What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-11-29 compared with 2020-10-15 · 328 added, 302 removed, 341 unchanged (65% of the section changed)

Financial Statements and Supplementary Data

Page 57 of 96

Report of Independent Registered Public Accounting Firm

3 unchanged sentences

We have audited the accompanying consolidated balance sheets of Lexaria Bioscience Corp.

(the “Company”), as of August 31, 2020 and 2019, and the related consolidated statements of operations and comprehensive loss, cash flows and stockholders’ equity for the years ended August 31, 2020 and 2019, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Lexaria Bioscience Corp.

as of August 31, 2020 and 2019, and the results of its operations and its cash flows for the years ended August 31, 2020 and 2019 in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise 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.

(the “Company”) as of August 31, 2021 and 2020, and the related consolidated statements of operations and comprehensive loss, cash flows, and stockholders’ equity for each of the two years in the period ended August 31, 2021, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of August 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended August 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

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We conducted our audits in accordance with the standards of the PCAOB.

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, whether due to error or fraud.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatements of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

We have not identified any critical audit matters for the years ended August 31, 2021 and 2020.

We have served as the Company’s auditor since 2016.

“DAVIDSON & COMPANY LLP”

Chartered Professional Accountants

Vancouver, Canada

October 14, 2020

/s/ DAVIDSON & COMPANY LLP

Vancouver, Canada Chartered Professional Accountants

November 26, 2021

Page 50 of 90

2 unchanged sentences

(Expressed in U.S.

Cash and cash equivalents

Marketable securities (Note 19)

Accounts receivable (Note 7)

Inventory (Note 8)

Prepaid expenses and deposit (Note 18)

Marketable securities

Accounts receivable

Prepaid expenses and deposit

Total Current Assets

Non-current assets, net

Lease right of use

Intellectual property (Note 9)

Property & equipment (Note 10)

Right-of-use assets

Intellectual property

Property and equipment

Total Non-current Assets

Accounts payable and accrued liabilities (Note 11)

Deferred revenue (Note 14)

Due to related party (Note 15)

Lease current (Note 17)

Accounts payable and accrued liabilities

Deferred revenue

Due to related party

Lease liabilities

Total Current Liabilities

Lease long term(Note 17)

Lease liabilities - long term

Total Long Term Liabilities

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STOCKHOLDERS' EQUITY

Share capital (Note 12)

Share capital

220,000,000 common voting shares with a par value of $ 0.001 per share

Issued and outstanding:90,044,312 common shares at August 31, 2020 and 78,787,134 common shares at August 31, 2019

Additional paid-in capital (Note 12, 13)

Issued and outstanding:

5,726,699 common shares at August 31, 2021

and 3,001,476 common shares at August 31, 2020

Additional paid-in capital

( 31,829,204 )

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Dollars except number of shares)

Revenue (Note 14)

Cost of goods sold

Accounting and audit

Depreciation and amortization (Note 9, 10)

Advertising and promotions

Consulting (Notes 13, 15, 17)

Investor relations

Legal and professional

Office and miscellaneous

Operating Expenses

Research and development

Wages & salaries

Loss on disposal of marketable securities

Unrealized loss on marketable securities (Note 19)

Inventory writeoff (Note 8)

General and administrative

Total operating expenses

Loss from operations

( 5,686,852 )

( 4,148,797 )

Gain on disposal of assets

Discontinued operations

Net loss and comprehensive loss for the year

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Non-controlling interest

$ ( 159,142 )

$ ( 150,617 )

Basic and diluted loss per share

Basic and diluted earnings (loss) per share from discontinued operations

Weighted average number of common shares outstanding

- Basic and diluted

The accompanying notes are an integral party of these consolidated financial statements.

The accompanying notes are an integral part of these consolidated financial statements.

Page 52 of 90

8 unchanged sentences

Stock based compensation

Depreciation and amortization (Note 8, 9, 10)

Inventory write-off (Note 8)

Bad debt expense

Noncash right of use lease expense

Realized loss on disposal of marketable securities (Note 19)

Unrealized loss on marketable securities (Note 19)

Depreciation and amortization

Inventory write-off

Amortization on right of use asset

Realized loss on disposal of marketable securities

Unrealized loss on marketable securities

Gain on asset disposal

( 1,522,704 )

Common shares issued for services

Warrants issued for services

Lease accretion

Change in working capital

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Due to related parties

Operating lease liability

Deferred revenue

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$ ( 2,618,785 )

Cash flows used in investing activities

Sale of marketable securities (Note 20)

Cash flows from (used in) investing activities

Sale of marketable securities

Intellectual property

Property & equipment

Net cash used in investing activities

Asset disposition

Net cash from (used in) investing activities

Cash flows from financing activities

Investment from NCI

Long term loan

Lease payments

Proceeds from issuance of equity

Proceeds from warrant exercises

Net cash from financing activities

Decrease in cash and cash equivalents

Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

Increase in cash

Cash, beginning of year

Cash, end of year

Supplemental information of cash flows:

Income taxes paid in cash

Reclassification of NCI to additional paid in capital on acquisition

The accompanying notes are an integral party of these consolidated financial statements.

Marketable securities received on amounts receivable

The accompanying notes are an integral part of these consolidated financial statements.

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2 unchanged sentences

(Expressed in U.S.

Dollars except number of shares)

ADDITIONAL PAID-IN CAPITAL $

6 unchanged sentences

Exercise of stock options

Exercise of warrants

Private Placement

Private Placements

( 3,933,996 )

Non-controlling interest

Other comprehensive income

Subsidiary Investment

Balance August 31, 2020

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Warrants issued for services

Exercise of stock options

Exercise of warrants

Private placement

( 4,027,006 )

Non-controlling interest

6 unchanged sentences

August 31, 2021

(Expressed in U.S.

Organization, Business and Going Concern

Nature of Business

Lexaria Bioscience Corp.

(“Lexaria”, or the “Company”) was formed on December 9, 2004 under the laws of the State of Nevada.

In March of 2014, the Company began its entry into the bioscience and alternative health and wellness business.

In May 2016, the Company commenced out-licensing its patented DehydraTECH™ technology (“DehydraTECH”) for improved delivery of bioactive compounds that promotes healthy ingestion methods, lower overall dosing and higher effectiveness in active molecule delivery.

The Company has its office in Kelowna, BC, Canada.

The Company’s consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and in accordance with accounting principles generally accepted in the United States (US GAAP) applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.

The recurring losses from operations and net capital deficiency raise substantial doubt about the Company’s ability to continue as a going concern.

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

Management’s plans in this regard are to raise equity and debt financing as required, but there is no certainty that such financing will be available or that it will be available at acceptable terms.

The outcome of these matters cannot be predicted at this time.

In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic.

This contagious disease outbreak and any related adverse public health developments may adversely affect workforces, economies, and financial markets globally, potentially leading to an economic downturn.

It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or results of operations at this time.

Business Risk and Liquidity

The Company is subject to several categories of risk associated with its operating activities.

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.

(“Lexaria”, “we”, “our” or the “Company”) is a biotechnology company pursuing the enhancement of the bioavailability of a diverse and broad range of active pharmaceutical ingredients (“API”) using our proprietary DehydraTECH drug delivery technology.

Revenues are received from licensing the Company’s patented technology to partners who pay either a license fee to use DehydraTECH in the manufacturing of their own products or purchase DehydraTECH manufactured products made to their specifications by Lexaria.

The Company has relationships with several consumer products companies in the CBD and nutraceuticals spaces that use Lexaria’s technology in consumer goods being sold online and at retailers in the US and Canada.

Going Concern Consideration

The Company’s consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with accounting principles generally accepted in the United States (“US GAAP”) applicable to a going concern which assumes the Company will have sufficient funds to pay it operational, research and development and capital expenditures for a period of at least 12 months from the date this financial report.

Since inception, the Company has incurred significant operating and net losses.

The losses attributable to common shareholders were $ 4.2 m, $ 4.1 m and $ 4.2 m for the years ended August 31, 2021, 2020 and 2019, respectively.

As of August 31, 2021, we had an accumulated deficit of $31.8m.

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

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

On January 12, 2021, the Company closed an underwritten public offering for net proceeds of $ 9,471,497 .

In the fourth quarter of the year ended August 31, 2021, the Company received $ 4,015,043 from the exercise of warrants.

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

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

As of August 31, 2021, the Company had cash and cash equivalents of approximately $ 10.9 m, carries no debt.

We believe this is sufficient to enable the Company to fund its operating and R&D expenses and any capital expenditure requirements through one year from the issuance date of the audited consolidated financial statements.

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Lexaria and its subsidiaries are not involved directly or indirectly in the cultivation, processing, distribution, or utilization of cannabis or cannabis derived components.

Lexaria does have an ancillary involvement risk via out-licensing of its patented technology to licensees that choose to utilize DehydraTECH to manufacture products that contain locally or state approved but federally regulated and controlled contents.

There can be no guarantee that changes in the regulatory framework and environment will not occur and such changes could have a materially adverse effect on the Company.

Lexaria and its subsidiaries are not involved directly or indirectly in the production or sale of any products containing nicotine.

Products containing nicotine have historically been involved in litigation in the USA.

Lexaria’s corporate licensee may introduce products containing nicotine that utilize DehydraTECH to the US consumer market, which could therefore introduce third-party risks to Lexaria.

Lexaria and its subsidiaries are not involved directly or indirectly in the production or sale of any pharmaceutical or anti-viral products.

Licensees may enhance their product’s delivery using our Technology, which could therefore introduce third-party risks to Lexaria.

Impacts of COVID-19 Pandemic

The emergence of the COVID-19 pandemic in 2020 continues to present uncertainty and unforecastable new risks to the Company and its business plans.

As of August 31, 2021, there has been no material impact on the Company’s financial position as a direct result of the pandemic.

However, the Company has experienced some supply chain disruptions and shortages in the timely procurement of ingredients and supplies used in both our R&D activities and production.

Management views this situation as transitory but cannot predict the length of time it may take for these disruptions to dissipate or if there will be a significant economic effect on the Company’s operations.

In the interim, it may cause delays in carrying out our research studies and in our production schedules.

Restrictions on international travel presents a challenge in carrying out normal business activities related to corporate finance efforts and the pursuit of new customers throughout North America who might otherwise access to our licensees’ retail products.

As a result, the pandemic has increased the risk of lower revenues and higher losses.

During the year ended August 31, 2020, we were in receipt of C$ 30,732 in COVID relief under the Canada Emergency Wage Subsidy programs for employees which reduced our employment costs in that year.

During fiscal 2020 we also received C$ 40,000 from the Canadian Government sponsored Emergency Business Account loan program.

As specified by the terms of this program, we have repaid C$ 30,000 of the loan in fiscal 2021.

The remaining $7,926 (C$ 10,000 ) of the loan payable is anticipated to be forgiven as directed under this program in the year ended August 31, 2022.

We continue to actively monitor the evolving effects of COVID-19 and may take further actions that alter our operations, including those that may be required by federal, state, provincial, or local authorities, or that we determine are in the best interests of our employees and other third parties with which we do business.

We do not know when it will become practical to relax or eliminate some or all these measures entirely.

The economic effect of a prolonged pandemic is difficult to predict and could result in material financial impact in the Company’s future reporting periods.

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.

a) Basis of presentation

These consolidated financial statements have been prepared in conformity with generally accepted accounting principles of the United States (“US GAAP”) and pursuant to the rules and regulations of the SEC.

All amounts, unless otherwise stated, are in U.S.

On December 9, 2020, the Company completed the sale of the business assets in the THC related segment of our subsidiary Lexaria CanPharm ULC.

As a result, the related financial results pertaining to the sale are reflected in our consolidated statement of operations, retrospectively, as discontinued operations beginning in the first quarter of fiscal 2021.

On January 11, 2021, the Company effected a 1-for-30 reverse stock split with no fractional shares issued.

All share, option, warrant and per share information within these consolidated financial statements have been retroactively restated accordingly.

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b) Revenue recognition

Product Revenue

Revenue from the sale of products is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured, which typically occurs upon shipment.

The Company reports its sales net of the amount of actual sales returns.

Sales tax collected from customers is excluded from net sales.

Licensing revenue from intellectual property

We recognize revenue for license fees at a point in time following the transfer of our intellectual property, namely our patented lipid nutrient infusion technology DehydraTECH for infusing Active Pharmaceutical Ingredients (“API”), to the licensee, which typically occurs on delivery of documentation.

Usage fees from intellectual property

We recognize revenue for usage fees when usage of our DehydraTECH intellectual property occurs by licensees infusing an API into one or more of their product lines for sale.

Product revenue

Revenue from the sale of products is recognized when the sales price is fixed or determinable, there is persuasive evidence that an arrangement exists, delivery has occurred and collectability is reasonably assured.

c) Inventory and cost of sales

The Company’s inventory consists of finished goods, work in progress, and raw materials.

The Company’s inventory consists of raw materials, work in progress and finished goods.

In all classes, inventory is valued at the lower of cost or market.

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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), utilities and overhead expenses.

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Inventory costs and costs of sales include direct costs of the raw material, inbound freight charges, warehousing costs, handling costs (purchasing and receiving) and overhead expenses.

d) 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, 2020, and August 31, 2019, the Company held cash only.

Equipment is stated at cost less accumulated depreciation and impairment, and depreciated using the straight-line method over their useful lives or by units of production.

Capitalized patent costs represent legal costs incurred to establish patents.

When patents reach a mature stage, any associated legal costs are 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 on October 25, 2016, with a legal life of 20 years.

Additional patent information is in Note 9.

Cash and cash equivalents include cash-on-hand and demand deposits with financial institutions and other short-term investments with maturities of less than three months when acquired and convertible to known cash amounts.

The Company had no cash equivalents as at August 31, 2021 or August 31, 2020.

Equipment is stated at cost less accumulated depreciation and impairment and depreciated using the straight-line method over their useful lives of the various asset classes.

Laboratory equipment, office furniture and computer equipment are depreciated over 3 - 10 years.

Certain production equipment is depreciated by units of production method.

Leasehold improvements are amortized over the term of the related leases.

f) Intellectual property

Capitalized patent costs represent legal costs incurred in pursuing patents applications in the United States.

When such applications result in patents being issued, the directly related capital cost is amortized over the life of the patent on a straight-line basis.

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g) Stock-based compensation

The Company accounts for its stock-based compensation awards in accordance with ASC Topic 718, Compensation—Stock Compensation (“ASC 718”).

ASC 718 requires all stock-based payments to employees, including grants of employee stock options, to be recognized as expenses 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 Company accounts for its stock-based compensation awards whereby all stock-based payments to employees, including grants of employee stock options, are recognized as expenses in the statements of operations based on the fair value at grant date.

For stock options granted to employees, executives and to members of the Board of directors for their services, 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.

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 the Company recognizes stock-based compensation expense on vesting.

Stock-based payments issued to non-employees are recorded at their fair values and are periodically revalued as the equity instruments vest and are expensed over the related service period.

The Company recognizes stock-based compensation expense on vesting for equity instruments granted.

h) Loss per share

The Company applies the guidance in ASC 260 Earnings Per Share.

Loss per share is computed using the weighted average number of shares outstanding during the year.

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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The calculation of loss per share uses the weighted average number of shares outstanding during the year.

Diluted net income per share includes the effect, if any, from the potential exercise or conversion of securities, such as restricted stock and stock options, which would result in the issuance of incremental shares of common stock.

Diluted loss per share is equivalent to basic loss per share if the potential exercise of the equity-based financial instruments was anti-dilutive.

i) Foreign currency translation

The Company’s 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:

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 using the exchange rate in effect at that date.

The Company maintains its accounting records in US dollars.

At the transaction date, each asset, liability, revenue, and expense that was acquired or incurred in a foreign currency is translated into US dollars by using the exchange rate in effect at that date;

at the year end, monetary assets and liabilities are translated at the exchange rate in effect at that date.

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j) Financial instruments

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.

When measuring fair value, the Company seeks to maximize the use of observable inputs and minimize the use of unobservable inputs.

This establishes a fair value hierarchy based on the level of independent objective evidence surrounding the inputs used to measure fair value.

A financial instrument’s 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:

Inputs are prioritized into three levels used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable;

Level 2 - Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable and

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.

The Company’s financial instruments consist primarily of cash, marketable securities, accounts receivable, accounts payable and accrued liabilities, and due to related parties.

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 or quoted market prices.

The Company is located in Canada, which results in exposure to market risks from changes in foreign currency rates.

The Company’s financial instruments consist primarily of cash, marketable securities, accounts receivable and payable, accrued liabilities, loan payable and due to related parties.

The carrying amounts of cash, accounts receivable and payable, accrued liabilities, loan payable and due to related parties approximate their fair values due to their short maturities or quoted market prices.

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The Company’s headquarters and operations are located in Canada which results in exposure to market risks from fluctuations in foreign currency rates.

The foreign currency exchange risk is the financial risk to the Company’s 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 dollar, and the impact of a change in a few basis points for USD/CAD is not expected to be material.

Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk as the impact of a change in a few basis points for USD/CAD is not expected to be material.

k) Income taxes

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 Company’s financial statements or tax returns using the liability method.

The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company’s 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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l) Impairment of long-lived assets

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m) Comprehensive income

The Company applies ASC 220, Comprehensive Income, which establishes standards for reporting and presentation 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.

The Company discloses comprehensive income (loss), its components, and accumulated balances on its Statement of Stockholders’ Equity.

Comprehensive income (loss) comprises equity changes except those transactions resulting from investments by stakeholders and owners and distributions to owners.

n) Credit risk and receivable concentration

The Company places its cash with a high credit quality financial institution.

As of August 31, 2020, the Company had approximately $1,293,749 in the bank (August 31, 2019:

As at August 31, 2020 we had $143,500 (2019 – $106,000) in IP Territory license fees receivable (Note 7) consisting of amounts due from three licensees (2019 – three).

As of August 31, 2021, the Company had approximately $ 10,917,797 on deposit.

(August 31, 2020:

$ 1,293,749 ).

Included in amounts relievable is $ 278,107 which represent the value of shares receivable from the sale of assets during the year ended August 31, 2021.

In the year ended August 31, 2021, one licensee accounted for 72 % (2020 – 12 %) of revenues.

As at August 31, 2021, we had $Nil (2020 – $ 143,500 ) in IP Territory license fees receivable.

These receivable amounts are based on contractual terms for payments that are payable within twelve months of signing the definitive agreements or routine IP usage fees.

To date these licensees have performed all of their required obligations.

The Company incurred $50,000 in bad debt in fiscal 2020 (2019 – $75,000).

As at August 31, 2020, the Company had $87,933 (2019 - $161,418) in sales tax receivable (Note 7).

The Company incurred $ 50,500 in bad debt in fiscal 2021 (2020 – $ 50,000 ) primarily due to cancellations of IP license agreements.

As at August 31, 2021, the Company had $ 47,741 (2020 - $ 87,933 ) in sales tax receivable.

The Company considers its credit risk to be low for such receivables.

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o) Commitments and contingencies

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.

The Company policy is to record accruals for any 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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The Company, from time to time, may be subject to legal claims and proceedings related to matters arising in the ordinary course of business.

Management has no knowledge of any such claim against the Company with, at minimum, a reasonable possibility that a material loss may be incurred.

p) Research and development

Research and development costs are expensed as incurred.

These expenditures are comprised of both in-house research programs including consultants and employee-related expenses and through third-party contracts including consultants, research organizations and contract manufacturing.

On September 1, 2019, we adopted ASC Topic 842, Leases (“ASC 842”) using the optional transition method and applied the standard only to leases that existed at that date.

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We have elected the package of practical expedients allowed under ASC Topic 842, which permits us to account for our existing operating leases as operating leases under the new guidance, without reassessing our prior conclusions about lease identification, lease classification and initial direct cost.

As a result of the adoption of the new lease accounting guidance, we recognized on September 1, 2019, operating lease right-of-use assets of $160,289 and operating lease liabilities of $158,773.

As a result of the adoption of the new lease accounting guidance on September 1, 2019, we recognized operating lease right-of-use assets of $ 160,289 and operating lease liabilities of $ 158,773 .

We determined the initial classification and measurement of our right-of-use assets and lease liabilities at the lease commencement date and thereafter if modified.

6 unchanged sentences

For all leases, rent payments that are based on a fixed index or rate at the lease commencement date are included in the measurement of lease assets and lease liabilities at the lease commencement date.

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We have elected the practical expedient to not separate lease and non-lease components.

2 unchanged sentences

These consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries;

Lexaria CanPharm ULC, PoViva Corp., Lexaria Hemp Corp., Kelowna Management Services Corp.

and Lexaria Pharmaceutical Corp., and our 83.333% subsidiary Lexaria Nicotine LLC (16.667% Altria Ventures Inc., an indirect wholly owned subsidiary of Altria Group, Inc.).

All significant intercompany balances and transactions have been eliminated.

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Lexaria Pharmaceutical Corp., Lexaria Hemp Corp., Lexaria CanPharm ULC, PoViva Corp., and Kelowna Management Services Corp.

The Company owns 83.3 % of Lexaria Nicotine LLC and the remaining 16.7 % is owned by Altria Ventures Inc.

(an indirect wholly owned subsidiary of Altria Group, Inc.).

All significant intercompany balances and transactions have been eliminated upon consolidation.

Estimates and Judgments

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 year.

The preparation of financial statements in conformity with US 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 year.

Some of the Company’s accounting policies require us to make subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain.

7 unchanged sentences

a) The Valuation of Deferred Tax Assets

Judgement is required in determining whether deferred tax assets are recognized on the balance sheet.

Judgment 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.

9 unchanged sentences

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c) Disposals of Assets - Value of Note Receivable

The Asset Purchase Agreement for the sale of assets to Hill Street Beverages included C$2m note receivable as partial payment of the agreement.

The Note does not contain a fixed repayment schedule nor a maturity date.

The repayment of the Note is based on the purchaser repaying the outstanding value of the Note and interest from the future revenues generated from an untested market with no existing revenue streams.

Therefore, with any repayment being highly doubtful, management determined at that time that the value of the note to be notional and recorded the note at a $NIL value for accounting purposes.

Any subsequent payment of principle and/or interest is to be recorded in the period received as income.

Recent Accounting Guidance

In February 2016 FASB issued ASU No.

201602, 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.

In November 2019 FASB issued ASU No 201910 revised the effective date based on updated criteria with the effective date for fiscal years beginning after December 15, 2020.

In June 2020 FASB issued ASU No 202005 further delaying the effective date for fiscal years beginning after December 15, 2021 due to the COVID-19 pandemic.

The Company has adopted this standard as of August 31, 2020 (Note 17).

In June 2016, the FASB issued a new standard to replace the incurred loss impairment methodology in current U.S.

GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

For trade and other receivables, loans and other financial instruments, the Company will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable.

Credit losses relating to available for sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities.

In November 2019 FASB issued ASU No 201910 revised the effective date based on updated criteria with the effective date for fiscal years beginning after December 15, 2022.

Application of the amendments is through a cumulative effect adjustment to deficit as of the effective date.

The Company is currently assessing the impact of the standard on its consolidated financial statements.

In February 2018, the FASB issued ASU No.

201802, Income Statement–Reporting Comprehensive Income (Topic 220):

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act enacted by the U.S.

federal government on December 22, 2017 (the “2017 Tax Act”).

Consequently, the amendments eliminate the stranded tax effects resulting from the 2017 Tax Act and will improve the usefulness of information reported to financial statement users.

The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.

Early adoption is permitted, including adoption in any interim period, (1) for public business entities for reporting periods for which financial statements have not yet been issued and (2) for all other entities for reporting periods for which financial statements have not yet been made available for issuance.

The Company adopted the ASU on September 1, 2019 for a $NIL effect.

Pronouncements Issued but Not Yet Adopted

In June 2016, the FASB issued ASU No.

201807, Compensation—Stock Compensation (Topic 718):

Improvements to Nonemployee Share Based Payment Accounting.

This is a simplification that involves several aspects of accounting for nonemployee share-based payments resulting from expanding the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.

The Company adopted the ASU on September 1, 2019 for a $NIL effect.

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2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

The FASB subsequently issued amendments to ASU 2016-13, which have the same effective date and transition date of January 1, 2023.

These standards require that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used, and establishes additional disclosures related to credit risks.

For available-for-sale debt securities with unrealized losses, these standards now require allowances to be recorded instead of reducing the amortized cost of the investment.

These standards limit the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized credit losses if fair value increases.

The Company does not currently expect the adoption of these standards to have a material impact on its consolidated financial statements.

Accounts and Other Receivables

1 unchanged sentence

Territory license fee receivable

Sale of assets - shares receivable

Sales tax receivable

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Raw materials

1 unchanged sentence

Finished goods

During the year ended August 31, 2020, the Company wrote down $8,240 (2019 - $7,182) of inventory to reflect its net realisable value.

During the year ended August 31, 2021, the Company divested its operations in on-line sales of consumer products and as a result finished goods inventory valued at $ 44,851 was expensed as advertising and promotion with the goods being donated to a registered charity.

A further $ 2,482 (2020 - $ 8,240 ) of inventory was written off to reflect its net realisable value.

Intellectual Property

The following is a list of US capitalized patents held by the Company

The following is a list of capitalized US patents held by the Company.

Issued Patent #

11 unchanged sentences

US 10,756,180

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The Company also holds non-capitalized patents outside the US.

A continuity schedule for patents is presented below:

Schedule of continuity for capitalized patents:

Balance – Beginning

Amortization*

Balance – Ending

*The patents are amortized over their legal life of 20 years.

Patents are amortized over their legal life of 20 years.

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Property & Equipment

1 unchanged sentence

Accumulated Amortization

August 31, 2020

Leasehold improvements

3 unchanged sentences

Accumulated Amortization

August 31, 2019

Leasehold improvements

1 unchanged sentence

Lab equipment

During the period $1,928 of amortization was included in the cost of inventory.

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During the year ended August 31, 2021, $ 10,926 (2020 - $ 1,928 ) of amortization was included in the cost of inventory.

Accounts Payable and Accrued Liabilities

Accounts Payable

Trades payable

Sales tax payable

Vendors payable

Accrued Liabilities

Corporate tax payable

Trades payable

Vendors payable

Common Shares and Warrants

Fiscal 2021 Activity

During the year ended August 31, 2020, the Company closed, pursuant to two tranches, a non-brokered private placement for an aggregate total of 1,823,745 units priced at $0.45 each.

Each unit consists of one common share and one share purchase warrant.

Each warrant shall entitle the holder to acquire one common share of the Company for a period of two years at a price of $0.80 per Share until the first anniversary of issuance, and thereafter at a price of $1.20 until the second anniversary of issuance.

The Company paid $3,938 and issued 8,750 broker warrants.

The broker warrants have a term of 24 months and are each exercisable into one common share of the Company at a price of $0.80 per share until the first anniversary of issuance, and thereafter at a price of $1.20 until the second anniversary of issuance.

The fair value of these broker warrants was determined to be $1,850, which were recorded as a share issuance cost within additional paid in capital for a net effect of $Nil.

The Company also issued an aggregate of 8,866,211 units at $0.23, issued in two tranches for gross proceeds of $2,039,229.

Each unit consists of one common share and one full warrant.

The warrants are exercisable on issuance at an exercise price of $0.35 with 8,028,254 expiring May 6, 2025 and 837,957 on May 11, 2025.

Pursuant to the agent agreement $151,623 and 649,123 broker warrants with an exercise price of $0.35 expiring May 6, 2025, were paid.

The broker warrants were valued at $128,329 and were recorded as a share issue cost within additional paid in capital for a net effect of $Nil.

A total of $65,600 in legal fees were also paid.

The company granted a total of 500,000 warrants pursuant to an agreement with a consultant valued at $98,081 that were recorded as an expense within consulting.

The Company recognized $168,833 in consulting expense for warrants granted to consultants as per vesting requirements.

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

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A summary of share issuance relating to exercises and private placements is presented below:

During the year ended August 31, 2021, the Company closed an underwritten public offering for an aggregate total of 2,102,856 units priced at $ 5.25 .

Each unit consists of one common share and one share purchase warrant entitling the holder to acquire one common share, for a period of five years, at $6.58 per share.

The Company paid fees of $ 1,568,499 and issued 227,161 broker warrants with a term of 24 months, each exercisable into one common share at $ 6.58 per share.

The net proceeds of the offering were $ 9,471,497 after deducting underwriters discount, fees and expenses.

During the year ended August 31, 2021, the Company issued 610,189 common shares on the exercise of warrants for proceeds of $ 4,015,043 .

During the year ended August 31, 2021, the Company granted 300,000 warrants with an exercise price of $ 9.00 pursuant to consulting agreements.

Using the Black-Scholes pricing model, the warrants were valued at $ 785,895 and were recorded as a consulting expense.

Subsequent to the grant, 200,000 warrants were repriced at $ 7.00 .

A summary of share issuances for the year ended August 31, 2021, is presented below:

Type of Issuance

Option exercise

Number of Shares

Total Value $

Warrant exercise

Private placement (1)

Per agreements (2)

(1) Total fees of $221,889 were paid for total net receipt of $2,638,025.

(2) The Company awarded the restricted common shares as required by consulting contracts.

(1) Fees of $ 1,568,499 were paid for total net receipt of $ 9,471,497 .

(2) The Company awarded restricted common shares as required by consulting contracts.

Fiscal 2020 Activity

During the year ended August 31, 2019 the Company closed a non-brokered private placement for 947,150 Units priced at $1.60 each.

Each unit consists of one common share and one share purchase warrant.

Each warrant shall entitle the holder to acquire one common share at a price of $2.25 per share for a period of 24 months.

The Company also issued 28,175 broker warrants.

The broker warrants have a term of 24 months and are each exercisable into one common share of the Company at a price of $2.25.

The fair value of these broker warrants was determined to be $16,095, which were recorded as a share issue cost within additional paid in capital for a net effect of $Nil.

The Company granted an additional 107,737 broker warrants with a value of $6,484 that were recorded as a share issue cost within additional paid in capital for a net effect of $Nil.

The Company granted a total of 100,000 warrants pursuant to an agreement with a vendor valued at $52,817 that were recorded as an expense within investor relation expense.

During the year ended August 31, 2019 the Company recognized $51,448 in consulting expense for warrants previously granted to a consultant upon vesting.

A summary of share issuance is presented relating to option and warrant exercises, agreement requirements and debt settlement is presented below:

During the year ended August 31, 2020, the Company closed two tranches of a non-brokered private placement for an aggregate total of 60,792 units priced at $ 13.50 each.

Each unit consisted of one common share and one share purchase warrant.

Each warrant shall entitle the holder to acquire one common share of the Company for a period of two years at a price of $ 24.00 per Share until the first anniversary of issuance, and thereafter at a price of $36.00 until the second anniversary of issuance.

The Company paid $ 3,938 in fees and issued 292 broker warrants having a term of 24 months.

Each warrant is exercisable into one common share at $24.00 until the first anniversary of issuance, and thereafter at $ 36.00 until the second anniversary of issuance.

The fair value of these broker warrants was determined to be $ 1,850 , which was recorded as a share issuance cost within additional paid in capital for a net effect of $Nil.

The Company also issued an aggregate of 294,540 units at $ 6.90 , in two tranches, for gross proceeds of $ 2,039,229 .

Each unit consisted of one common share and one full warrant.

The warrants are exercisable on issuance at $ 10.50 with 267,608 expiring May 6, 2025, and 21,637 expiring on May 11, 2025 .

Pursuant to the agent agreement $ 151,623 and 21,637 broker warrants with a price of $ 10.50 , expiring May 6, 2025, were paid.

The broker warrants were valued at $ 128,329 and recorded as a share issue cost within additional paid in capital for a net effect of $Nil.

The Company paid related legal fees on the offering of $ 65,600 .

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Presented below is a summary of options exercised, share issuance and as per agreement requirements for the year ended August 31, 2020:

Type of Issuance

Warrant exercise (1)

Option exercise

Number of Shares

Total Value $

Warrants exercised

Options exercised

Private placement (1)

Per agreements (2)

(1) Includes 384,212 broker warrants exercised for gross proceeds of $191,742

(1) Total fees of $ 221,889 were paid for total net receipt of $ 2,638,025 .

(2) The Company awarded the restricted common shares as required by consulting contracts.

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A continuity schedule for warrants is presented below:

In the year ended August 31, 2020, the Company granted a total of 16,667 warrants at $ 9.00 pursuant to a consulting agreement valued at $ 98,081 , recorded as a consulting expense and recognized a total of $168,833 in consulting expense as per vesting requirements for warrants granted to consultants during the year ended August 31, 2020.

Presented below is a continuity schedule for warrants:

Number of Warrants

Weighted Average Exercise Price $

Weighted Average

Exercise Price $

Balance August 31, 2019

3 unchanged sentences

Balance August 31, 2021

The fair value of share purchase warrants granted as broker warrants, compensation units, and compensatory warrants, was estimated as of the date of the grant by using the Black-Scholes option pricing model with the following assumptions:

The fair value of share purchase warrants granted as compensation units, and compensatory warrants, was estimated as of the date of the grant by using the Black-Scholes option pricing model with the following assumptions:

Expected volatility

Risk-free interest rate

0.36 %- 2.87 %

Expected life

1 day – 2 years

Dividend yield

Estimated fair value per warrant

A summary of warrants outstanding as of August 31, 2020 is presented below:

# of Warrants

$ 8.40 – $ 16.20

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Presented below is a summary of warrants outstanding as of August 31, 2021:

Number of Warrants

Weighted Average Remaining Contractual Life

Weighted Average Exercise Price $

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0.20 – 3.25 years

3.68 – 3.70 years

2.62 – 3.54 years

Stock Options

The Company has established its 2014 Stock Option Plan whereby the board of directors may, from time to time, grant up to 2,107,500 stock options to directors, officers, employees, and consultants, and the 2019 Equity Incentive Plan whereby the board of directors may, from time to time, grant up to 7,838,713 stock options to directors, officers, employees, and consultants.

The Company established an Equity Incentive Plan whereby the board of directors may, from time to time, grant up to 261,290 stock options to directors, officers, employees, and consultants.

During the Company’s 2021 Annual Meeting of Shareholders, shareholders voted in favour of increasing the number of allowable stock options by an additional 249,143 options.

The aggregate number of shares issuable under the Equity Incentive Plan is now 510,433 shares, 10% of the Company’s issued share capital at that time.

Stock options granted must be exercised no later than five years from the date of grant or such lesser period as determined by the Company’s Board of directors.

1 unchanged sentence

The vesting terms of each grant are set by the Board of directors.

During the year ending August 31, 2020 the formerly established 2007 Equity Incentive Plan and the 2010 Stock Option Plan were cancelled.

Outstanding options were cancelled and reissued under the 2019 Equity Incentive Plan.

The Company estimates the fair value of each stock option award on the measurement date using a Black-Scholes option pricing model.

During the year ended August 31, 2021, the Company cancelled its 2014 Stock Option Plan.

All outstanding options expired during the year.

During the year ending August 31, 2020, the 2007 Equity Incentive Plan and the 2010 Stock Option Plan were cancelled.

Any outstanding options were cancelled and reissued under the Equity Incentive Plan.

Fiscal 2021 Activity

The Company granted stock options in the year ending August 31, 2020:

The Company granted the following stock options in the year ending August 31, 2021:

Exercise Price $

(1) 3,962,000 have vested as at August 31, 2020, and 886,000 remain subject to vesting provisions.

During the year, 87,935 options at a strike price of $ 9.60 were cancelled and re-issued with a strike price of $ 7.08 .

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Fiscal 2020 Activity

The Company granted stock options in the year ending August 31, 2019:

The Company granted the following stock options in the year ending August 31, 2020:

Exercise Price $

(1) Options granted vest over a period of three years

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(1) 132,067 vested, and 29,533 are subject to vesting provisions.

A continuity schedule for stock options is presented below:

8 unchanged sentences

Balance August 31, 2021 (Exercisable)

The intrinsic value of stock option awards that vested during the fiscal year represents the value of the Company’s closing stock price on the last trading day of the fiscal year in excess of the exercise price multiplied by the number of options that vested.

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:

Expected volatility

133 % – 134 %

Risk-free interest rate

0.42 % – 0.85 %

0.35 % – 1.66 %

Expected life

2 unchanged sentences

$ 4.00 – $ 4.86

Product sales

Licensing revenue (Note 11)

Freight revenue

The Company recognized $232,909 of licensing revenue (2019 $198,000) and $150,993 of product revenues (2019 $24,282).

Licensing revenue was significantly concentrated on one licensee and $121,906 of product revenues related to sales of our intermediate product for use by five customers in their products.

The licensing fees consist of IP licensing fees for transfer of the DehydraTECH technology with the signing of definitive agreements and usage fees.

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

$ 9.30 -$ 16.20

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As of August 31, 2020, we have $44,255 in deferred revenue from customers for production of intermediate products that are expected to be produced during our next fiscal quarter.

Licensing revenue

Other revenue

The licensing fees consist of IP licensing fees for transfer of the DehydraTECH technology with the signing of definitive agreements and usage fees.

The licensing fees include payments due upon transfer of the technology and installment payments that are receivable within 12 months.

The Company recognized $ 334,974 of licensing revenue (2020 - $ 232,909 ) and $ 383,179 of B2B product revenues (2020 - $ 151,634 ) that relate to sales of our intermediate products for use by nine B2B customers in their products.

Related Party Transactions

Management, consulting and accounting services

C.A.B Financial Services (1)

M&E Services Ltd.

Docherty Management Limited (1)

Company controlled by a director

Financial Services is owned by the CEO of the Company, M&E Services Ltd.

is owned by the CFO of the Company, and Docherty Management Limited is owned by the President of the Company.

(2) Stock Based Compensation (SBC) and Share Awards are included in the total value of the grants and awards included in expenses.

In the year ended August 31, 2020 the Company granted $572,565 of option awards to officers and $88,544 awards to Directors included in Consulting expense replacing cancelled options (Note 13).

Due to related parties:

3 unchanged sentences

The Company’s operations involve the development and usage, including licensing, of DehydraTECH.

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 consumer products and technology licensing to make operational decisions and to assess the performance of the Company.

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 business-to-business product production and technology licensing to make operational decisions and to assess the performance of the Company.

The Company has identified two reportable segments:

Intellectual Property Licensing and Consumer Products.

Intellectual Property Licensing and B2B Production.

Licensing revenues are significantly concentrated on three licensees.

Consumer Products

For year ended August 31, 2021

Consolidated Total

2 unchanged sentences

Operating expenses

( 1,521,187 )

( 4,711,523 )

( 1,529,553 )

( 1,203,876 )

( 1,430,702 )

( 4,164,131 )

For year ended August 31, 2020

Consolidated Total

External revenue

Cost of goods sold

Operating expenses

( 1,601,595 )

( 1,043,956 )

( 1,724,227 )

( 4,369,778 )

( 1,368,686 )

( 1,724,227 )

( 4,084,613 )

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Capital Asset by Region

Net Balance Canada

Net Balance Total

Year Ended August 31, 2021

2 unchanged sentences

Lab Equipment

Capital Asset by Region

Year Ended August 31, 2020

3 unchanged sentences

Commitments, Significant Contracts and Contingencies

Management and Service Agreements

As at August 31, 2020, the Company is party to the following contractual commitments:

Monthly Commitment

C.A.B Financial Services

January 1, 2022

Docherty Management Ltd.

January 1, 2022

M&E Services Ltd.

Corporate Development

Month to Month

Office Management

August 15, 2022

Research & Development

Month to Month

Office operating lease (1)

November 15, 2023

Right of Use Assets - Operating Lease

(1) Corporate office and R&D lab space leased in Kelowna, British Columbia, Canada until November 15, 2023 with an option to extend an additional five years.

Corporate offices and R&D lab space is leased in Kelowna, British Columbia, Canada until November 15, 2023, with an optional five-year extension.

In addition to minimum lease payments, the lease requires us to pay property taxes and operating costs which are subject to annual adjustments.

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August 31, 2021

August 31, 2020

Right of use assets - operating leases:

September 1, 2019

Total lease assets

September 1, 2019

Lease payments

1 unchanged sentence

Total lease liabilities

Operating lease cost as at August 31, 2020

Operating lease cost

Operating cash flows for lease

1 unchanged sentence

Discount rate

Pursuant to the terms of the Company’s lease agreements in effect at August 31, 2020, the following table summarizes the Company’s maturities of operating lease liabilities as of August 31, 2020:

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Pursuant to the terms of the Company’s lease agreements in effect at August 31, 2021, the following table summarizes the Company’s maturities of operating lease liabilities:

Total lease payments

2 unchanged sentences

current obligations under leases

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Prepaid Expenses

Prepaid expenses consist of the following as at August 31, 2021 and August 31, 2020:

Advertising & conferences

Advertising and conferences

Licence, filing fees, dues

Office & insurance

Research & development

Office and insurance

Research and development

Marketable Securities

4 unchanged sentences

August 31, 2021

We realized an $18,198 loss and received $6,802 in net proceeds on the sale of marketable securities.

Unrealized losses from common stock are due to market price movements.

Management does not believe any remaining unrealized losses represent other-than-temporary impairments based on our evaluation of available evidence.

In Managements’ opinion based on the evaluation of available information at the year ended August 31, 2021, unrealized losses represent temporary impairments.

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Discontinued Operations

On November 19, 2020, the Company entered a definitive asset sale agreement through its wholly owned subsidiary Lexaria CanPharm ULC to sell certain assets for gross proceeds of C$ 3,850,000 .

The sale closed on December 10, 2020, with the Company receiving C$ 350,000 in cash, 6,031,363 restricted common shares at a fair value price of C$ 500,000 as the first of three required equity-based payments, a promissory note having a principal amount of C$ 2,000,000 and bearing interest at the rate of 10 % per annum.

The promissory note was included at its nominal value of $NIL and any future receipts of interest and principal will be recorded as income in the period.

Pursuant to the terms of the transaction the Company will receive equity-based payments in two tranches of C$500,000 in common shares of Hill Street Beverage Company issued at eight months and sixteen months after the closing date.

The Company received the second tranche of shares on August 9, 2021, as per the sale agreement.

Based on the agreed terms, the value of the 5,882,353 shares issued was $ 390,533 (C$500,000).

An over-allotment of 1,693,405 shares with a value of $ 122,426 (C$143,939) were received at this time and has been applied to the future issuance of the 3 rd and final tranche with a reduction in the outstanding amount receivable.

The gain on the transaction is presented below:

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:

Operating expenses

Net income (loss)

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The following table presents cash flows of discontinued operations:

Cash flows used in discontinued operating activities

Change in working capital

Net cash provided by (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

Current Liabilities

Accounts payable

The following table reconciles the income tax benefit at the U.S.

1 unchanged sentence

Loss before taxes

( 4,169,832 )

( 3,987,018 )

Expected income tax recovery

4 unchanged sentences

Total income taxes

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Deferred taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes.

6 unchanged sentences

Subsequent Events

September 22, 2020, Lexaria announced that U.S.

10,756,180 was granted that provides patent claims that protect the use of Lexaria's DehydraTECH technology together with cannabinoids, nicotine, nonsteroidal anti-inflammatory drugs, or vitamins in mix and serve beverage formats.

The patent is entitled “Food and Beverage Compositions Infused With Lipophilic Active Agents and Methods of Use Thereof”.

Subsequent to the year ended August 31, 2021, 25,000 warrants with a strike price of $ 4.20 expired and the Company issued 81,800 stock options to employees and consultants at a strike price of $ 6.23 .

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2 unchanged sentences

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data