2015, FASB issued ASU 2015-04, Practical Expedient for
the Measurement Date of an Employers Defined Benefit Obligation and Plan Assets
(ASU 2015-04). ASU 2015-04 allows employers with a fiscal year end that does
not coincide with a calendar month end to make an accounting policy election to
measure defined benefit plan assets and obligations as of the end of the month
closest to their fiscal year end. ASU 2015-04 is effective for annual reporting
periods beginning after December 15, 2015, including interim periods within that
reporting period. Prospective application is required. The Company does not
anticipate that the new guidance will have any impact on its consolidated
financial statements.
In July 2015, FASB issued ASU 2015-11, Simplifying the
Measurement of Inventory (ASU 2015-11). ASU 2015-11 requires that an entity
measure inventory at the lower of cost and net realizable value. This ASU does
not apply to inventory measured using last-in, first-out methodology. ASU
2015-11 is effective for annual reporting periods beginning after December 15,
2016, including interim periods within that reporting period. The Company does
not expect the new standard to have a significant impact on its consolidated
financial position, results of operations or cash flows.
In November 2015, the FASB issued guidance that requires
companies to classify all deferred tax assets or liabilities as noncurrent on
the balance sheet rather than separately disclosing deferred taxes as current
and noncurrent. This standard is effective for the Company beginning on
September 1, 2017 and can be applied either prospectively or retrospectively to
all periods presented upon adoption. The standard is not expected to have any
impact on the Companys financial statements.
In January 2016, FASB issued a new standard to amend certain
aspects of recognition, measurement, presentation, and disclosure of financial
instruments. Most prominent among the amendments is the requirement for changes
in fair value of equity investments, with certain exceptions, to be recognized
through profit or loss rather than other comprehensive income. The new standard
will be effective for the Company beginning September 1, 2018. The standard is
not expected to have any impact on the Companys financial statements.
In February 2016 FASB issued ASU No. 2016-02, Leases (Topic
842) which supersedes FASB ASC Topic 840, Leases (Topic 840) and provides
principles for the recognition, measurement, presentation, and disclosure of
leases for both lessees and the lessors. The new standard requires the lessees
to apply a dual approach, classifying leases as either finance or operating
leases based on the principle of whether or not the lease is effectively a
financed purchase by the lessee. The classification will determine whether lease
expense is recognized based on an effective interest method or on a
straight-line basis over the term of the lease, respectively. A lessee is also
required to record a right-of-use asset and a lease liability for all leases
with a term of greater than twelve months regardless of classification. Leases
with a term of twelve months or less will be accounted for similar to existing
guidance for operating leases. The standard is effective for annual and interim
periods beginning after December 15, 2018, with early adoption permitted upon
issuance. When adopted, the Company does not expect this guidance to have a
material impact on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Compensation-Stock
Compensation (Topic 718), Improvements to Employee Share-Based Payment
Accounting. Under ASU 2016-09, companies will no longer record excess tax
benefits and certain tax deficiencies in additional paid in capital (APIC).
Instead, they will record all excess tax benefits and tax deficiencies as income
tax expense or benefit in the income statement and the APIC pools will be
eliminated. In addition, ASU 2016-09 eliminates the requirement that excess tax
benefits be realized before companies can recognize them. ASU 2016-09 also
requires companies to present excess tax benefits as an operating activity on
the statement of cash flows rather than as a financing activity. Furthermore,
ASU 2016-09 will increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to
liability classification for shares used to satisfy the employers statutory
income tax withholding obligation. An employer with a statutory income tax
withholding obligation will now be allowed to withhold shares with the fair
value up to the amount of taxes owed using the maximum statutory rate in the
employees applicable jurisdiction(s). ASU 2016-09 requires a company to
classify the cash paid to a tax authority when shares are withheld to satisfy
its statutory income tax withholding obligation as a financing activity on the
statement of cash flows. Under current U.S. GAAP, it is not specified how these
cash flows should be classified. In addition, companies will now have to elect
whether to account for forfeitures on share-based payments by (1) recognizing
forfeiture awards as they occur or (2) estimating the number of awards expected
to be forfeited and adjusting the estimate when it is likely to change, as in
currently required. The amendments of this ASU are effective for reporting
periods beginning after December 15, 2016, with early adoption permitted but all
of the guidance must be adopted in the same period. The Company is currently
assessing the impact the standard will have on its consolidated financial
statements.
40
Item
7A. Quantitative and
Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to
provide the information required by this Item.
Item
8.
Financial Statements and Supplementary Data
41
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Shareholders and Directors of
Lexaria Bioscience Corp.
We have audited the accompanying consolidated financial
statements of Lexaria Bioscience Corp. (the Company), which comprise the
consolidated balance sheet as of August 31, 2016, and the related consolidated
statements of operations and comprehensive loss, changes in stockholders equity
and cash flows for the year ended August 31, 2016. These consolidated financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Lexaria Bioscience Corp. as of August 31, 2016, and the results of its
operations and its cash flows for the year ended August 31, 2016, in conformity
with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been
prepared assuming that Lexaria Bioscience Corp. will continue as a going
concern. As discussed in Note 1 to the consolidated financial statements, the
Lexaria Bioscience Corp. has suffered recurring losses from operations. This
matter, along with the other matters set forth in Note 1, indicate the existence
of material uncertainties that raises substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
|
DAVIDSON & COMPANY LLP
|
|
|
Vancouver, Canada
|
Chartered
Professional Accountants
|
|
|
November 24, 2016
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
LEXARIA CORP.
We have audited the balance sheets of Lexaria Corp. (the
Company) as at August 31, 2015 and October 31, 2014 and the related statements
of stockholders equity and comprehensive income, operations and cash flows for
the years then ended August 31, 2015 and the ten-month period ended August 31,
2014. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform an audit to obtain reasonable assurance whether
the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstance, but not for the purpose of expressing an
opinion on the effectiveness of the companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as at August 31, 2015 and August 31, 2014 and the result of its operations and
its cash flows for the year then ended August 31, 2015 and the ten- month period
ended August 31, 2014 in conformity with accounting principles generally
accepted in the United States of America.
The accompanying financial statements refer to above have been
prepared assuming the Company will continue as a going concern. As discussed in
Note 1 to the financial statements, the Company had recurring losses and
requires additional funds to maintain its planned operations. These factors
raise substantial doubt about its ability to continue as a going concern.
Managements plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
|
|
Vancouver, Canada
|
Chartered Accountants
|
November 24, 2015
|
|
43
LEXARIA BIOSCIENCE CORP.
CONSOLIDATED BALANCE
SHEETS
(Expressed in U.S. Dollars)
|
|
August 31
|
|
|
August 31
|
|
|
|
2016
|
|
|
2015
|
|
ASSETS
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Cash
|
$
|
93,409
|
|
$
|
260,075
|
|
Accounts
and other receivable (Note 6)
|
|
131,083
|
|
|
31,382
|
|
Inventory (Note 7)
|
|
134,724
|
|
|
167,986
|
|
Prepaid
expenses and deposit
|
|
150,950
|
|
|
215,290
|
|
|
|
510,166
|
|
|
674,733
|
|
Patent
(Note 8)
|
|
53,997
|
|
|
36,989
|
|
Equipment
|
|
2,475
|
|
|
-
|
|
|
|
56,472
|
|
|
36,989
|
|
TOTAL ASSETS
|
$
|
566,638
|
|
$
|
711,722
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
$
|
90,010
|
|
$
|
33,073
|
|
Unearned
revenue (Note 9)
|
|
12,500
|
|
|
-
|
|
Due to related parties
(Note 15)
|
|
331,371
|
|
|
22,052
|
|
Total Current
Liabilities
|
|
433,881
|
|
|
55,125
|
|
Convertible debenture (Note 10)
|
|
45,000
|
|
|
-
|
|
TOTAL LIABILITIES
|
|
478,881
|
|
|
55,125
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
Share Capital
|
|
|
|
|
|
|
Authorized:
220,000,000 common voting shares with a par
value of $0.001 per share
Issued and
outstanding: 51,288,473 common shares at August 31, 2016
and 43,838,282 common shares at August 31,
2015
|
|
51,288
|
|
|
43,838
|
|
Additional paid-in capital
|
|
11,515,419
|
|
|
10,814,460
|
|
Deficit
|
|
(11,300,662
|
)
|
|
(10,085,889
|
)
|
Equity attributable to shareholders of the
Company
|
|
266,045
|
|
|
772,409
|
|
Non-Controlling
Interest
|
|
(178,288
|
)
|
|
(115,812
|
)
|
Total Stockholders' Equity
|
|
87,757
|
|
|
656,597
|
|
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
|
$
|
566,638
|
|
$
|
711,722
|
|
The accompanying notes are an integral party of these
consolidated financial statements.
44
LEXARIA BIOSCIENCE CORP.
CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE LOSS
(Expressed in U.S. Dollars, except
number of shares)
|
|
YEAR ENDED
|
|
|
|
August 31
|
|
|
August 31
|
|
|
|
2016
|
|
|
2015
|
|
Revenue
|
|
|
|
|
|
|
Sales (Note 13)
|
$
|
40,718
|
|
$
|
14,702
|
|
Cost of Goods Sold
|
|
|
|
|
|
|
Cost of goods sold
|
|
45,615
|
|
|
29,883
|
|
Gross loss
|
|
(4,897
|
)
|
|
(15,181
|
)
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
Accounting and audit
|
|
95,921
|
|
|
52,823
|
|
Depreciation
|
|
619
|
|
|
-
|
|
Insurance
|
|
17,237
|
|
|
10,095
|
|
Advertising
and promotions
|
|
185,459
|
|
|
276,560
|
|
Bank charges and exchange loss
|
|
15,382
|
|
|
850
|
|
Stock based
compensation (Note 12)
|
|
122,015
|
|
|
256,051
|
|
Consulting (Note 15)
|
|
565,543
|
|
|
835,655
|
|
Fees and
dues
|
|
51,227
|
|
|
54,104
|
|
Interest expense from loan payable (Note 15)
|
|
2,250
|
|
|
31,544
|
|
Investor
relation
|
|
31,829
|
|
|
18,000
|
|
Legal and professional
|
|
37,939
|
|
|
45,928
|
|
Office and
miscellaneous
|
|
11,858
|
|
|
18,833
|
|
Research and development
|
|
9,024
|
|
|
146,466
|
|
Rent
|
|
28,211
|
|
|
85,650
|
|
Telephone
|
|
5,781
|
|
|
8,105
|
|
Taxes
|
|
3,983
|
|
|
3,578
|
|
Travel
|
|
44,034
|
|
|
101,183
|
|
MMJ expense
|
|
-
|
|
|
22,664
|
|
Inventory write-off (Note 7)
|
|
44,040
|
|
|
-
|
|
|
|
1,272,352
|
|
|
1,968,089
|
|
Loss for the year before
other income
|
|
(1,277,249
|
)
|
|
(1,983,270
|
)
|
Income from
discontinued operations (Note 14)
|
|
-
|
|
|
48,918
|
|
Net loss and comprehensive
loss for the year
|
$
|
(1,277,249
|
)
|
$
|
(1,934,352
|
)
|
Net loss and comprehensive loss
attributable to:
|
|
|
|
|
|
|
Common shareholders
|
$
|
(1,214,773
|
)
|
$
|
(1,770,500
|
)
|
Non-controlling interest
|
$
|
(62,476
|
)
|
$
|
(163,852
|
)
|
|
|
|
|
|
|
|
Basic and diluted loss per share from
continuing operations
|
$
|
(0.03
|
)
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
Basic and diluted earnings per share from
discontinued operations
|
$
|
0.00
|
|
$
|
0.00
|
|
Weighted average number of
common shares outstanding
- Basic and diluted
|
|
43,840,378
|
|
|
39,700,841
|
|
The accompanying notes are an integral party of these
consolidated financial statements.
45
LEXARIA BIOSCIENCE CORP.
CONSOLIDATED STATEMENT OF
CASH FLOWS
(Expressed in U.S. Dollars)
|
|
YEAR ENDED
|
|
|
|
August 31
|
|
|
August 31
|
|
|
|
2016
|
|
|
2015
|
|
Cash flows used in
operating activities
|
|
|
|
|
|
|
Net loss for the year
|
$
|
(1,277,249
|
)
|
$
|
(1,983,270
|
)
|
Income
loss from discontinued operations
|
|
-
|
|
|
48,918
|
|
Net loss from operations
|
|
(1,277,249
|
)
|
|
(1,934,352
|
)
|
Adjustments to reconcile net loss to net cash
|
|
|
|
|
|
|
used
in operating activities:
|
|
|
|
|
|
|
Stock based compensation
|
|
122,015
|
|
|
256,051
|
|
Depreciation
|
|
619
|
|
|
-
|
|
Inventory write-off
|
|
44,040
|
|
|
-
|
|
Research and development
|
|
-
|
|
|
73,040
|
|
MMJ Joint Venture
|
|
-
|
|
|
22,662
|
|
Common shares issued for services
|
|
79,500
|
|
|
127,300
|
|
Warrants to be issued for services
|
|
32,252
|
|
|
-
|
|
Change in working
capital:
|
|
|
|
|
|
|
Accounts and other receivable
|
|
(6,201
|
)
|
|
65,620
|
|
Inventory
|
|
(10,778
|
)
|
|
(167,985
|
)
|
Prepaid expenses and deposit
|
|
26,190
|
|
|
96,834
|
|
Accounts payable and accrued liabilities
|
|
56,937
|
|
|
(60,480
|
)
|
Due to related parties
|
|
259,319
|
|
|
20,283
|
|
Unearned revenue
|
|
12,500
|
|
|
-
|
|
Net cash used in operating
activities
|
|
(660,856
|
)
|
|
(1,501,027
|
)
|
|
|
|
|
|
|
|
Cash flows used in
investing activities
|
|
|
|
|
|
|
Proceeds from sale of oil
and gas property
|
|
-
|
|
|
721,806
|
|
Patent
|
|
(17,008
|
)
|
|
(36,989
|
)
|
Acquisition of equipment
|
|
(3,094
|
)
|
|
-
|
|
Net cash provided by (used
in) investing activities
|
|
(20,102
|
)
|
|
684,817
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities
|
|
|
|
|
|
|
Proceeds from (Payments
of) loans/convertible debentures
|
|
95,000
|
|
|
(98,742
|
)
|
Proceeds
from issuance of equity
|
|
419,292
|
|
|
471,997
|
|
Net cash from financing Activities
|
|
514,292
|
|
|
373,255
|
|
|
|
|
|
|
|
|
Decrease in cash
|
|
(166,666
|
)
|
|
(442,955
|
)
|
Cash, beginning of
year
|
|
260,075
|
|
|
703,030
|
|
Cash, end of year
|
$
|
93,409
|
|
$
|
260,075
|
|
Supplemental information
of cash flows:
|
|
|
|
|
|
|
Interest paid in cash
|
$
|
2,250
|
|
$
|
98,742
|
|
Income
taxes paid in cash
|
$
|
-
|
|
$
|
-
|
|
Subscription funds
receivable
|
$
|
93,500
|
|
$
|
-
|
|
Stock
based compensation recognized from prepaid expense
|
$
|
38,150
|
|
$
|
55,317
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
46
LEXARIA BIOSCIENCE
CORP.
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
(Expressed in U.S. Dollars)
|
|
COMMON STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADDITIONAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PAID-IN
|
|
|
SHARES TO
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
SHARES
|
|
|
AMOUNT
|
|
|
CAPITAL
|
|
|
BE ret/issued
|
|
|
DEFICIT
|
|
|
NCI
|
|
|
EQUITY
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Balance, August 31, 2014
|
|
37,674,659
|
|
|
37,674
|
|
|
10,030,013
|
|
|
(35,200
|
)
|
|
(8,315,389
|
)
|
|
-
|
|
|
1,717,098
|
|
Shares Cancelled
|
|
(671,000
|
)
|
|
(671
|
)
|
|
(79,529
|
)
|
|
35,200
|
|
|
-
|
|
|
-
|
|
|
(45,000
|
)
|
Shares issued for private placement
|
|
5,835,720
|
|
|
5,836
|
|
|
507,044
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
512,880
|
|
Non-controlling Interest
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(115,812
|
)
|
|
(115,812
|
)
|
Shares issued for services
|
|
998,903
|
|
|
999
|
|
|
155,033
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
156,032
|
|
Stock based compensation
|
|
-
|
|
|
-
|
|
|
197,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
197,000
|
|
Return of commission from previous private
placement
|
|
-
|
|
|
-
|
|
|
4,899
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,899
|
|
Net loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,770,500
|
)
|
|
-
|
|
|
(1,770,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2015
|
|
43,838,282
|
|
|
43,838
|
|
|
10,814,460
|
|
|
-
|
|
|
(10,085,889
|
)
|
|
(115,812
|
)
|
|
656,597
|
|
Shares issued for services
|
|
625,000
|
|
|
625
|
|
|
78,875
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
79,500
|
|
Non-controlling Interest
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(62,476
|
)
|
|
(62,476
|
)
|
Stock based compensation
|
|
-
|
|
|
-
|
|
|
83,865
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
83,865
|
|
Private placement of shares, net of issuance cost
|
|
5,266,858
|
|
|
5,267
|
|
|
414,025
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
419,292
|
|
Private placement subscription receivable
|
|
1,558,333
|
|
|
1,558
|
|
|
91,942
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
93,500
|
|
Warrants to be issued for services
|
|
-
|
|
|
-
|
|
|
32,252
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
32,252
|
|
Net loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,214,773
|
)
|
|
-
|
|
|
(1,214,773
|
)
|
Balance, August 31, 2016
|
|
51,288,473
|
|
|
51,288
|
|
|
11,515,419
|
|
|
-
|
|
|
(11,300,662
|
)
|
|
(178,288
|
)
|
|
87,757
|
|
The accompanying notes are an integral part of these
consolidated financial statements
47
LEXARIA BIOSCIENCE CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
August 31, 2016
|
(Expressed in U.S. Dollars)
|
|
1.
|
Organization, Business and Going Concern
|
|
|
|
Lexaria Biosciences Corp. (Lexaria, or the Company)
Company was formed on December 9, 2004 under the laws of the State of
Nevada as an independent oil and gas company engaged in the exploration,
development and acquisition of oil and gas properties in the United States
and Canada. In March of 2014, the Company began its entry into the
medicinal marijuana and alternative health and wellness business and
discontinued its involvement in the oil and gas business in November 2014.
In May 2016, the Company also commenced out-licensing its patented
technology for the purpose of entering into the U.S. regulated medical and
adult use cannabis edibles marketplace. The Company has offices in
Vancouver and Kelowna, BC, Canada.
|
|
|
|
On November 24, 2015, our board of directors approved a
forward stock split of our authorized and issued and outstanding shares of
common stock on a basis of 1 old share of common stock for 1.1 new shares
of common stock. Upon effect of the forward stock split our authorized
capital increased to 220,000,000 shares of common stock, par value $0.001
and our issued and outstanding shares increased from 39,952,984 to
43,948,282 shares of common stock, with a par value of $0.001. The forward
stock split has been reviewed by the Financial Industry Regulatory
Authority ("FINRA") and the Canadian Securities Exchange ("CSE") and was
approved for filing with an effective date of December 16, 2015. The
forward split became effective with the OTC Markets at the opening of
trading on December 16, 2015. Our new CUSIP number is 52886N307.
|
|
|
|
The Companys consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in
the United States (U.S. 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 $1,214,773 for the year
ended August 31, 2016 (2015: $1,770,500) and at August 31, 2016 had a
deficit accumulated since its inception of $11,300,662 (2015:
$10,085,889). The Company has a working capital balance of $76,285 as at
August 31, 2016 (2015: $619,608). The Company requires additional funds to
maintain its operations and developments. These conditions raise
substantial doubt about the Companys ability to continue as a going
concern. Managements 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 and the financing
environment continues to be difficult.
|
|
|
|
These consolidated financial statements do not include
any adjustments to reflect the future effects on the recoverability and
classification of assets or the amounts and classification of liabilities
that might result from the outcome of this uncertainty.
|
|
|
2.
|
Business Risk and Liquidity
|
|
|
|
The Company is subject to several categories of risk
associated with its operating activities. The production and sale of
alternative health products is an emerging industry in which business
practices are not yet standardized and are subject to frequent scrutiny
and evaluation by federal, state, provincial, and municipal authorities,
academics, and media outlets, among others. Although we intend to develop
our businesses in accordance with best ethical practices, we may suffer
negative publicity if we, our partners, contractors, or customers are
found to have engaged in any environmentally insensitive practices or
other business practices that are viewed as unethical.
|
|
|
|
Our operations may require licenses and permits from
various governmental authorities. We believe that we will be able to
obtain all necessary licenses and permits under applicable laws and
regulations for our operations and believe we will be able to comply in all material
respects with the terms of such licenses and permits. However, such
licenses and permits are subject to change in various circumstances. There
can be no guarantee that we will be able to obtain or maintain all
necessary licenses and permits, and failing to obtain or retain required
licenses could have a materially adverse effect on the Company.
|
48
3.
|
Significant Accounting Policies
|
|
|
|
|
a)
|
Accounting Principles
|
|
|
|
|
|
These consolidated financial statements have been
prepared in conformity with generally accepted accounting principles of
the United States of America. All amounts, unless otherwise stated, are in
United States dollars.
|
|
|
|
|
b)
|
Basis of Presentation
|
|
|
|
|
|
On December 16, 2015, the Company completed a forward
stock split of our authorized and issued and outstanding shares of common
stock on a basis of 1 old share of common stock for 1.1 new shares of
common stock. The forward stock split affected all the issued and
outstanding common shares, stock options, and warrants at the effective
date. All common shares numbers, numbers of stock options, and warrants
and related per share amounts disclosed in these consolidated financial
statements have been retroactively adjusted to reflect the forward stock
split.
|
|
|
|
|
c)
|
Basis of Consolidation
|
|
|
|
|
|
These consolidated financial statements include the
financial statements of the Company, its wholly-owned subsidiary, Lexaria
CanPharm Corp. which was incorporated on April 4, 2014 under the laws of
Canada, and 51%-owned subsidiary PoViva Tea, LLC which was incorporated on
December 12, 2014, under the laws of the State of Nevada. All significant
inter-company balances and transactions have been eliminated.
|
|
|
|
|
d)
|
Revenue Recognition
|
|
|
|
|
|
Revenue from the sale of health products is generally
recognized when persuasive evidence of an arrangement exists, delivery has
occurred, the sales price is fixed or determinable, and collectability is
reasonably assured. In most cases, these conditions are met when the
product is shipped to the customer. The Company reports its sales net of
the amount of actual sales returns and the amount of reserves established
for anticipated sales returns based upon historical return rates. Sales
tax collected from customers is excluded from net sales.
|
|
|
|
|
|
Lexaria also enters into agreements to license out its
patented technology that can include various combinations of services.
Where elements are delivered over different periods of time, and when
allowed under U.S. GAAP, revenue is allocated to the respective elements
based on their relative selling prices at the inception of the
arrangement, and revenue is recognized as each element is delivered. The
Company uses a hierarchy to determine the fair value to be used for
allocating revenue to elements: (i) vendor-specific objective evidence of
fair value (VSOE), (ii) third-party evidence and (iii) best estimate of
selling price (ESP). Generally VSOE is the price charged when the
deliverable is sold separately or the price established by management for
a product that is not yet sold if it is probable that the price will not
change before introduction into the marketplace. ESPs are established as
best estimates of what the selling prices would be if the deliverables
were sold regularly on a stand-alone basis. Given Lexarias early stage of
such line of revenue, the Companys process for determining the VSOE and
ESP requires judgment and considers multiple factors that may vary
overtime depending upon the unique facts and circumstances related to each
deliverable.
|
49
|
e)
|
Inventory and Cost of Sales
|
|
|
|
|
|
The Companys inventory consists of finished goods, work
in progress, and raw materials. In all classes, inventory is valued at the
lower of cost or market. Cost is determined on a first-in, first-out
basis.
|
|
|
|
|
|
Cost of sales includes all expenditures incurred in
bringing the goods to the point of sale. Inventory costs and costs of
sales include direct costs of the raw material, inbound freight charges,
warehousing costs, handling costs (receiving and purchasing) and utilities
and overhead expenses related to the Companys manufacturing and
processing facilities.
|
|
|
|
|
f)
|
Cash and Cash Equivalents
|
|
|
|
|
|
Cash equivalents comprise certain highly liquid
instruments with a maturity of three months or less when purchased. As of
August 31, 2016, and August 31, 2015, cash and cash equivalents consist of
cash only.
|
|
|
|
|
g)
|
Equipment
|
|
|
|
|
|
Equipment is stated at cost less accumulated
depreciation, and depreciated using the straight-line method over its
useful life of five years.
|
|
|
|
|
h)
|
Patents
|
|
|
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|
|
Capitalized patent costs represent legal costs incurred
to establish patents. When patents reach a mature stage, any associated
legal costs are comprised mostly of maintenance fees and are expensed as
incurred. Capitalized patent costs are amortized on a straight-line basis
over the remaining life of the patent. The Company was granted its first
patent subsequent to the year ended August 31, 2016, with legal life of 20
years.
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i)
|
Stock-Based Compensation
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|
Company accounts for its stock-based compensation awards
in accordance with ASC Topic 718, CompensationStock Compensation (ASC
718). ASC 718 requires all stock-based payments to employees, including
grants of employee stock options, to be recognized as expense in the
statements of operations based on their grant date fair values. For stock
options granted to employees and to members of the Board of Directors for
their services on the Board of Directors, the Company estimates the grant
date fair value of each option award using the Black-Scholes
option-pricing model. The use of the Black-Scholes option-pricing model
requires management to make assumptions with respect to the expected term
of the option, the expected volatility of the common stock consistent with
the expected life of the option, risk-free interest rates and expected
dividend yields of the common stock.
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|
|
Stock-based payments issued to non-employees are recorded
at their fair values, and are periodically revalued as the equity
instruments vest and are recognized as expense over the related service
period in accordance with the provisions of ASC 718 and ASC Topic 505,
Equity. For equity instruments granted to non-employees, the Company
recognizes stock-based compensation expense on a straight-line
basis.
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j)
|
Loss Per Share
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The Company applies the guidance in ASC 220 Earnings Per
Share. Loss per share is computed using the weighted average number of
shares outstanding during the period. Diluted loss per share is equivalent
to basic loss per share because the potential exercise of the equity-based
financial instruments was anti-dilutive.
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50
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k)
|
Foreign Currency Translation
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The Companys operations are located in the United States
of America and Canada, and it has offices in Canada. The Company maintains
its accounting records in U.S. Dollars, as follows:
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At the transaction date, each asset, liability, revenue
and expense that was acquired or incurred in a foreign currency is
translated into U.S. dollars by the using of the exchange rate in effect
at that date. At the period end, monetary assets and liabilities are
translated at the exchange rate in effect at that date. The resulting
foreign exchange gains and losses are included in profit or
loss.
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l)
|
Financial Instruments
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|
ASC 820 Fair Value Measurements and Disclosures, requires
an entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. ASC 820 establishes a fair
value hierarchy based on the level of independent, objective evidence
surrounding the inputs used to measure fair value. A financial
instruments categorization within the fair value hierarchy is based upon
the lowest level of input that is significant to the fair value
measurement. ASC 820 prioritizes the inputs into three levels that may be
used to measure fair value:
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Level 1 - Quoted prices in active markets for identical
assets or liabilities;
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Level 2 - Inputs other than quoted prices included within
Level 1 that are either directly or indirectly observable; and
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Level 3 - Unobservable inputs that are supported by
little or no market activity, therefore requiring an entity to develop its
own assumptions about the assumptions that market participants would use
in pricing.
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The Companys financial instruments consist primarily of
cash, accounts and other receivable, accounts payable and accrued
liabilities, due to related parties, and convertible debenture. The
carrying amounts of cash, accounts and other receivable, accounts payable
and accrued liabilities, and due to related parties approximate their fair
values due to their short maturities. The carrying value of the Companys
convertible debenture approximates its fair values (using Level 3 inputs)
based upon a comparison of the interest rate and terms of such debt to the
rates and terms of debt currently available to the Company.
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The Company is located in Canada, which results in
exposure to market risks from changes in foreign currency rates. The
foreign currency exchange risk is the financial risk to the Companys
operations that arise from fluctuations in foreign exchange rates and the
degree of volatility of these rates. Currently, the Company does not use
derivative instruments to reduce its exposure to foreign currency risk as
the Company does not hold a significant position in foreign currencies,
such as the Canadian dollars, and the impact of a change in a few basis
points for USD/CAD is not expected to be material.
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m)
|
Income Taxes
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The Company applies the guidance in ASC 740, Income
Taxes, which requires the Company to recognize deferred tax liabilities
and assets for the expected future tax consequences of events that have
been recognized in the Companys financial statements or tax returns using
the liability method. Under this method, deferred tax liabilities and
assets are determined based on the temporary differences between the
financial statement and tax bases of assets and liabilities using enacted
tax rates in effect in the year in which the differences are expected to
reverse.
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51
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n)
|
Impairment of Long-Lived Assets
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|
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|
|
Long-lived assets, including equipment, and intangible
assets, such as the Companys patents, are assessed for potential
impairment when there is evidence that events or changes in circumstances
indicate that the carrying amount of an asset may not be recovered. An
impairment loss is recognized when the carrying amount of the long-lived
asset is not recoverable and exceeds its fair value. The carrying amount
of a long-lived asset is not recoverable if it exceeds the sum of the
undiscounted cash flows expected to result from the use and eventual
disposition of the asset. Any required impairment loss is measured as the
amount by which the carrying amount of the long-lived asset exceeds its
fair value and is recorded as a reduction in the carrying value of the
related asset and a charge to the profit or loss. Intangible assets with
indefinite lives are tested for impairment annually and in interim periods
if certain events occur indicating that the carrying value of the
intangible assets may be impaired.
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o)
|
Comprehensive Income
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|
|
The Company applies ASC 220, Comprehensive Income, which
establishes standards for reporting and display of comprehensive income,
its components and accumulated balances. The Company discloses this
information on its Statement of Stockholders Equity. Comprehensive income
comprises equity changes except those transactions resulting from
investments by owners and distributions to owners.
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p)
|
Credit Risk and Receivable Concentration
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|
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|
|
The Company places its cash with high credit quality
financial institution. As of August 31, 2016, the Company had
approximately $93,000 in the bank (August 31, 2015: $260,000).
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|
As at August 31, 2016, the Company also has $93,500 in
private placement subscriptions receivable from five share subscriptions
from arms length parties (which were all received in September 2016), and
a further $27,583 (2015 - $31,382) in sales tax receivable. An additional
$10,000 was receivable as at August 31, 2016 in relation to the Companys
licensing agreement (Note 9), which was also received subsequent to the
year-end. The Company considers its credit risk to be low for such
receivable.
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q)
|
Convertible Debenture
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|
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|
|
The Company accounts for its convertible debt instruments
that may be settled in cash upon conversion according to ASC 470-20-30-22
which requires the proceeds from the issuance of such convertible debt
instruments to be allocated between debt and equity components so that
debt is discounted to reflect the Companys non-convertible debt borrowing
rate.
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|
Further, the Company applies ASC 470-20-35-13 which
requires the debt discount to be amortized over the period the convertible
debt is expected to be outstanding as additional non-cash interest
expense.
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r)
|
Commitments and Contingencies
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|
|
In accordance with ASC 450-20, Accounting for
Contingencies, the Company records accruals for such loss contingencies
when it is probable that a liability has been incurred and the amount of
loss can be reasonably estimated. In the event that estimates or
assumptions prove to differ from actual results, adjustments are made in
subsequent periods to reflect more current information. Historically, the
Company has not experienced any material claims.
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s)
|
Research and Development
|
|
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|
|
Research and development costs are expensed as
incurred.
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52
|
t)
|
Advertising
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|
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|
|
The Company expenses advertising costs as they are
incurred. The advertising expenses were $185,459 and $276,560 for the
years ended August 31, 2016 and 2015, respectively.
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u)
|
Discontinued Operations
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|
|
The results of discontinued operations are presented
separately, net of tax, from the results of ongoing operations for all
periods presented. The expenses included in the results of discontinued
operations are the direct operating expenses incurred by the disposed
components that may be reasonably segregated from the costs of the ongoing
operations of the Company. Lexaria disposed of its oil and gas interests
during the year ended August 31, 2015 (Note
14)
|
4.
|
Estimates and Judgments
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|
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|
|
The preparation of financial statements in conformity
with U.S GAAP requires us to make certain estimates, judgments and
assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Some of the Companys accounting policies require us to
make subjective judgments, often as a result of the need to make estimates
of matters that are inherently uncertain. These accounting policies
involve critical accounting estimates because they are particularly
dependent on estimates and assumptions made by management about matters
that are highly uncertain at the time the accounting estimates are made.
Although we have used our best estimates based on facts and circumstances
available to us at the time, different estimates reasonably could have
been used. Changes in the accounting estimates used by the Company are
reasonably likely to occur from time to time, which may have a material
effect on the presentation of financial condition and results of
operations.
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|
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|
|
The Company reviews these estimates, judgments and
assumptions periodically and reflect the effects of revisions in the
period in which they are deemed to be necessary. We believe that these
estimates are reasonable; however, actual results could differ from these
estimates
|
|
|
|
|
Significant accounting estimates and assumptions are used
for, but not limited to:
|
|
|
|
|
a)
|
The Valuation of Deferred Tax Assets
|
|
|
|
|
|
Judgement is required in determining whether deferred tax
assets are recognized on the balance sheet. The recognition of deferred
tax assets requires management to assess the likelihood that the Company
will generate taxable income in future periods to utilize the deferred tax
assets. Due to the Companys history of losses, deferred tax assets have
not be recognized by Lexaria.
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|
|
|
|
b)
|
Convertible Debenture
|
|
|
|
|
|
The Company entered into a convertible debenture
agreement on March 8, 2016 (Note 10) and evaluated the terms of the
various conversion options to assess if separate accounting is required
for such embedded features, which are adjusted to fair value through
earnings at each reporting period. The Company determined that the
embedded features within the debenture do not meet the net settlement
provision characteristic of a derivative and as a result, did not apply
the bifurcation requirements for such conversion options.
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|
|
|
|
c)
|
Revenue Recognition of Licenses
|
|
|
|
|
|
Pursuant to the license agreement for the Companys lipid
infusion technology (the Technology) (Note 9), the licensee acquired
territorial licenses for an upfront fee. The Company is also required to
provide support services in connection with the licensees use of the
Technology over the term of the license. As the support services will not
be sold on a stand-alone basis, the Company is unable to establish VSOE of
their fair value to be able to allocate the proceeds objectively to such
services and the license. Accordingly, the up-front fee is being
recognized ratably over the term of the license, which is initially for
two years.
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53
|
d)
|
Value of Stock Options
|
|
|
|
|
|
The Company provides compensation benefits to its
employees, directors, officers, and consultants, through a stock option
plan. The fair value of each option award is estimated on the date of
grant using the Black-Scholes option pricing model. Expected volatility
assumption used in the model is based on the historical volatility of the
Companys share price. The Company uses historical data to estimate the
period of option exercises for use in the valuation model. The risk-free
interest rate for the expected term of the option is based on the yields
of government bonds. Changes in these assumptions, especially the share
price volatility and the expected life determination could have a material
impact on the Companys profit and loss for the periods presented. All
estimates used in the model are based on historical data which may not be
representative of future results.
|
5.
|
New Accounting Pronouncements
|
|
|
|
In May 2014, the Financial Accounting Standards Board
(the FASB) issued a new standard related to the revenue recognition.
Under the new standard, recognition of revenue occurs when a customer
obtains control of promised goods or services in an amount that reflects
the consideration which the entity expects to receive in exchange for
those goods or services. In addition, the standard requires disclosure of
the nature, amount, timing, and uncertainty of revenue and cash flows
arising from contracts with customers. The FASB has recently issued
several amendments to the standards, including clarification on the
accounting for licenses of intellectual property and identifying
performance obligations.
|
|
|
|
The guidance permits two methods of adoption:
retrospectively to each prior reporting period presented (full
retrospective method), or retrospectively with the cumulative effect of
initially applying the guidance recognized at the date of initial
application (the cumulative catch-up transition method). The Company will
apply the full retrospective approach to adopt the standard but does not
anticipate that this standard will have a material impact on its
consolidated financial statements.
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|
|
|
In August 2014, the FASB issued new guidance on
determining when and how to disclose going concern uncertainties in the
financial statements. The new guidance requires management to perform
interim and annual assessments of an entitys ability to continue as a
going concern within one year of the date the financial statements are
issued. An entity must provide certain disclosures if conditions or events
raise substantial doubt about its ability to continue as a going concern.
The guidance is effective for annual periods ending after December 15,
2016 and interim periods thereafter. Early adoption is permitted. Upon
adoption, the Company does not believe this guidance will have a material
impact on its consolidated results of operations or financial
position.
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|
|
|
In January 2015, the FASB issued ASU 2015-01, Income
Statement-Extraordinary and Unusual Items (Subtopic 225-20), Simplifying
Income Statement Presentation by Eliminating the Concept of Extraordinary
Items, which eliminates the concept of extraordinary items. Under this new
guidance, entities will no longer be required to separately classify,
present and disclose extraordinary events and transactions. The amendments
in this update are effective for annual and interim periods beginning
after December 15, 2015. The Company is evaluating the impact of ASU
2015-01 but does not believe that it will have a material impact on its
consolidated financial statements.
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|
|
|
In February 2015, the FASB issued ASU No. 2015-02,
Consolidation (Topic 810): Amendments to the Consolidation Analysis ("ASU
2015-02"). ASU 2015-02 makes several modifications to the consolidation
guidance for variable interest entities ("VIEs") and general partners'
investments in limited partnerships, as well as modifications to the
evaluation of whether limited partnerships are VIEs or voting interest
entities. It is effective for annual and interim
periods beginning after December 15, 2015. The Company is currently evaluating
the impact of this standard but does not believe that it will have a material
impact on its consolidated financial statements.
|
54
In April 2015, FASB issued ASU 2015-03,
Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03). In August
2015, FASB issued ASU 2015-15, Presentation and Subsequent Measurement of Debt
Issuance Costs Associated with Line-of-Credit Arrangements (ASU 2015-15). ASU
2015-03 requires that debt issuance costs be presented in the balance sheet as a
deduction from the carrying amount of the debt. ASU 2015-15 allows an entity to
present debt issuance costs associated with a revolving line of credit
arrangement as an asset, regardless of whether a balance is outstanding. The
recognition and measurement guidance for debt issuance costs are not affected by
ASU 2015-03 or ASU 2015-15. These ASUs are effective for annual reporting
periods beginning after December 15, 2015, including interim periods within that
reporting period. The new standard will not affect the Companys financial
statements.
In April 2015, FASB issued ASU 2015-04,
Practical Expedient for the Measurement Date of an Employers Defined Benefit
Obligation and Plan Assets (ASU 2015-04). ASU 2015-04 allows employers with a
fiscal year end that does not coincide with a calendar month end to make an
accounting policy election to measure defined benefit plan assets and
obligations as of the end of the month closest to their fiscal year end. ASU
2015-04 is effective for annual reporting periods beginning after December 15,
2015, including interim periods within that reporting period. Prospective
application is required. The Company does not anticipate that the new guidance
will have any impact on its consolidated financial statements.
In July 2015, FASB issued ASU 2015-11,
Simplifying the Measurement of Inventory (ASU 2015-11). ASU 2015-11 requires
that an entity measure inventory at the lower of cost and net realizable value.
This ASU does not apply to inventory measured using last-in, first-out
methodology. ASU 2015-11 is effective for annual reporting periods beginning
after December 15, 2016, including interim periods within that reporting period.
The Company does not expect the new standard to have a significant impact on its
consolidated financial position, results of operations or cash flows.
In November 2015, the FASB issued ASU
2015-17, Balance Sheet Classification of Deferred Taxes (ASU 2015-17). ASU
2015-17 requires companies to classify all deferred tax assets or liabilities as
noncurrent on the balance sheet rather than separately disclosing deferred taxes
as current and noncurrent. This standard is effective for the Company beginning
on September 1, 2017 and can be applied either prospectively or retrospectively
to all periods presented upon adoption. The standard is not expected to have any
impact on the Companys financial statements.
In January 2016, FASB issued a new
standard to amend certain aspects of recognition, measurement, presentation, and
disclosure of financial instruments. Most prominent among the amendments is the
requirement for changes in fair value of equity investments, with certain
exceptions, to be recognized through profit or loss rather than other
comprehensive income. The new standard will be effective for the Company
beginning September 1, 2018. The standard is not expected to have any impact on
the Companys financial statements.
In February 2016 FASB issued ASU No.
2016-02, Leases
(Topic 842)
which supersedes FASB ASC Topic 840, Leases
(Topic 840) and provides principles for the recognition, measurement,
presentation, and disclosure of leases for both lessees and the lessors. The new
standard requires the lessees to apply a dual approach, classifying leases as
either finance or operating leases based on the principle of whether or not the
lease is effectively a financed purchase by the lessee. The classification will
determine whether lease expense is recognized based on an effective interest
method or on a straight-line basis over the term of the lease, respectively. A
lessee is also required to record a right-of-use asset and a lease liability for
all leases with a term of greater than twelve months regardless of
classification. Leases with a term of twelve months or less will be accounted
for similar to existing guidance for operating leases. The standard is effective
for annual and interim periods beginning after December 15, 2018, with early
adoption permitted upon issuance. When adopted, the Company does not expect this
guidance to have a material impact on its consolidated financial statements.
55
|
In March 2016, the FASB issued ASU 2016-09,
Compensation-Stock Compensation (Topic 718), Improvements to Employee
Share-Based Payment Accounting. Under ASU 2016-09, companies will no
longer record excess tax benefits and certain tax deficiencies in
additional paid in capital (APIC). Instead, they will record all excess
tax benefits and tax deficiencies as income tax expense or benefit in the
income statement and the APIC pools will be eliminated. In addition, ASU
2016-09 eliminates the requirement that excess tax benefits be realized
before companies can recognize them. ASU 2016-09 also requires companies
to present excess tax benefits as an operating activity on the statement
of cash flows rather than as a financing activity. Furthermore, ASU
2016-09 will increase the amount an employer can withhold to cover income
taxes on awards and still qualify for the exception to liability
classification for shares used to satisfy the employers statutory income
tax withholding obligation. An employer with a statutory income tax
withholding obligation will now be allowed to withhold shares with the
fair value up to the amount of taxes owed using the maximum statutory rate
in the employees applicable jurisdiction(s). ASU 2016-09 requires a
company to classify the cash paid to a tax authority when shares are
withheld to satisfy its statutory income tax withholding obligation as a
financing activity on the statement of cash flows. Under current U.S.
GAAP, it is not specified how these cash flows should be classified. In
addition, companies will now have to elect whether to account for
forfeitures on share-based payments by (1) recognizing forfeiture awards
as they occur or (2) estimating the number of awards expected to be
forfeited and adjusting the estimate when it is likely to change, as in
currently required. The amendments of this ASU are effective for reporting
periods beginning after December 15, 2016, with early adoption permitted
but all of the guidance must be adopted in the same period. The Company is
currently assessing the impact the standard will have on its consolidated
financial statements.
|
|
|
6.
|
Accounts and Other
Receivable
|
|
|
|
August
31
|
|
|
August
31
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Territory License Fee receivable (Note 9)
|
|
10,000
|
|
|
-
|
|
|
Sales tax receivable
|
|
27,583
|
|
|
31,382
|
|
|
Private Placement receivable (Note 11)
|
|
93,500
|
|
|
-
|
|
|
|
|
131,083
|
|
|
31,382
|
|
|
|
|
August
31
|
|
|
August
31
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
27,358
|
|
|
-
|
|
|
Finished goods
|
|
94,349
|
|
|
119,944
|
|
|
Work in progress
|
|
13,017
|
|
|
48,042
|
|
|
|
|
134,724
|
|
|
167,986
|
|
During the year ended August 31, 2016,
Company wrote down $44,040 (2015 - $nil) of inventory to reflect its net
realisable value.
56
8.
|
Alternative Health Products
|
|
|
|
On November 12, 2014, the Company signed an agreement
with Poppys Teas LLC. (PoViva) to acquire 51% of ViPova by satisfying
the following requirements:
|
|
|
Pay an initial consideration of $50,000 (paid);
|
|
|
Spend $75,000 over one year for product marketing and
operations (spent);
|
|
|
Extend to the founders of ViPova (Founders) $25,000
worth of Lexaria common shares (issued);
|
|
|
Pay one of the Founders $2,000 a month for production
consulting for a period of 12 months (paid);
|
|
|
Pay one of the Founders $2,000 a month for marketing
consulting for a period of 12 months (paid);
|
|
|
Provide to the Founders a cash bonus in the amount of
$50,000 should the company generate $300,000 in sales within 8 months of
the execution of this agreement (N/A); and
|
|
|
Agree for the Founders to be automatically granted a
lifetime license to personally produce products covered by various
patents.
|
The Company also spent the required
minimum additional $100,000 on sales and marketing ViPova by Lexaria brand to
enable qualification to purchase additional interest in PoViva. The Company has
the option to acquire an additional 24% interest in PoViva (for a total interest
of 75%) by paying PoViva or its Founders 2.5 times trailing 12 months PoViva
revenue (pro-rata) calculated from the date that this option is exercised.
PoViva can receive up to 50% of this payment in the Companys common stock at
PoVivas discretion.
PoViva has a right of first refusal to
produce under white-label, additional cannabinoid based products on behalf of
the Company but the Company reserves the right to engage other producers should
it believe PoViva to be uncompetitive to supply the products requested by
Lexaria.
The acquisition of PoViva was treated
as an acquisition of assets rather than a business combination because PoViva
did not constitute a business. $48,039 acquired In-Process Research and
Development was expensed at the acquisition date in accordance with ASC
730-10-25-1.
In June 2015, the Company
simultaneously filed a U.S. utility patent application and an International
patent application under the Patent Cooperation Treaty (PCT) procedure, both
at the U.S. Patent and Trademark Office. These applications follow the Companys
2014 and 2015 family of provisional patent application filings in the U.S. and
serve two additional broad purposes. Firstly, these filings served to expand
potential intellectual property protection outside of the USA. Filing under the
PCT allows the Company to elect to pursue patent protection in up to 148 nations
around the world. The second purpose was to broaden the number of molecules for
which intellectual property protection is sought. Under the original patents
pending application, only the THC and CBD molecules, infused within a unique
lipid-formulation technology, were pursued. Under the newer patent applications,
the list of molecules for a unique delivery system was broadened to include THC,
CBC, Nicotine, Non-Steroidal Anti- Inflammatories, and certain Vitamins.
In December 2015, the Company filed two
further provisional patent applications in the U.S. These new applications
served to further broaden the variety and applicability of base compounds that
can be used when formulating the Companys lipid based technology. The first of
these applications identify compounds like edible starches (e.g., tapioca
starch) that are commonly used in food products today and could, therefore,
serve as a base for formulating and incorporating the Companys Technology into
a wide variety of every day food products. The second of these applications
identify emulsifier compounds like gum Arabic that are commonly used in beverage
products today in order to facilitate similar flexibility for formulating the
Companys Technology in every day, shelf-stable beverages.
As at August 31, 2016, the Company had
capitalized $53,997 for patent application. The Company was granted its first
patent subsequent to the year-end. The granted patent has a priority date of
June 10, 2014, a publish date of October 27, 2016, and protects the Companys
technology for twenty years.
57
|
On August 11, 2015, Lexaria signed a license agreement
with PoViva Tea LLC for $10,000, granting Lexaria a 35-year non exclusive
worldwide license to unencumbered use of PoViva Tea LLCs IP Rights,
including rights of resale. This license agreement ensures Lexaria has
full access to the underlying patent pending infusion
Technology.
|
|
|
9.
|
Unearned Revenue
|
|
|
|
On May 14, 2016, the Company entered into a licensing
agreement (the Licensing Agreement) with an arms length party (the
Licensee) allowing the Licensee, for a two-year period, to utilize the
Companys Technology to create, test, manufacture, and sell
marijuana-infused consumable and/or topical products, in the state of
Colorado, with an option of extending the terms of the Licensing Agreement
to Washington, Oregon, and California (the Territorial License). In
addition to the granting of the license, the Company is required to
provide support services to the Licensee in connection with the use of the
Companys Technology during the term of the Licensing Agreement.
|
|
|
|
The Company determined that the provision of the support
services is a separate deliverable under the Licensing Agreement. As the
support services will not be sold on a stand-alone basis, the Company is
unable to establish a vendor-specific objective evidence of fair value of
such services to be able to objectively allocate the Territory License fee
receipts between the license and the support services. Accordingly, the
Company recognizes revenue ratably over the term of the Licensing
Agreement. As of August 31, 2016, the Company received $10,000 as first
installment of the Territory License Fee and recorded as receivable of a
further $10,000 for its second installment, which was received subsequent
to the year-end. During the year ended August 31, 2016, $7,500 was
recognized as revenue with the remaining $12,500 deferred for recognition
in future periods.
|
|
|
10.
|
Convertible Debenture
|
|
|
|
On March 8, 2016, the Company closed a private placement
offering of a convertible debenture in the aggregate amount of $45,000.
The convertible debenture matures on August 31, 2020 with an interest rate
of 10% per annum (on a simple basis) and is convertible at (i) $0.12 per
share at any time prior to August 31, 2016 (ii) $0.15 per share at any
time prior to August 31, 2017; (iii) $0.20 per share at any time prior to
August 31, 2018 or, at the sole option of the holder, a price equal to a
20% discount to the 10-day average closing price of the shares prior to
the date of conversion (the Average Price) provided that the Average
Price is less than $0.20 and provided further that the conversion price
shall not be less than $0.15; (iv) $0.25 per share at any time prior to
August 31, 2019 or, at the sole option of the holder, the Average Price
provided that the Average Price is less than $0.25 and provided further
that the conversion price shall not be less than $0.15; and (v) $0.30 per
share at any time prior to August 31, 2020 or, at the sole option of the
holder, the Average Price provided that the Average Price is less than
$0.30 and provided further that the conversion price shall not be less
than $0.15.
|
|
|
|
The Company determined that the conversion options did
not qualify as derivatives as they did not meet the net settlement
provision characteristics. The proceeds from the convertible debenture
therefore were not bifurcated on the balance sheet.
|
|
|
|
During the year ended August 31, 2016, the Company paid
interest of $2,250 in connection with the convertible debenture.
|
|
|
11.
|
Common Shares and Warrants
|
|
|
|
Fiscal 2015 Activity
|
|
|
|
On July 14, 2014, the Company accepted Mr, Chris
Hornungs resignation with respect to his contract dated, April 24, 2014,
whereby the Company had entered into a one year consulting contract with
2342878 Ontario Inc., a wholly owned company by Chris Hornung as Assistant
Manager. Upon signing of the contract of acceptance the Company had issued
121,000 common shares valued at $35,200. The Companys 121,000 restricted
common shares that were issued were cancelled and returned back to
treasury.
|
58
On September 26, 2014, the Company
raised gross proceeds of $45,780 for private placement of 335,720 common shares
of the Company and 335,720 warrants with exercise price of $0.23 and expiry date
of March 26, 2016.
On December 12, 2014, the Company
issued 261,903 common shares of the Company at a value of $25,000 in connection
with the terms of the ViPova agreement (Note 8).
On May 14, 2015, the Company closed a
private placement by issuing 5,500,000 units for gross proceeds of $500,000.
Each unit consisted of one common share of the Company and one share purchase
warrant, exercisable into one further common share at a price of $0.23 per share
and expiring on May 14, 2017. A cash finders fee for $32,900 was paid to GMP
Securities, Mackie Research and Peter Przygoda.; and 361,900 broker warrants
with an exercise price of $0.23 for a period of twenty-four months were issued
to GMP, Mackie Research and Peter Przygoda. Cash finders fee in the amount of
$4,899 from Peter Przygoda was returned in August, 2015.
On June 8, 2015, the Company issued
275,000 common shares valued at $47,500 to Ron Keleher and Scott Urquart with
respect to agreements signed on April 2, 2015 and May 27, 2015.
On June 11, 2015, 550,000 restricted
shares of the Company issued previously in connection with the Companys joint
venture agreement were cancelled as joint venture agreement was terminated.
On August 17, 2015, the Company issued
462,000 common shares of the Company valued at $83,532 to Docherty Management
Limited as per the terms of the consulting agreement (Note 17).
As at August 31, 2015, the Company had
43,838,282 shares issued and outstanding and 19,840,186 warrants issued and
outstanding.
Fiscal 2016 Activity
On September 16, 2015, the Companys
Board appointed Ted McKechnie as a Director of the Company. Mr. McKechnie was
issued 110,000 common shares of the Company valued at $19,000.
On December 10, 2015, Lexaria closed a
private placement by issuing 550,000 units for gross proceeds of $90,000. Each
unit consisted of one common share of the Company and one half transferable
share purchase warrant. Each full warrant is exercisable into one further share
at a price of $0.27 per share for a period of 24 months. A cash finders fee for
$2,520 was paid to Leede Financial Markets Ltd.; and 15,400 broker warrants with
an exercise price of $0.27 for a period of twenty-four months were also issued
to Leede Financial Markets Ltd. The fair value of these broker warrants was
determined to be $2,903.
On December 14, 2015, Lexaria signed an
investor relations contract with Radius Consulting Inc. for a fee of $2,500 and
55,000 common shares of Company valued at $9,500.
On April 15, 2016, pursuant to the
agreement with Mr. John Docherty (Note 17), the Company issued 210,000 common
shares valued at $21,000, for services rendered as the President of the Company.
On April 15, 2016, the Company closed a
private placement of 750,000 units at a price of $0.08 per unit for gross
proceeds of $60,000. Each unit consisted of one common share of the Company and
one non-transferrable share purchase warrant, entitling the holder to purchase
one additional common share in the capital of the Company for a period of 18
months at an exercise price of $0.15 per share. The Company also issued 8,750
broker warrants to Haywood Securities Ltd. The broker warrants have a term of 18
months and are each exercisable into one common share of the Company at a price
of $0.15. The fair value of these broker warrants was determined to be $805.
On June 6, 2016, the Company closed a
private placement of 700,000 units priced at $0.11 per unit for gross proceeds of $77,000. Each unit
consisted of one common share of the Company and one-half of a non-transferrable
share purchase warrant with each warrant entitling the holder to purchase one
additional common share of the Company for a period of three years at an
exercise price of $0.14 per share.
59
On July 28, 2016, pursuant to an
agreement, in return for marketing, branding, and investor relations advisory
services, the Company issued 250,000 common shares of the Company valued at
$0.12 per share (Note 17).
On August 10, 2016, the Company closed
a private placement by issuing 1,558,525 units at a price of $0.06 per unit for
gross proceeds of $93,512. Each unit consisted of one common share of the
Company and one non-transferable share purchase warrant entitling the holder to
purchase one additional common share in the capital of the Company for a period
of 24 months at an exercise price of $0.14 per share.
On August 31, 2016, the Company
completed a private placement by issuing 3,266,666 units at a price of $0.06 per
unit for gross proceeds of $196,000, of which $93,500 was collected during
September and October 2016. Each unit consisted of one common share of the
Company and one transferable share purchase warrant. Each full warrant is
exercisable into one further share at a price of $0.14 per share for a period of
24 months. A cash finders fee for $1,200 was paid and 50,000 broker warrants
with an exercise price of $0.14 for a period of twenty-four months were also
issued. The fair value of these broker warrants was determined to be $5,397.
As at August 31, 2016, Lexaria had
51,288,473 common shares issued and outstanding and 12,136,241 warrants issued
and outstanding.
A continuity schedule for warrants is
presented below:
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
Number of
|
|
|
Exercise Price
|
|
|
|
|
Warrants
|
|
|
$
|
|
|
Balance, August 31, 2014
|
|
14,250,184
|
|
|
0.23
|
|
|
Expired
|
|
(607,618
|
)
|
|
0.36
|
|
|
Issued
|
|
6,197,620
|
|
|
0.23
|
|
|
Balance, August 31, 2015
|
|
19,840,186
|
|
|
0.23
|
|
|
Expired
|
|
(13,978,286
|
)
|
|
0.22
|
|
|
Issued
|
|
6,274,341
|
|
|
0.15
|
|
|
Balance, August 31, 2016
|
|
12,136,241
|
|
|
0.18
|
|
The fair value of share purchase
warrants granted to the brokers was estimated as of the date of the grant by
using the Black-Scholes option pricing model with the following assumptions:
|
August 31
|
August 31
|
|
2016
|
2015
|
Expected volatility
|
237% - 240%
|
N/A
|
Risk-free interest rate
|
0.74% - 0.95%
|
N/A
|
Expected life
|
1.5 2 years
|
N/A
|
Dividend yield
|
0.00%
|
N/A
|
Estimated fair value per option
|
$0.09 - $0.19
|
N/A
|
60
A summary of warrants outstanding as of
August 31, 2016 is presented below:
# of Warrants
|
Weighted
|
Weighted
|
|
Average
|
Average
|
|
Remaining
|
Exercise Price
|
|
Contractual Life
|
$
|
5,500,000
|
0.70 years
|
0.23
|
361,900
|
0.70 years
|
0.18
|
758,750
|
1.04 years
|
0.15
|
290,400
|
1.28 years
|
0.27
|
1,558,525
|
1.95 years
|
0.14
|
3,316,666
|
2.00 years
|
0.14
|
350,000
|
2.76 years
|
0.14
|
12,136,241
|
1.31 years
|
0.18
|
|
As at August 31, 2016, the Company was obligated to
issue, for the month of August 2016, 250,000 warrants pursuant to
marketing, branding and investor relations advisory agreement (Note 17).
Such warrants were issued subsequent to the year-end (Note 19). The fair
value of such warrants was estimated using the Black-Scholes option
pricing model and determined to be $32,252. Assumptions used as inputs to
the model were consistent as the ones used for the calculation of stock
options granted during the year (Note 12).
|
|
|
12.
|
Stock Options
|
|
|
|
The Company has established its 2014 Stock Option Plan
whereby the board of directors may, from time to time, grant up to
3,850,000 (post forward stock split) stock options to directors, officers,
employees, and consultants. Stock options granted must be exercised no
later than five years from the date of grant or such lesser period as
determined by the Companys board of directors. The exercise price of an
option is equal to or greater than the closing market price of the
Companys common shares on the day preceding the date of grant. The
vesting terms of each grant are set by the board of directors.
|
|
|
|
Fiscal 2015 Activity
|
|
|
|
On December 22, 2014, the Company granted 1,567,500 stock
options to certain directors, officers and consultants, with 1,347,500
vesting immediately, 110,000 vesting in six months, and 110,000 vesting in
12 months. The options have an exercise price of $0.10 per share and
expire on December 22, 2019.
|
|
|
|
On February 4, 2015, the Company granted 275,000 stock
options to consultants with an exercise price of $0.09, vesting
immediately, expiring February 3, 2020.
|
|
|
|
On March 26, 2015, the Company granted 550,000 stock
options to an officer of the Company. The exercise price of the stock
options is $0.09, vesting immediately and expiring on March 26,
2020.
|
|
|
|
Fiscal 2016 Activity
|
|
|
|
On September 16, 2015, the Company granted 110,000 stock
options to a director of the Company. The exercise price of the stock
options is $0.17, vesting immediately and expiring on September 16,
2020.
|
|
|
|
On April 15, 2016, the Company granted 300,000 to an
officer of the Company. The exercise price of the stock options is $0.11
per share, vesting immediately and expiring on April 15, 2021.
|
|
|
|
On June 3, 2016, the Company granted 325,000 stock
options to a consultant, vesting immediately, with an exercise price of
$0.14 and expiring five years from the date of
grant.
|
61
During the year ended August 31, 2016,
the Company recorded a total $122,015 (2015 $256,051) as stock based
compensation expense of which $83,865 (2015 - $200,734) pertained to the stock
options granted during the year with the remaining being the recognition of
expense from previous grants.
A continuity schedule for stock options
is presented below:
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
Number of
|
|
|
Exercise Price
|
|
|
|
|
Options
|
|
|
$
|
|
|
Balance, August 31, 2014 (vested and
outstanding)
|
|
2,887,500
|
|
|
0.22
|
|
|
Expired
|
|
(1,210,000
|
)
|
|
0.21
|
|
|
Granted
|
|
2,392,500
|
|
|
0.10
|
|
|
Balance, August 31, 2015 (vested and outstanding)
|
|
4,070,000
|
|
|
0.15
|
|
|
Expired
|
|
(385,000
|
)
|
|
0.32
|
|
|
Cancelled
|
|
(935,000
|
)
|
|
0.16
|
|
|
Granted
|
|
735,000
|
|
|
0.13
|
|
|
Balance, August
31, 2016 (vested and outstanding)
|
|
3,485,000
|
|
|
0.13
|
|
The fair value of options granted was
estimated as of the date of the grant by using the Black-Scholes option pricing
model with the following assumptions:
|
August 31
|
August 31
|
|
2016
|
2015
|
Expected volatility
|
240% - 241%
|
243% - 249%
|
Risk-free interest rate
|
1.22% - 1.62%
|
1.47% - 1.66%
|
Expected life
|
5.00 years
|
5.00 years
|
Dividend yield
|
0.00%
|
0.00%
|
Estimated fair value per option
|
$0.11 - $0.19
|
$0.08 - $0.10
|
A summary of the Companys vested and
outstanding stock options as at August 31, 2016 is presented below:
# of Stock
|
Weighted
|
|
Weighted
|
|
|
Aggregate
|
|
Options
|
Average
|
|
Average
|
|
|
Intrinsic Value
|
|
|
Remaining
|
|
Exercise Price
|
|
|
|
|
|
Contractual Life
|
|
$
|
|
|
$
|
|
247,500
|
1.80 years
|
|
0.09
|
|
|
4,950
|
|
660,000
|
2.90 years
|
|
0.23
|
|
|
(85,800
|
)
|
1,017,500
|
3.31 years
|
|
0.10
|
|
|
10,175
|
|
275,000
|
3.43 years
|
|
0.09
|
|
|
5,500
|
|
550,000
|
3.57 years
|
|
0.09
|
|
|
11,000
|
|
110,000
|
4.05 years
|
|
0.17
|
|
|
(7,700
|
)
|
300,000
|
4.62 years
|
|
0.11
|
|
|
3,000
|
|
325,000
|
4.76 years
|
|
0.14
|
|
|
(6,500
|
)
|
3,485,000
|
3.45 years
|
|
0.13
|
|
|
(65,375
|
)
|
62
|
|
|
August
31
|
|
|
August
31
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
31,743
|
|
|
14,702
|
|
|
Licensing revenue (Note 9)
|
|
7,500
|
|
|
-
|
|
|
Freight revenue
|
|
1,149
|
|
|
-
|
|
|
Other revenue
|
|
326
|
|
|
-
|
|
|
|
|
40,718
|
|
|
14,702
|
|
14.
|
Discontinued Operations
|
|
|
|
On November 26, 2014, a Purchase and Sale Agreement was
executed between Lexaria and Cloudstream Belmont Lake, LP for the purchase
and sale of oil and gas working interests, net revenue interests and other
interests in Belmont Lake, Mississippi for total consideration of
$1,400,000. A total net amount of $721,806 was paid to the Company after
all short-term debts were paid out from the sale.
|
|
|
|
Accordingly, the results of the Companys former oil and
gas business were reported as discontinued operations during fiscal
2015.
|
|
|
|
Income from discontinued operations were comprised
of:
|
|
|
|
August
31
|
|
|
August
31
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
-
|
|
|
59,715
|
|
|
Cost
|
|
-
|
|
|
(10,797
|
)
|
|
|
|
-
|
|
|
48,918
|
|
15.
|
Related Party Transactions
|
|
|
|
For the year ended August 31, 2016, the Company
paid/accrued $120,000 to C.A.B Financial Services (CAB) (2015 -
$119,700); to BKB Management Ltd. (BKB) $44,767 (2015 - $69,543) for
management, consulting and accounting services; to a senior vice president
$18,000 (2015 - $42,000) for executive management consulting; and to
Docherty Management Limited $117,213 (2015 - $60,965). All fees incurred
were included as consulting on the Companys statement of operations. CAB
is owned by the CEO of the Company, BKB is owned by the former CFO of the
Company and Docherty Management Limited (Docherty Management) is owned
by the President of the Company. The CFO of the Company resigned effective
April 29, 2016.
|
|
|
|
During the year ended August 31, 2016, the Company also
granted 210,000 (2015 462,000) restricted common shares with a value of
$21,000 (2015 $83,532) per share to Mr. Docherty for his
services.
|
|
|
|
The Company granted a total of 410,000 (2015 1,870,000)
incentive stock options to the directors and officers of the Company with
a fair value of $51,642 (2015 - $159,082) (Note 11).
|
|
|
|
On July 25, 2016, the Company entered into a loan
agreement with CAB for a principal amount of $50,000.
The term of the loan agreement is 15 months, with an interest
free period for the first three months. For the final 12 months, Lexaria
will pay simple interest at the rate of 8% per annum.
|
63
|
During fiscal 2015, outstanding loans to Companys
related parties were repaid from the total consideration from the sale of
Lexarias oil and gas working interest (Note 14). Total interest expense
incurred on such loans during the year ended August 31, 2015 amounted to
CAD$24,720 and $10,333.
|
|
|
|
During July 2016, the Company entered into a marketing
agreement with a Company controlled by a director for compensation of
$4,000 per month. During the year ended August 31, 2016, the Company paid
$8,000 in such fees.
|
|
|
|
As at August 31, 2016, $331,371, inclusive of loan noted
above, was payable to the related parties (August 31, 2015 -
$22,052).
|
|
|
|
The related party transactions are recorded at the
exchange amount established and agreed to between the related
parties.
|
|
|
16.
|
Segment Information
|
|
|
|
The Companys operations involve the development and
usage, including licensing, of its proprietary nutrient infusion
Technology. Lexaria is centrally managed and its chief operating decision
makers, being the president and the CEO, use the consolidated and other
financial information supplemented by revenue information by category of
alternative health products as well as licensing, as a whole, to make
operational decisions and to assess the performance of the Company.
Accordingly, the Company operates in a single segment.
|
|
|
|
During the year ended August 31, 2015, the Companys
operating segments were the oil and gas exploration and the alternative
health products, which were managed separately based on fundamental
differences in the nature of such operations.
|
|
|
|
Summarized financial information concerning Lexarias
reportable segment as at and during the year ended August 31, 2015 was as
follows:
|
|
|
|
|
|
|
Alternative
|
|
|
|
|
|
|
|
|
|
|
Oil and Gas
|
|
|
Health Products
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Revenue
|
|
48,918
|
|
|
14,702
|
|
|
-
|
|
|
63,620
|
|
|
Operation expenses
|
|
-
|
|
|
349,093
|
|
|
1,618,996
|
|
|
1,968,089
|
|
|
Total assets
|
|
-
|
|
|
214,632
|
|
|
497,090
|
|
|
711,722
|
|
17.
|
Commitments, Significant Contracts and
Contingencies
|
|
|
|
Management Agreements
|
|
|
|
As at August 31, 2016, the Company is party to the
following contractual commitments with
management.
|
Party
|
Monthly Commitment
|
C.A.B Financial Services
|
$10,000
|
Docherty
Management Ltd.
|
CAD$12,500
|
64
The Company appointed Mr. John Docherty
as President of Lexaria effective April 15, 2015. The Company executed a
twenty-four month consulting contract with Docherty Management Limited, solely
owned by Mr. John Docherty with monthly compensation of CAD$12,500 and shall
increase to a total of CAD$15,000 per month effective at that time when the
Company has $1,000,000 or more in cash in its bank accounts, and continue at
CAD$15,000 per month from that moment until the termination or completion of the
contract. The Company may also pay Mr. Docherty a bonus from time to time, at
its sole discretion. Mr. Docherty will be entitled to receive common stock based
and stock option based bonuses upon achieving certain milestones during the time
of his consultancy with the Company. These milestones are:
|
|
Upon signing: A grant of 550,000 stock options priced
one-cent above market prices at the time of award. (granted)
|
|
|
90 Days after signing: A grant of 500,000 restricted
common shares (Completed - 462,000 restricted common shares issued with
cash payment of $16,000, as mutually agreed to between the parties).
|
|
|
Twelve months after signing: A grant of 300,000 stock
options priced one-cent above market prices at the time of award
(granted).
|
|
|
18 months after signing: A grant of 300,000 restricted
common shares (252,000 restricted common shares issued subsequent to the
year end (Note 19), with cash payment of $6,240, as mutually agreed to
between the parties).
|
|
|
During the first twelve (12) months after signing; for
combined Lexaria Energy and ViPova products and including all combined
sales efforts, achieving non- refundable sales of $200,000 to any single
customer in any consecutive 60-day period would result in a restricted
common share award of 100,000 Company shares (expired); and, after the
first12 months after signing and expiring 24 months after signing; for
combined Lexaria Energy and ViPova products and including all sales
efforts, achieving non-refundable sales of $200,000 to any single customer
in any consecutive 60-day period would result in a restricted common share
award of 50,000 Company shares; this clause is limited to one payment per
customer during the 24-month period, but payable on each customer that
meets these sales thresholds;
|
|
|
During the first 12 months after signing; for combined
Lexaria Energy and ViPova products and including all combined sales
efforts, achieving non- refundable sales of $500,000 in any fiscal quarter
would result in a restricted common share award of 200,000 Company shares
(expired); and, after the first 12 months after signing and expiring 24
months after signing; for combined Lexaria Energy and ViPova products and
including all sales efforts, achieving non-refundable sales of $500,000 in
any fiscal quarter would result in a restricted common share award of
100,000 Company shares; this clause is limited to one payment per fiscal
quarter;
|
|
|
During the time this Agreement remains in effect, for
each new provisional patent application substantially devised by Mr.
Docherty and successfully created, written and filed with the US Patent
Office for Company-owned intellectual property, a restricted common share
award of 250,000 Company shares. This clause is not limited to frequency
of payment but each patent application is to be approved by the Board of
Directors of the Company, in advance. During the year ended August 31,
2016, the Company issued to Mr. Docherty 210,000 restricted common shares
and further accrued $4,000 combined in lieu of issuance of 250,000
restricted common shares, as mutually agreed to between the parties.
|
Lease
The Company has a lease commitments for
its office space for CAD$826 per month. The lease require a 90-day termination
notice.
Convertible Debenture
The Company has issued a convertible
debenture for $45,000, maturing on August 31, 2020. The convertible debenture
accrues interest at 10% per annum, payable in quarterly installments (Note
10).
Marketing, Branding, and Investor
Relations Advisory
On July 18, 2016, the Company entered
into a service agreement with an arms length service provider for marketing,
branding, and investor relations advisory services (the Advisory Agreement).
The Advisory Agreement has a term of one year with automatic renewal but can be
terminated by either party with 30 days notice. In exchange for services, the
Company issued 250,000 common shares upon signing of the agreement (Note 11) and is obligated to issue share purchase
warrants for purchase of 250,000 common shares, on a monthly basis, with
exercise price that is the average of the daily closing prices of the
preceding month with a minimum of $0.08 per share. The warrants will have
a term of five years from the date of issuance.
65
|
Lexaria retains the right but has no obligation to make
any future months payment in cash using the same formula to establish and
per-share valuation price, multiplied by 250,000, in lieu of issuing the
monthly warrants. The Advisory Service Provider is entitled to 3%
commissions on revenue received by Lexaria originating from the parties
introduced by the Advisory Service Provider.
|
|
|
18.
|
Income Tax
|
|
|
|
The following table reconciles the income tax benefit at
the U.S. Federal statutory rate to income tax benefit at the Companys
effective tax rates as at August 31, 2016 and
2015:
|
|
|
|
August
31
|
|
|
August
31
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Loss before taxes
|
|
(1,277,249
|
)
|
|
(1,934,352
|
)
|
|
Income tax rate
|
|
35.00%
|
|
|
35.00%
|
|
|
Expected income tax recovery
|
|
(447,037
|
)
|
|
(677,023
|
)
|
|
Non-deductible items
|
|
101,040
|
|
|
98,765
|
|
|
Change in estimates
|
|
(897,713
|
)
|
|
646,711
|
|
|
Change in
valuation allowance
|
|
1,243,710
|
|
|
(68,453
|
)
|
|
Total income taxes
|
|
-
|
|
|
-
|
|
Deferred taxes reflect the tax effects
of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes. Deferred tax assets at August 31, 2016 and
2015 are comprised of the following:
|
|
|
August
31
|
|
|
August
31
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Non-capital losses
|
|
3,959,704
|
|
|
2,715,994
|
|
|
Valuation
allowance
|
|
(3,959,704
|
)
|
|
(2,715,994
|
)
|
|
Net deferred tax assets recognized
|
|
-
|
|
|
-
|
|
66
The Company has net operating loss
carryforwards of approximately $11,313,000 which may be carried forward to apply
against future year income tax for U.S. tax purposes.
Year
|
Amount
|
2025
|
76,000
|
2026
|
508,000
|
2027
|
1,056,000
|
2028
|
720,000
|
2029
|
753,000
|
2030
|
552,000
|
2031
|
538,000
|
2032
|
252,000
|
2033
|
344,000
|
2034
|
3,257,000
|
2035
|
2,268,000
|
2036
|
989,000
|
|
11,313,000
|
19.
|
Subsequent Events
|
|
|
|
|
a)
|
The Company granted 250,000 stock options to a consultant
with a strike price of $0.14 per share, and expiry term of two
years.
|
|
|
|
|
b)
|
Pursuant to its agreement with Docherty Management Ltd.
(Note 17), the Company issued 252,000 restricted common shares and cash
compensation of $6,240.
|
|
|
|
|
c)
|
Pursuant to the Advisory Agreement (Note 17), the Company
issued 750,000 warrants with an exercise price of $0.14 per share and
valid for five years, in return for consulting services provided in
August, September, and October. The Company recognized the related fair
value of 250,000 of such warrants for services received during the month
of August 2016, in these consolidated financial statements.
|
|
|
|
|
d)
|
The Company reached an agreement with a director to
settle the outstanding amount pursuant to a marketing agreement (Note 15),
through issuance of common shares of the Company. To settle the
outstanding amount of $16,000 for four months to October 31, 2016, the
Company issued 114,286 shares of its common stock at a value of $0.14 per
share.
|
|
|
|
|
e)
|
The Company issued 56,250 shares of its common stock in
settlement of $9,000, recognized within accounts payable and accrued
liabilities as at August 31, 2016.
|
|
|
|
|
f)
|
A total of 55,000 incentive stock options were exercised
for proceeds of $12,500.
|
|
|
|
|
g)
|
A total of 605,000 share purchase warrants were exercised
for proceeds of $137,508.
|
67
Item 9. Changes in
and Disagreements With Accountants on Accounting and Financial Disclosure
There were no disagreements related to accounting principles or
practices, financial statement disclosure, internal controls or auditing scope
or procedure during the two fiscal years and their respective interim periods.
The Company changed its registered public auditing firm for its fiscal year
ending August 31, 2016 from MNP LLP (the Former Auditor) to Davidson and
Company, LLP. There were no reservations nor any modified opinions expressed in
the Former Auditors reports for the year ended August 31, 2015 or any of the
previous fiscal years. The change in the Companys public auditing firm was
approved by the Companys Audit Committee and the Board of Directors. There were
no reportable events between the Company and the Former Auditors.
Item 9A. Controls and
Procedures
Managements Report on Disclosure Controls and
Procedures
We maintain disclosure controls and procedures that are
designed to ensure that information required to be disclosed in our reports
filed under the
Securities Exchange Act of 1934
, as amended, is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms, and that such information
is accumulated and communicated to our management, including our president and
chief executive officer (also our principal executive officer) and our chief
financial officer (also our principal financial and accounting officer) to allow
for timely decisions regarding required disclosure.
As of August 31, 2016, the end of our fiscal year covered by
this report, we carried out an evaluation, under the supervision and with the
participation of our President and chief executive officer and chief financial
officer (also our principal executive and financial reporting and accounting
officers), of the effectiveness of the design and operation of our disclosure
controls and procedures. Based on the foregoing, our president, chief executive
officer and the chief financial officer concluded that our disclosure controls
and procedures were effective as of the end of the period covered by this annual
report.
Managements Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Responsibility, estimates
and judgments by management are required to assess the expected benefits and
related costs of control procedures. The objectives of internal control include
providing management with reasonable, but not absolute, assurance that assets
are safeguarded against loss from unauthorized use or disposition, and that
transactions are executed in accordance with managements authorization and
recorded properly to permit the preparation of consolidated financial statements
in conformity with accounting principles generally accepted in the United
States. Our management assessed the effectiveness of our internal control over
financial reporting as of August 31, 2016. 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
August 31, 2016, 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 generally accepted accounting principles. Our management reviewed the
results of their assessment with our Board of Directors.
This annual report does not include an attestation report of
our companys registered public accounting firm regarding internal control over
financial reporting. Managements report was not subject to attestation by our
Companys registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit our Company to provide only
managements report in this annual report.
Inherent limitations on effectiveness of controls
Internal control over financial reporting has inherent
limitations which include but is not limited to the use of independent
professionals for advice and guidance, interpretation of existing and/or
changing rules and principles, segregation of management duties, scale of
organization, and personnel factors. Internal control over financial reporting is a process which involves human diligence and
compliance and is subject to lapses in judgment and breakdowns resulting from
human failures. Internal control over financial reporting also can be
circumvented by collusion or improper management override. Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements on a timely basis, however these inherent limitations
are known features of the financial reporting process and it is possible to
design into the process safeguards to reduce, though not eliminate, this risk.
Therefore, even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement preparation and
presentation. Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
68
Changes in Internal Control over Financial
Reporting
There have been no changes in our internal controls over
financial reporting that occurred during the year ended August 31, 2016 that
have materially or are reasonably likely to materially affect, our internal
controls over financial reporting.
Item 9B. Other Information
None
PART III
Item 10. Directors, Executive
Officers and Corporate Governance
All directors of our company hold office until the next annual
meeting of the security holders or until their successors have been elected and
qualified. The officers of our company are appointed by our board of directors
and hold office until their death, resignation or removal from office. Our
directors and executive officers, their ages, positions held, and duration as
such, are as follows:
Name
|
Position Held with our Company
|
Age
|
Date First Elected
Or Appointed
|
Date of
Resignation
|
Christopher Bunka
|
Chairman, Chief Executive
Officer, interim
Chief Financial Officer, and Director,
|
55
|
October 26, 2006
February 14, 2007
April 29, 2016
|
-
|
John Docherty
|
President and Director
|
46
|
April 15, 2015
April 29, 2016
|
-
|
Bal Bhullar
|
Former Chief Financial Officer
and Director
|
47
|
May 12, 2009
|
April 29, 2016
|
Nicholas Baxter
|
Director
|
63
|
July 8, 2011
|
-
|
Ted McKenchnie
|
Director
|
69
|
September 16, 2015
|
-
|
Business Experience
The following is a brief account of the education and business
experience of each director and executive officer during the past five years,
indicating each person's principal occupation during the period, and the name
and principal business of the organization by which he was employed.
Mr. Christopher Bunka Chairman, Chief Executive Officer
and Director
Mr. Bunka has served as our director, chairman, president and
chief executive officer since October 26, 2006. From February 14, 2007 until May
12, 2009 he was the chief financial officer of our company. Since October 26,
2006 Mr. Bunka has successfully completed both equity and debt financings for
our company, completed the acquisition of additional oil & gas assets,
disposed of other oil & gas assets, and restructured our company. He has
refocused our company from one of natural gas exploration to that of
development of existing oil reserves, and has engaged additional geophysical
expertise in an attempt to better understand its exploration and development
opportunities. Mr. Bunka has privately evaluated numerous oil and gas properties
and investment opportunities for his private investments during the past 10
years.
69
Since 1988, Mr. Bunka has been the CEO of CAB Financial
Services Ltd., a private holding company located in Kelowna, Canada. He is a
venture capitalist and corporate consultant.
Mr Bunka was formerly Chairman/CEO of Enertopia Corp, (symbol
ENRT-OTC) but resigned in 2013. Mr. Bunka was formerly a director of Defiance
Capital Corp., (symbol DEF-TSXV) a Canadian resource company, but resigned in
2014.
Mr. John Docherty President and Director
Mr. Docherty was appointed President of Lexaria effective April
15, 2015. Prior to Lexaria Mr. Docherty was former President and Chief Operating
officer of Helix BioPharma Corp. (TSX: HBP), where he led the companys
pharmaceutical development programs for its plant and recombinantly derived
therapeutic protein product candidates. Mr. Docherty is a senior operations and
management executive with over 20 years experience in the pharmaceutical and
biopharmaceutical sectors. He has worked with large multinational companies and
emerging, private and publicly held start-ups. At Helix, Mr. Docherty was also
instrumental in the areas of investor/stakeholder relations, capital raising,
capital markets development, strategic partnering, regulatory authority
interactions and media relations, and he also served as a management member of
its board of directors. Prior to this, Mr. Docherty was President and a board
member of PharmaDerm Laboratories Ltd., a Canadian drug delivery company that
developed unique microencapsulation formulation technologies for use with a
range of active compounds.
Mr. Docherty has also held positions with companies such as
Astra Pharma Inc., Nu-Pharm Inc. and PriceWaterhouseCoopers former global
pharmaceutical industry consulting practice. He is a named inventor on issued
and pending patents and he has a M.Sc. in pharmacology and a B.Sc. in Toxicology
from the University of Toronto.
He has served as a director of Lexaria since April 29, 2016.
Mr. Nicholas Baxter - Director
Mr. Baxter has been in the oil & gas business for 30 years.
Mr. Baxter received a Bachelor of Science (Honors) from the University of
Liverpool in 1975. Mr. Baxter has worked on geophysical survey and exploration
projects in the U.K., Europe, Africa and the Middle East. From 1981 to 1985, Mr.
Baxter worked for Resource Technology plc, a geophysical equipment
sales/services company that went public on the USM in London in 1983 and
graduated to the London Stock Exchange in 1984. Mr. Baxter established his own
company in 1985 as a co-founder of Addison & Baxter Limited, a private
geophysical/geological sales and services company which was acquired by A&B
Geoscience Corporation in 1992. Mr. Baxter was Chief Operating Officer and a
director of A&B Geoscience Corporation from 1992 to 2002. Mr. Baxter worked
as an independent upstream oil and gas consultant from 2002 to 2004. He joined
Eurasia Energy Ltd in 2005, where he is currently President and Chief Executive
Officer.
Mr. Ted McKechnie Director
An entrepreneurial executive with extensive Board and Senior
Management Experience in the consumer goods industry with a proven track record
for achieving corporate financial and growth objectives. He is the former
President and COO of Maple Leaf Foods, which in 2014 had revenue of over CDN
$3.1 billion dollars. Mr. McKechnie also has held executive positions with
Kraft, Frito Lay, General Foods, PepsiCo, and Philip Morris Companies. He is the
Founder, Chairman and CEO of Canadas Technology For Food. Mr. McKechnie is an
energetic leader experienced in building teams in marketing, sales and supply
chain management. Ted is the recipient of the Philip Morris Chairmans Award for
recognition of extraordinary contributions having a significant and lasting
impact on the Corporation.
70
Family Relationships
There are no family relationships among any of our directors or
officers.
Involvement in Certain Legal Proceedings
None of our directors, executive officers, promoters or control
persons has been involved in any of the following events during the past five
years:
1.
A petition
under the Federal bankruptcy laws or any state insolvency law was filed by or
against, or a receiver, fiscal agent or similar officer was appointed by a court
for the business or property of such person, or any partnership in which he was
a general partner at or within two years before the time of such filing, or any
corporation or business association of which he was an executive officer at or
within two years before the time of such filing;
2.
Such person
was convicted in a criminal proceeding or is a named subject of a pending
criminal proceeding (excluding traffic violations and other minor offenses);
3.
Such person
was the subject of any order, judgment, or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining him from, or otherwise limiting, the following activities:
|
i.
|
Acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool operator, floor broker,
leverage transaction merchant, any other person regulated by the Commodity
Futures Trading Commission, or an associated person of any of the
foregoing, or as an investment adviser, underwriter, broker or dealer in
securities, or as an affiliated person, director or employee of any
investment company, bank, savings and loan association or insurance
company, or engaging in or continuing any conduct or practice in
connection with such activity
|
|
|
|
|
ii.
|
Engaging in any type of business practice; or
|
|
|
|
|
iii.
|
Engaging in any activity in connection with the purchase
or sale of any security or commodity or in connection with any violation
of Federal or State securities laws or Federal commodities
laws;
|
4.
Such person
was the subject of any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any Federal or State authority barring, suspending or
otherwise limiting for more than 60 days the right of such person to engage in
any activity described in paragraph (f)(3)(i) of this section, or to be
associated with persons engaged in any such activity;
5.
Such person
was found by a court of competent jurisdiction in a civil action or by the
Commission to have violated any Federal or State securities law, and the
judgment in such civil action or finding by the Commission has not been
subsequently reversed, suspended, or vacated;
6.
Such person
was found by a court of competent jurisdiction in a civil action or by the
Commodity Futures Trading Commission to have violated any Federal commodities
law, and the judgment in such civil action or finding by the Commodity Futures
Trading Commission has not been subsequently reversed, suspended or vacated;
7.
Such person
was the subject of, or a party to, any Federal or State judicial or
administrative order, judgment, decree, or finding, not subsequently reversed,
suspended or vacated, relating to an alleged violation of:
|
i.
|
Any Federal or State securities or commodities law or
regulation; or
|
|
|
|
|
ii.
|
Any law or regulation respecting financial institutions
or insurance companies including, but not limited to, a temporary or
permanent injunction, order of disgorgement or restitution, civil money
penalty or temporary or permanent cease-and-desist order, or removal or
prohibition order; or
|
71
|
iii.
|
Any law or regulation prohibiting mail or wire fraud or
fraud in connection with any business entity; or
|
8.
Such person
was the subject of, or a party to, any sanction or order, not subsequently
reversed, suspended or vacated, of any self-regulatory organization (as defined
in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered
entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C.
1(a)(29))), or any equivalent exchange, association, entity or organization that
has disciplinary authority over its members or persons associated with a member.
Compliance with Section 16(a) of the Securities Exchange Act
of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires
our executive officers and directors and persons who own more than 10% of our
common stock to file with the Securities and Exchange Commission initial
statements of beneficial ownership, reports of changes in ownership and annual
reports concerning their ownership of our common stock and other equity
securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and
greater than 10% shareholders are required by the SEC regulations to furnish us
with copies of all Section 16(a) reports that they file.
Based solely on our review of the copies of such forms received
by us, or written representations from certain reporting persons, we believe
that during fiscal year endedAugust 31, 2016, all filing requirements applicable
to our officers, directors and greater than 10% percent beneficial owners were
complied with.
Code of Ethics
We adopted a Code of Ethics applicable to our senior financial
officers and certain other finance executives, which is a "code of ethics" as
defined by applicable rules of the SEC. Our Code of Ethics is attached as an
exhibit to our Form SB-2 filed on September 20, 2007. If we make any amendments
to our Code of Ethics other than technical, administrative, or other
non-substantive amendments, or grant any waivers, including implicit waivers,
from a provision of our Code of Ethics to our chief executive officer, chief
financial officer, or certain other finance executives, we will disclose the
nature of the amendment or waiver, its effective date and to whom it applies in
a Current Report on Form 8-K filed with the SEC.
Board and Committee Meetings
Our board of directors held one formal meeting and several
informal meetings during the year ended August 31, 2016. All proceedings of the
board of directors were conducted by resolutions consented to in writing by all
the directors and filed with the minutes of the proceedings of the directors.
Such resolutions consented to in writing by the directors entitled to vote on
that resolution at a meeting of the directors are, according to the Nevada
General Corporate Law and our Bylaws, as valid and effective as if they had been
passed at a meeting of the directors duly called and held.
Nomination Process
As of August 31, 2016, we did not effect any material changes
to the procedures by which our shareholders may recommend nominees to our board
of directors. Our board of directors does not have a policy with regards to the
consideration of any director candidates recommended by our shareholders. Our
board of directors has determined that it is in the best position to evaluate
our companys requirements as well as the qualifications of each candidate when
the board considers a nominee for a position on our board of directors. If
shareholders wish to recommend candidates directly to our board, they may do so
by sending communications to the president of our Company at the address on the
cover of this annual report.
Audit Committee and Audit Committee Financial Expert
Currently our audit committee consists of our entire board of
directors. We currently do not have nominating, compensation committees or
committees performing similar functions. There has not been any defined policy
or procedure requirements for shareholders to submit recommendations or
nomination for directors.
72
Our board of directors has determined that it does not have a
member of its board of directors (audit committee) that qualifies as an "audit
committee financial expert" as defined in Item 407(d)(5)(ii) of Regulation S-K,
and is "independent" as the term is used in Item 7(d)(3)(iv) of Schedule 14A
under the Securities Exchange Act of 1934, as amended.
We believe that the members of our board of directors are
collectively capable of analyzing and evaluating our consolidated financial
statements and understanding internal controls and procedures for financial
reporting. We believe that retaining an independent director who would qualify
as an "audit committee financial expert" would be overly costly and burdensome
and is not warranted in our circumstances given the early stages of our
development and the fact that we have not generated any material revenues to
date. In addition, we currently do not have nominating, compensation or audit
committees or committees performing similar functions nor do we have a written
nominating, compensation or audit committee charter. Our board of directors does
not believe that it is necessary to have such committees because it believes the
functions of such committees can be adequately performed by our board of
directors.
Item 11. Executive
Compensation
The particulars of the compensation paid to the following
persons:
(a)
|
our principal executive officer;
|
|
|
|
|
(b)
|
each of our two most highly compensated executive
officers who were serving as executive officers at the end of the years
ended August 31, 2016 and August 31, 2015; and
|
|
|
|
|
(c)
|
up to two additional individuals for whom disclosure
would have been provided under (b) but for the fact that the individual
was not serving as our executive officer at the end of the years ended
August 31, 2016 and August 31, 2015,
|
who we will collectively refer to as the named executive
officers of our Company, are set out in the following summary compensation
table, except that no disclosure is provided for any named executive officer,
other than our principal executive officers, whose total compensation did not
exceed $100,000 for the respective fiscal year:
73
SUMMARY COMPENSATION TABLE
|
Name and
Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
(6)
|
Option
Awards
($)
(3)
|
Non-Equity
Incentive Plan
Compensation
($)
|
Non-Qualified
Deferred
Compensation
Earnings
($)
|
All Other
Compensation
($)
|
Total
($)
|
Christopher
Bunka
(1)
,
Chairman, Chief
Executive
Officer, Interim
Chief Financial
Officer &
Director
|
2016
2015
|
-
-
|
-
-
|
-
-
|
-
49,750
|
-
-
|
-
-
|
120,000
119,700
|
120,000
163,750
|
Bal Bhullar
(2)
,
Chief
Financial
Officer &
Director
|
2016
2015
|
-
-
|
-
-
|
-
-
|
-
49,750
|
-
-
|
-
-
|
44,767
69,543
|
44,767
119,293
|
Tom Irkhe(4)
Vice President
|
2016
2015
|
-
-
|
-
-
|
-
-
|
-
9,947
|
-
-
|
-
-
|
18,000
42,000
|
18,000
51,947
|
John
Docherty(5)
President
|
2016
2015
|
-
-
|
-
-
|
21,000
83,532
|
32,768
39,722
|
-
-
|
-
-
|
117,213
44,965
|
170,981
168,219
|
|
(1)
|
Mr. Bunka was appointed as chairman, president, chief
executive officer, and director on October 26, 2006, and was chief
financial officer of our company from February 14, 2007 until May 12,
2009, and again from April 29, 2016 to present. He resigned as president
on April 15, 2015. We pay Mr. Bunka a consulting fee through CAB Financial
Services Ltd., where he is also the Chief Executive Officer.
|
|
|
|
|
(2)
|
Ms. Bhullar was appointed Chief Financial Officer on May
12, 2009 and resigned April 29, 2016. We paid Ms. Bhullar consulting fees
through her wholly owned company BKB Management Ltd.
|
|
|
|
|
(3)
|
The fair value of the stock options awarded was estimated
using the Black-Scholes option pricing model with the following
assumptions: expected volatility of 240.00% (2015 248%); risk-free
interest rate of 1.22% (2015 1.60%); expected life of 5 years (2015 5
years); and dividend yield of 0.00% (2015 0.00%).
|
|
|
|
|
(4)
|
Mr. Ihrke became Vice President on December 23, 2015 and
resigned on March 8, 2016.
|
|
|
|
|
(5)
|
Mr. Docherty became President on April 15, 2015 and a
director on April 29, 2016. We pay Mr. Docherty a consulting fee through
his wholly owned company Docherty Management Ltd.
|
|
|
|
|
(6)
|
Pursuant to the agreement with Docherty Management Ltd.
Mr. Docherty received 210,000 (2015 462,000) restricted common shares
with a value of $21,000 (2015 - $83,532).
|
Our company is currently paying consulting fees to our chief
executive officer and chief financial officer $10,000 per month, and paying our
president CAD$12,500 per month in consulting fees.
Employment/Consulting Agreements
On November 27, 2008, the Company entered into a Consulting
Agreement with CAB Financial Services Ltd. for consulting services of CAB on a
continuing basis for a consideration of US$8,000 per month plus GST. Effective
December 1, 2014, the Company entered into a new consulting agreement with the
consulting services at $10,000 per month plus GST.
On May 12, 2009 the Company entered into a consulting agreement
with BKB Management Ltd. to act as the Chief Financial Officer and a Director for an initial period of six
months for consideration of CAD $4,500 per month plus GST. Effective December 1,
2014, the Company entered into a new consulting agreement for CAD$7,500 per
month plus GST. Effective March 29, 2016, BKB Management Ltd. resigned its
position and the contract was terminated.
74
On August 5, 2010 we entered into a three-month Management
agreement with Tom Ihrke to act as the Senior Vice-President, Business
Development for the Company for consideration of $3,125 per month. On December
2, 2010, the Company entered into a month to month management agreement with Tom
Ihrke. On October 3, 2011 Mr. Ihrke and the Company amended the agreement
whereby his title changed to Manager, Business Development. The Company agreed
to pay a monthly consulting fee of $3,125. Effective January 15, 2012, the
consulting agreement was decreased to $10 a month. Effective April 1, 2014, the
amended consulting agreement was increased to $5,000 per month. Effective
December 23, 2014, the Company entered into a new Executive Management
consulting agreement for $3,000 per month. Effective March 8, 2016 Mr. Ihrke
resigned and the contract was terminated.
On March 26, 2015, the Company announced the appointment John
Docherty as President of Lexaria effective April 15, 2015. The Company executed
a twenty four month consulting contract with Docherty Management Limited, solely
owned by Mr. John Docherty with a monthly compensation of CAD$12,500 and shall
increase to a total of CAD$15,000 per month effective at that time when the
Company has $1,000,000 or more in cash in its bank accounts, and continue at
$15,000 per month from that moment until the termination or completion of the
contract.
Other than as set out in this annual report on Form 10-K we
have not entered into any employment or consulting agreements with any of our
current officers, directors or employees.
Grants of Plan-Based Awards Table
We did not grant any awards to our named executive officers in
the during our fiscal year ended August 31, 2016.
Outstanding Equity Awards at Fiscal Year End
The particulars of unexercised options, stock that has not
vested and equity incentive plan awards for our named executive officers are set
out in the following table:
OUTSTANDING EQUITY AWARDS AT FISCAL
YEAR-END
|
|
OPTION AWARDS
|
STOCK AWARDS
|
Name
|
Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
|
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number
of
Shares
or
Units
of Stock
That
Have
Not
Vested
(#)
|
Market
Value of
Shares
or Units
of Stock
That
Have
Not
Vested
($)
|
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#)
|
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units
or
Other Rights
That Have
Not Vested
(#)
|
Christopher
Bunka
|
550,000
247,500
|
-
-
|
-
-
|
$0.11
$0.10
|
2019/12/22
2018/06/18
|
-
-
|
-
-
|
-
-
|
-
-
|
Tom Ihrke
|
330,000
|
-
|
-
|
$0.11
|
2019/12/22
|
-
|
-
|
-
|
-
|
John
Docherty
|
550,000
300,000
|
-
-
|
-
-
|
$0.10
$0.11
|
2020/03/26
2021/04/15
|
-
-
|
-
-
|
-
-
|
-
-
|
Option Exercises
During our fiscal year ended August 31, 2016, no options were
exercised by our named officers.
75
Compensation of Directors
We do not have any agreements for compensating our directors
for their services in their capacity as directors, although such directors are
expected in the future to receive stock options to purchase shares of our common
stock as awarded by our board of directors.
Pension, Retirement or Similar Benefit Plans
There are no arrangements or plans in which we provide pension,
retirement or similar benefits for directors or executive officers. We have no
material bonus or profit sharing plans pursuant to which cash or non-cash
compensation is or may be paid to our directors or executive officers, except
that stock options may be granted at the discretion of the board of directors or
a committee thereof.
Indebtedness of Directors, Senior Officers, Executive
Officers and Other Management
None of our directors or executive officers or any associate or
affiliate of our company during the last two fiscal years is or has been
indebted to our company by way of guarantee, support agreement, letter of credit
or other similar agreement or understanding currently outstanding.
Compensation Committee Interlocks and Insider Participation
During 2016, we did not have a compensation committee or
another committee of the board of directors performing equivalent functions.
Instead the entire board of directors performed the function of compensation
committee. Our board of directors approved the executive compensation, however,
there were no deliberations relating to executive officer compensation during
2016.
Compensation Committee Report
None.
Item 12. Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth, as of November 24, 2016,
certain information with respect to the beneficial ownership of our common
shares by each shareholder known by us to be the beneficial owner of more than
5% of our common shares, as well as by each of our current directors and
executive officers as a group. Each person has sole voting and investment power
with respect to the shares of common stock, except as otherwise indicated.
Beneficial ownership consists of a direct interest in the shares of common
stock, except as otherwise indicated.
Name and Address of Beneficial Owner
|
|
Amount and Nature of
Beneficial Ownership
|
|
|
Percentage
of Class
|
|
Christopher Bunka; Kelowna BC
Canada
|
|
14,064,323
|
(1)
|
|
26.35%
|
|
Nicholas Baxter; Aberdeenshire, UK
|
|
330,000
|
(2)
|
|
0.63%
|
|
John Docherty; Toronto,
Ontario
|
|
2,060,000
|
(3)
|
|
3.89%
|
|
Ted
McKechnie; Toronto, Ontario
|
|
334,286
|
(4)
|
|
0.6%
|
|
Directors and Executive
Officers as a Group (4 persons)
|
|
16,788,609
|
|
|
31.47%
|
|
David DeMartini, Texas, Houston
|
|
3,609,375
|
|
|
5.3%
|
|
Total as a Group ( persons)
(5)
|
|
20,397,984
|
|
|
36.77%
|
|
(1)
|
Includes 5,421,844 shares held in the name of C.A.B.
Financial Services and 7,207,979 shares held directly by Chris Bunka,
chairman, chief executive officer and a director of our company. Includes
187,000 warrants held in the name of C.A.B. Financial Services with an
exercise price of $0.227 and 450,000 warrants held directly
by Chris Bunka with an exercise price of $0.14. Includes
247,000 options which are exercisable at $0.1091 and 550,000 options
exercisable at $0.10; .
|
76
(2)
|
Includes 110,000 options which are exercisable at $0.10.
Nicholas Baxter is a director of our company.
|
|
|
(3)
|
Includes 143,000 warrants with an exercise price of
$0.227. Includes 550,000 options which are exercisable at $0.10 and
300,000 options which are exercisable at $0.11. John Docherty is the
President and a Director of our Company
|
|
|
(4)
|
Includes 110,000 options exercisable at $0.171. Ted
McKechnie is a Director of our Company.
|
|
|
(5)
|
Under Rule 13d-3, a beneficial owner of a security
includes any person who, directly or indirectly, through any contract,
arrangement, understanding, relationship, or otherwise has or shares: (i)
voting power, which includes the power to vote, or to direct the voting of
shares; and (ii) investment power, which includes the power to dispose or
direct the disposition of shares. Certain shares may be deemed to be
beneficially owned by more than one person (if, for example, persons share
the power to vote or the power to dispose of the shares). In addition,
shares are deemed to be beneficially owned by a person if the person has
the right to acquire the shares (for example, upon exercise of an option)
within 60 days of the date as of which the information is provided. In
computing the percentage ownership of any person, the amount of shares
outstanding is deemed to include the amount of shares beneficially owned
by such person (and only such person) by reason of these acquisition
rights. As a result, the percentage of outstanding shares of any person as
shown in this table does not necessarily reflect the persons actual
ownership or voting power with respect to the number of shares of common
stock actually outstanding on November 9, 2016. As of November 9, 2016,
there were 51,931,013 shares of our common stock issued and
outstanding.
|
Changes in Control
We are unaware of any contract or other arrangement the
operation of which may at a subsequent date result in a change in control of our
company.
Item 13. Certain Relationships
and Related Transactions, and Director Independence
Except as disclosed herein, no director, executive officer,
shareholder holding at least 5% of shares of our common stock, or any family
member thereof, had any material interest, direct or indirect, in any
transaction, or proposed transaction since the year ended August 31, 2016, in
which the amount involved in the transaction exceeded or exceeds the lesser of
$120,000 or one percent of the average of our total assets at the year end for
the last three completed fiscal years.
Director Independence
We currently act with four directors, consisting of Christopher
Bunka, John Docherty, Nicholas Baxter and Ted McKechnie. We have determined that
Nicholas Baxter is an independent director as defined in NASDAQ Marketplace
Rule 4200(a)(15).
Currently our audit committee consists of our entire board of
directors. We currently do not have nominating, compensation committees or
committees performing similar functions. There has not been any defined policy
or procedure requirements for shareholders to submit recommendations or
nomination for directors.
Our board of directors has determined that it does not have a
member of its audit committee who qualifies as an audit committee financial
expert as defined in as defined in Item 407(d)(5)(ii) of Regulation S-K.
From inception to present date, we believe that the members of
our audit committee and the board of directors have been and are collectively
capable of analyzing and evaluating our financial statements and understanding
internal controls and procedures for financial reporting.
77
We do not have a standing compensation or nominating committee,
but our entire board of directors act in such capacity. We believe that our
directors are capable of analyzing and evaluating our financial statements and
understanding internal controls and procedures for financial reporting. Our
directors do not believe that it is necessary to have an audit committee because
we believe that the functions of an audit committee can be adequately performed
by the board of directors. In addition, we believe that retaining additional
independent directors who would qualify as an audit committee financial expert
would be overly costly and burdensome and is not warranted in our circumstances
given the early stages of our development.
Item 14. Principal Accounting
Fees and Services
The aggregate fees billed for the most recently completed
fiscal year ended August 31, 2016 and for fiscal year ended August 31, 2015 for
professional services rendered by the principal accountant for the audit of our
annual financial statements and review of the financial statements included in
our quarterly reports on Form 10-Q and services that are normally provided by
the accountant in connection with statutory and regulatory filings or
engagements for these fiscal periods were as follows:
|
|
Year Ended
|
|
|
|
August 31, 2016
|
|
|
August 31, 2015
|
|
Audit Fees
|
|
38,186
|
|
|
47,407
|
|
Audit Related Fees
|
|
-
|
|
|
-
|
|
Tax Fees
|
|
-
|
|
|
-
|
|
All
Other Fees
|
|
-
|
|
|
-
|
|
Total
|
|
38,186
|
|
|
47,407
|
|
Audit Fees:
Audit fees consist of fees billed for
professional services rendered for the audits of our financial statements,
reviews of our interim financial statements included in quarterly reports,
services performed in connection with filings with the Securities and Exchange
Commission and related comfort letters and other services that are provided by
the Companys principal accountants for the fiscal years ended August 31, 2016
and August 31, 2015 in connection with statutory and regulatory filings or
engagements.
Audit related Fees:
Audit related fees consist of fees
billed for assurance and related services by the Companys principal accountant
that are reasonably related to the performance of the audit or review of the
Companys financial statements, which are not included in the Audit Fees
described above.
Tax Fees.
Tax fees consist of fees billed for
professional services for tax compliance, tax advice and tax planning. These
services include assistance regarding federal, state and local tax compliance
and consultation in connection with various transactions and acquisitions.
We do not use our principal accountants for services other than
the ones related to the our annual audit and the review of our interim financial
statements. We therefore do not involve our principal accounants for matters
related to tax compliance and financial information system design and
implementation. These services, which include corporate tax preparation and
designing or implementing a system that aggregates source data underlying the
financial statements or generates information that is significant to our
financial statements, are provided internally or by other service providers.
Effective May 6, 2003, the Securities and Exchange Commission
adopted rules that require that before our independent auditors are engaged by
us to render any auditing or permitted non-audit related service, the engagement
be:
-
approved by our audit committee (which consists of our entire board of
directors); or
-
entered into pursuant to pre-approval policies and procedures established
by the board of directors, provided the policies and procedures are detailed
as to the particular service, the board of directors is informed of each service, and such policies and
procedures do not include delegation of the board of directors' responsibilities
to management.
78
Our board of directors pre-approves all services provided by
our independent auditors. All of the above services and fees were reviewed and
approved by the board of directors either before or after the respective
services were rendered.
Our board of directors has considered the nature and amount of
fees billed by our independent auditors and believes that the provision of
services for activities unrelated to the audit is compatible with maintaining
our independent auditors independence.
PART IV
Item 15. Exhibits, Financial
Statement Schedules
(a)
|
Financial Statements
|
|
|
|
|
(1)
|
Financial statements for our Company are listed in the
index under Item 8 of this document
|
|
|
|
|
(2)
|
All financial statement schedules are omitted because
they are not applicable, not material or the required information is shown
in the financial statements or notes thereto.
|
|
|
|
(b)
|
Exhibits
|
*
|
Filed herewith.
|
|
|
**
|
Furnished herewith. Pursuant to Rule 406T of
Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are
deemed not filed or part of any registration statement or prospectus for
purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed
not filed for purposes of Section 18 of the Securities and Exchange Act of
1934, and otherwise are not subject to liability under those
sections
|
79
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
LEXARIA BIOSCIENCE CORP.
By
: /s/ Christopher Bunka
Christopher Bunka
Chief
Executive Officer, Chairman and Director
(Principal Executive Officer)
Date: November 24, 2016
In accordance with the Exchange Act, this Report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
By: /
s/ Christopher Bunka
Christopher Bunka
Chief
Executive Officer, Chairman and Director, Chief Financial Officer
(Principal
Executive Officer)
Date: November 24, 2016
By:
/s/
John Docherty
John Docherty
President and
Director
Date: November 24, 2016
By:
/s/Ted McKechnie
Ted McKechnie
Director
Date: November 24, 2016
80