22.

Discontinued Operations

Judgement is required in determining whether a subsidiary or group of assets qualifies as a business and as discontinued operations. A business is presumed to be an integrated set of activities and assets capable of being conducted and managed for the purpose of providing economic benefits. The Company determined that the assets sold were a business. The Company derecognizes a subsidiary or a group of assets only when the rights to the cash flows from the asset expire, or when it transfers the subsidiary or group of asset and substantially all the risks and rewards of ownership of the assets to another entity.

Determination of the date of recognition was based on the closing date, final clearance and approval by the TSX Venture Exchange (TSXV) of the share issuances forming part of the consideration. As all consideration is in C$ and the share value is based on fixed C$ values, regardless of the share price of the underlying stock, the amounts were translated at the spot foreign exchange rate on the closing date. The valuation of the note receivable was included at its nominal value of $NIL as payment of the note is not determinable.

On November 19, 2020, the Company entered a definitive asset sale agreement through its wholly owned subsidiary Lexaria CanPharm ULC to sell certain non-core business assets to Hill Street Beverage Company (“Hill Street”) (TSXV: BEER) for gross proceeds of $3,850,000.

With the closing of the sale on December 10, 2020, the Company received C$350,000 in cash, 6,031,363 restricted common shares at a fair value of C$500,000 as the first required equity-based payment, and a C$2,000,000 promissory note bearing interest at 10% per annum. The promissory note was included at its nominal value of $NIL. Pursuant to the terms of the transaction, the Company will receive an additional C$1,000,000 worth of common shares of Hill Street in two equal tranches at eight and sixteen months post-closing.

Gain on asset disposal

Book value of assets sold

Cash consideration

Shares received

Shares receivable

Promissory note

The financial results of the group of assets sold are presented as income (loss) from discontinued operations, net of income taxes in our consolidated statement of income. The following table presents financial results of the assets:

Revenue

Operating expenses

) 

) 

Net income (loss)

The following table presents cash flows of discontinued operations:

Cash flows used in discontinued operating activities

Net income (loss)

) 

Change in working capital

Net cash used in discontinued operating activities

Net cash provided by (used in) discontinued operations

The following table presents the aggregate carrying amounts of the classes of assets and liabilities of discontinued operations of the assets:

Current Assets

Accounts receivable

Total assets classified as discontinued operations in the consolidated balance sheet

Current Liabilities

Accounts payable

Total liabilities classified as discontinued operations in the consolidated balance sheet