Lexaria Bioscience Corp. 10-Q

Item 1. Financial Statements LEXARIA BIOSCIENCE CORP. CONSOLIDATED BALANCE SHEET (Expressed in U.S. Dollars) November 30, August 31, 2021 2021 (Unaudited) (Audited) ASSETS Current Cash $ 9,682,271 $ 10,917,797 Marketable securities 493,424 833,841 Accounts receivable 461,512 342,401 Inventory 26,966 29,648 Prepaid expenses and deposit 237,223 319,253 Total Current Assets 10,901,396 12,442,940 Non-current assets, net Lease right of use 81,656 91,041 Intellectual property 378,746 364,623 Property & equipment 384,144 368,213 Total Non-current Assets 844,546 823,877 TOTAL ASSETS $ 11,745,942 $ 13,266,817 LIABILITIES Current Accounts payable and accrued liabilities $ 189,542 $ 100,723 Due to a related party - 5,223 Loan payable 7,817 7,926 Lease payable 40,340 39,404 Total Current Liabilities 237,699 153,276 Long Term Lease payable 39,629 49,989 Total Long Term Liabilities 39,629 49,989 TOTAL LIABILITIES 277,328 203,265 STOCKHOLDERS’ EQUITY Share Capital Authorized: 220,000,000 common voting shares with a par value of $ 0.001 per share Issued and outstanding: 5,726,699 common shares at November 30, 2021 and at August 31, 2021 5,727 5,727 Additional paid-in capital 45,497,658 45,089,114 Deficit ( 33,822,361 ) ( 31,829,204 ) Equity attributable to shareholders of the Company 11,681,024 13,265,637 Non-controlling Interest ( 212,410 ) ( 202,085 ) Total Stockholders’ Equity 11,468,614 13,063,552 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 11,745,942 $ 13,266,817 The accompanying notes are an integral part of these condensed consolidated interim financial statements. Page 3 of 31 Table of Contents LEXARIA BIOSCIENCE CORP. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Expressed in U.S. Dollars, except number of shares) THREE MONTHS ENDED NOVEMBER 30, 2021 2020 (Unaudited) Revenu e $ 13,880 $ 295,656 Cost of Goods Sold 5,570 64,478 Gross profit 8,310 231,178 Expenses Research and development 458,709 192,261 Office and administration 1,553,083 752,038 Gross loss 2,011,792 944,299 Net loss from continuing operations ( 2,003,482 ) ( 713,121 ) Discontinued operations Income (loss) from discontinued operations - 3,000 Net loss and comprehensive loss for the period $ ( 2,003,482 ) $ ( 710,121 ) Net loss and comprehensive loss attributable to: Common shareholders $ ( 1,993,157 ) $ ( 696,028 ) Non-controlling interest $ ( 10,325 ) $ ( 14,093 ) Basic and diluted income (loss) per share Continuing operations $ ( 0.35 ) $ ( 0.24 ) Discontinued operations - 0.00 Total $ ( 0.35 ) $ ( 0.24 ) Weighted average number of common shares outstanding Basic and diluted 5,726,699 3,001,476 The accompanying notes are an integral part of these condensed consolidated interim financial statements. Page 4 of 31 Table of Contents LEXARIA BIOSCIENCE CORP. CONSOLIDATED STATEMENT OF CASH FLOWS (Expressed in U.S. Dollars) THREE MONTHS ENDED November 30, 2021 2020 (Unaudited) Cash flows used in operating activities Net loss and comprehensive loss $ ( 2,003,482 ) $ ( 710,121 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock based compensation 408,544 48,887 Depreciation and amortization 27,930 27,929 Inventory write-off - 1,765 Bad debt expense - 12,000 Noncash right-of-use lease expense 9,385 8,727 Unrealized (gain) loss on marketable securities 340,417 ( 24,410 ) Unrealized foreign exchange ( 109 ) 182 Lease accretion 1,562 - Change in working capital Accounts receivable ( 119,111 ) (230,405 ) Inventory 2,914 ( 6,067 ) Prepaid expenses and deposits 82,030 46,079 Accounts payable and accrued liabilities 88,819 ( 3,825 ) Due to related parties ( 5,223 ) 28,481 Deferred revenue - ( 8,755 ) Net cash used in by operating activities $ ( 1,166,324 ) $ ( 809,533 ) Cash flows used in investing activities Purchase of equipment ( 42,375 ) - Intellectual property ( 15,840 ) ( 5,775 ) Net cash (used in) provided by investing activities $ ( 58,215 ) $ ( 5,775 ) Cash flows from financing activities Lease Payments ( 10,987 ) ( 8,767 ) Net cash provided by financing Activities $ ( 10,987 ) $ ( 8,767 ) Net cash provided by discontinued operations $ - $ 55,667 Net change in cash for the period ( 1,235,526 ) ( 768,408 ) Cash at beginning of period 10,917,797 1,293,749 Cash at end of period $ 9,682,271 $ 525,341 Supplemental information of cash flows: Income taxes paid in cash $ - $ 3,450 The accompanying notes are an integral part of these condensed consolidated interim financial statements. Page 5 of 31 Table of Contents LEXARIA BIOSCIENCE CORP. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Expressed in U.S. Dollars) ADDITIONAL TOTAL COMMON STOCK PAID-IN STOCKHOLDERS’ SHARES AMOUNT CAPITAL DEFICIT NCI EQUITY $ $ $ $ Balance August 2020 3,001,476 3,001 30,324,398 ( 27,802,198 ) ( 42,943 ) 2,482,258 Stock based compensation - - 48,887 - - 48,887 Net loss - - - ( 696,028 ) - (696,028 ) Non-controlling interest - - - - ( 14,093 ) ( 14,093 ) Balance November 30, 2020 3,001,476 3,001 30,373,285 ( 28,498,226 ) ( 57,036 ) 1,821,024 Stock based compensation - - 17,154 - - 17,154 Brokered placement 2,102,856 2,104 9,469,393 - - 9,471,497 Net Income - - - 404,111 - 404,111 Non-controlling interest - - - - ( 10,921 ) ( 10,921 ) Balance February 28, 2021 5,104,332 5,105 39,859,832 ( 28,094,115 ) ( 67,957 ) 11,702,865 Stock based compensation - - 343,966 - - 343,966 Warrants issued for services - - 785,895 - - 785,895 Net loss - - - ( 2,556,997 ) - ( 2,556,997 ) Non-controlling interest - - - - ( 9,555 ) ( 9,555 ) Balance May 31, 2021 5,104,332 5,105 40,989,693 ( 30,651,112 ) ( 77,512 ) 10,266,174 Exercise of warrants 610,189 610 4,014,433 - - 4,015,043 Shares issued for services 12,178 12 84,988 - - 85,000 Net loss - - - ( 1,178,092 ) - ( 1,178,092 ) Non-controlling interest - - - - ( 124,573 ) ( 124,573 ) Balance August 31, 2021 5,726,699 5,727 45,089,114 ( 31,829,204 ) ( 202,085 ) 13,063,552 Stock based compensation - - 408,544 - - 408,544 Net loss - - - ( 1,993,157 ) - (1,993,157 ) Non-controlling interest - - - - ( 10,325 ) (10,325 ) Balance November 30, 2021 5,726,699 5,727 45,497,658 ( 33,822,361 ) ( 212,410 ) 11,468,614 The accompanying notes are an integral part of these condensed consolidated interim financial statements. Page 6 of 31 Table of Contents LEXARIA BIOSCIENCE CORP. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS November 30, 2021 (Expressed in U.S. Dollars) 1. Nature of Business Lexaria Bioscience Corp. (“Lexaria”, “we”, “our” or the “Company”) is a research and development focused 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. The Company is headquartered in Kelowna, British Columbia, Canada. The corporate website is www.lexariabioscience.com Going Concern Analysis 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 November 30, 2021, we had an accumulated deficit of $33.8m. 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 November 30, 2021, the Company had cash of approximately $9.7m. 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 these unaudited consolidated financial statements. Page 7 of 31 Table of Contents COVID-19 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 November 30, 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 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. 2. Significant Accounting Policies The significant accounting policies of the Company are consistent with those of our audited financial statements on Form 10-K for the year ended August 31, 2021. 3. Basis of Consolidation These interim consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries; Lexaria CanPharm ULC, Lexaria CanPharm Holdings Corp., PoViva Corp., Lexaria Hemp Corp., Kelowna Management Services Corp., and Lexaria Pharmaceutical Corp., and our 83.333 % owned 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 upon consolidation. Page 8 of 31 Table of Contents 4. Basis of Presentation The Company’s unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with United States generally accepted accounting principles (US GAAP) have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of results for a full year or any subsequent period. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated annual financial statements and notes thereto included in our annual report filed on Form 10-K for the year ended August 31, 2021. 5. Estimates and Judgements 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 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. 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. 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. Although we believe that these estimates are reasonable actual results could differ. In preparing these unaudited interim consolidated financial statements, the significant judgments made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those applied to the audited consolidated financial statements for the year ended August 31, 2021. 6. Recent Accounting Guidance Pronouncements Issued but Not Yet Adopted In June 2016, the FASB issued ASU No. 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. Page 9 of 31 Table of Contents 7. Accounts and Other Receivables November 30, August 31, 2021 $ $ Trade and deposits receivable 7,292 16,553 Sale of assets - shares receivable 278,107 287,107 Sales tax receivable 176,113 47,741 461,512 342,401 8. Inventory November 30, August 31, 2021 $ $ Raw materials 26,516 29,648 Work in progress 450 - 26,966 29,648 During the period ended November 30, 2021, the Company wrote down $Nil (November 30, 2020 -$1,765) in finished goods. 9. Intellectual Property The following is a list of US capitalized patents held by the Company: Issued Patent # Patent Certificate Grant Date Patent Family US 9,474,725 B1 10/25/2016 Food and Beverage Compositions Infused With Lipophilic Active Agents and Methods of Use Thereof US 9,839,612 B2 12/12/2017 US 9,972,680 B2 05/15/2018 US 9,974,739 B2 05/22/2018 US 10,084,044 B2 09/25/2018 US 10,103,225 B2 10/16/2018 US 10,381,440 08/13/2019 US 10,374,036 08/06/2019 US 10,756,180 08/25/2020 Page 10 of 31 Table of Contents A continuity schedule for capitalized patents is presented below: November 31, August 31, 2021 $ $ Balance – beginning 364,623 292,000 Addition 15,840 79,493 Amortization ( 1,717 ) ( 6,870 ) Balance – ending 378,746 364,623 Patents are amortized over their 20 year legal life. 10. Property & Equipment Three Months Ended November 30, 2021 Cost Period Amortization Additions Accumulated Amortization Net Balance November 30, 2021 $ $ $ $ $ Leasehold improvements 259,981 ( 13,509 ) - ( 154,157 ) 105,824 Computers 63,964 ( 4,921 ) - ( 56,471 ) 7,493 Furniture fixtures & equipment 31,126 ( 1,604 ) - ( 18,024 ) 13,102 Lab equipment 291,235 ( 6,410 ) 42,375 ( 75,885 ) 257,725 646,306 ( 26,444 ) 42,375 ( 304,537 ) 384,144 Year Ended August 31, 2021 Cost Period Amortization Disposal Accumulated Amortization Net Balance August 31, 2021 $ $ $ $ $ Leasehold improvements 259,981 ( 54,038 ) - ( 140,648 ) 119,333 Computers 63,964 ( 19,681 ) - ( 51,550 ) 12,414 Furniture fixtures & equipment 34,220 ( 6,417 ) ( 3,094 ) ( 16,420 ) 14,706 Lab equipment 291,235 ( 35,008 ) - ( 69,475 ) 221,760 649,400 ( 115,144 ) ( 3,094 ) ( 279,093 ) 368,213 During the three-month period ended November 30, 2021, $231 of amortization was included in the cost of goods sold. Page 11 of 31 Table of Contents 11. Accounts Payable and Accrued Liabilities November 30, August 31, 2021 $ $ Accounts Payable Trades payable 172,881 54,668 Sales tax payable 6,556 - Accrued Liabilities Corporate tax payable 1,055 1,055 Trades payable 9,050 45,000 Balance 189,542 100,723 12. Common Shares and Warrants The fair value of share purchase warrants granted was estimated as of the date of the grant by using the Black-Scholes option pricing model. During the quarter ended November 30, 2021, the Company issued no warrants. A continuity schedule for warrants is presented below: Number of Warrants Weighted Average Exercise Price $ Balance August 31, 2020 471,608 16.77 Cancelled/expired ( 44,161 ) 67.50 Exercised ( 610,189 ) 6.58 Issued 2,630,017 6.58 Balance August 31, 2021 2,447,275 8.00 Cancelled/expired ( 25,292 ) 4.57 Balance November 30, 2021 2,421,983 8.04 A summary of warrants outstanding as of November 30, 2021, is presented below: # of Warrants Weighted Average Remaining Contractual Life Weighted Average Exercise Price $ 7,500 0.96 years 24.00 100,000 2.38 years 9.00 200,000 2.38 years 7.00 51,814 2.96 years 36.00 8,984 3.00 years 36.00 16,667 3.29 years 9.00 317,190 3.43 years 10.50 1,719,828 4.13 years 6.58 2,421,983 3.86 years 8.04 Page 12 of 31 Table of Contents 15. Stock Options The Company has established the Equity Incentive Plan whereby the board of directors may, from time to time, grant up to 510,433 stock options to directors, officers, employees, and consultants. Stock options granted must be exercised within five years from the date of grant or such lesser period as determined by the Company’s board of directors. The exercise price of an option is equal to or greater than the closing market price of the Company’s common shares on the day preceding the date of grant. The vesting terms of each grant are set by the board of directors. The Company granted the following options during the quarter ended November 30, 2021: Quantity Exercise Price $ Life (Years) 81,800 6.23 5 81,800 6.23 A continuity schedule for stock options is presented below: Options Weighted Average Exercise Price $ Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value $ Balance August 31, 2020 171,604 11.17 Cancelled/expired (50,334 ) 10.76 Granted 84,900 5.41 Balance August 31, 2021 206,170 8.90 Cancelled ( 3,334 ) 9.60 Granted 81,800 6.23 Balance November 30, 2021 (Outstanding) 284,636 8.12 3.86 4,820 Balance November 30, 2021 (Exercisable) 270,803 8.22 3.84 2,740 The fair value of share purchase options granted were estimated as of the date of the grant by using the Black-Scholes option pricing model with the following assumptions: November 30, 2021 Expected volatility 119 % Risk-free interest rate 0.85 % Expected life 5 years Dividend yield 0 % Estimated fair value per option $ 5.10 Page 13 of 31 Table of Contents 16. Revenues November 30, 2021 $ November 30, 2020 $ Product sales 7,000 164,990 Licensing revenue - 130,584 Other revenue 6,880 82 Income from ongoing operations - 295,656 Income from discontinued operations - 3,000 13,880 298,656 Product revenues of $7k and licensing usage fees of $Nil represent significant declines in intermediate product sales and related licensing usage fees during the period ended November 30, 2021. 17. Related Party Transactions Due to related parties: Related party transactions are recorded at the exchange amount established and agreed to between the related parties. As at November 30, 2021, $Nil (August 31, 2021 - $5,233) was payable to and included in due to related parties. 18. Segment Information The Company’s operations involve the development and usage, including licensing, of its proprietary DehydraTECH 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 consumer products and technology licensing to make operational decisions and to assess the performance of the Company. The Company has identified two reportable segments: Intellectual Property and Products. Licensing revenues are significantly concentrated on one licensee. Three Months Ended November 30, 2021 IP Licensing $ Products $ Corporate $ Consolidated Total $ Revenue - 7,000 6,880 13,880 Cost of goods sold - ( 5,572 ) - ( 5,572 ) Operating expenses ( 837,750 ) ( 77,002 ) ( 1,097,040 ) ( 2,011,792 ) Segment loss ( 837,750 ) ( 75,574 ) ( 1,090,160 ) ( 2,003,484 ) Total assets 724,665 116,060 10,905,217 11,745,942 Three Months Ended November 30, 2020 IP Licensing $ Products $ Corporate $ Consolidated Total $ External revenue 130,584 165,072 - 295,656 Cost of goods sold - ( 64,478 ) - ( 64,478 ) Operating expenses ( 127,868 ) ( 92,038 ) ( 724,393 ) ( 944,299 ) Discontinued operations 3,000 - - 3,000 Segment income(loss) 5,716 8,556 ( 724,393 ) ( 710,121 ) Total assets 817,830 125,963 1,230,527 2,174,320 Page 14 of 31 Table of Contents Capital Asset by Region Cost US Addition US Net Balance US Cost Canada Net Balance Canada Total Net Balance Three Months Ended November 30, 2021 $ $ $ $ $ $ Leasehold Improvements - - - 259,981 105,824 105,824 Computers - - - 63,964 7,493 7,493 Furniture Fixtures Equipment - - - 31,126 13,102 13,102 Lab Equipment 98,050 42,375 110,377 193,185 147,348 257,725 101,144 42,375 110,377 548,256 273,767 384,144 Capital Asset by Region Cost US Disposal US Net Balance US Cost Canada Net Balance Canada Total Net Balance Year Ended August 31, 2021 $ $ $ $ $ $ Leasehold Improvements - - - 259,981 119,333 119,333 Computers - - - 63,964 12,414 12,414 Furniture Fixtures Equipment 3,094 ( 3,094 ) - 31,126 14,706 14,706 Lab Equipment 98,050 - 69,580 193,185 152,180 221,760 101,144 ( 3,094 ) 69,580 548,256 298,633 368,213 19. Commitments, Significant Contracts and Contingencies Right of Use Assets - Operating Lease The Corporate office and R&D lab space located in Kelowna, British Columbia, Canada is leased until November 15, 2023, with a five-year renewal option. In addition to minimum lease payments, the lease requires us to pay property taxes and operating costs which are subject to annual adjustments. November 30, 2021 August 31, 2021 $ $ Right of use assets - operating leases 126,920 126,920 Amortization ( 45,264 ) ( 35,879 ) Total lease assets 81,656 91,041 Liabilities: 89,393 125,431 Lease payments ( 10,987 ) 43,950 ) Interest accretion 1,563 7,912 Total lease liabilities 79,969 89,393 Operating lease cost 81,657 91,041 Operating cash flows for lease 10,987 43,950 Remaining lease term 1.9 Years 2.1 Years Discount rate 7.50 % 7.50 % Page 15 of 31 Table of Contents Pursuant to the terms of the Company’s lease agreements in effect, the following table summarizes the Company’s maturities of operating lease liabilities as of November 30: 2022 33,611 2023 44,816 2024 7,469 Thereafter - Total lease payments 85,896 Less: imputed interest ( 5,927 ) Present value of operating lease liabilities 79,969 Less: current obligations under leases ( 40,340 ) Total 39,629 - 20. Prepaid Expenses and Deposits Prepaid expenses consist of the following at November 30, 2021, and August 31, 2021: November 30, August 31, 2021 $ $ Advertising & conferences 142,787 168,760 Consulting - 18,750 Legal fees 25,000 31,380 Licence, filing fees, dues 8,500 19,500 Office & insurance 60,936 80,863 237,223 319,253 21. Marketable Securities The components of Marketable Securities were as follows: Cost Basis $ Unrealized Gains $ Unrealized Losses $ Total $ August 31, 2021 Common stock 1,037,025 16,243 (219,427 ) Total 1,037,025 16,243 ( 219,427 ) 833,841 November 30, 2021 Common stock - - ( 340,417 ) Total 1,037,025 16,243 ( 559,844 ) 493,424 Unrealized gains and 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. Page 16 of 31 Table of Contents 22. 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 non-core business assets to Hill Street Beverage Company (“Hill Street”) (TSX-V: BEER) for gross proceeds of C$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 at 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 of which C$643,939 worth of Hill Street shares were issued to the Company on August 9, 2021, and the remaining C$356,061 worth of Hill Street shares are to be issued on April 9, 2022. Gain on asset disposal Book value of assets sold $ - Cash consideration 273,373 Shares received 468,264 Shares receivable 781,067 Promissory note - $ 1,522,704 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: THREE MONTHS ENDED November 30, 2021 2020 Revenue $ - $ 3,000 Operating Expenses - - Net Income (loss) $ - $ 3,000 The following table presents cash flows of discontinued operations: THREE MONTHS ENDED November 30, 2021 2020 Cash flows used in discontinued operating activities Net income $ - $ 3,000 Change in working capital - 55,667 Net cash used in discontinued operating activities $ - $ 58,667 Net cash provided by discontinued operations - $ 58,667 Page 17 of 31 Table of Contents The following table presents the aggregate carrying amounts of the classes of assets and liabilities of discontinued operations of the assets: November 30, August 31, 2021 2020 Current Assets Accounts receivable $ - $ 49,333 Total assets classified as discontinued operations in the consolidated balance sheet - 49,333 Current Liabilities Accounts payable - - Total liabilities classified as discontinued operations in the consolidated balance sheet $ - $ - 23. Subsequent Events The three-year management contracts for our CEO and our President expired on December 31, 2021. On December 31, 2021, the Company entered into new three-year contracts with Mr. Chris Bunka, our CEO and Chairman of the Board and Mr. John Docherty, our President and Board member. These contracts are aligned with the previous contracts in that Mr. Bunka will receive, C$356k per year and Mr. Docherty C$310k year, with annual increases based on the annual Canadian inflation rate plus 1.5%. The contracts are attached to this report as exhibits and a summary of the conditions and benefits of these employment contracts were previously disclosed in the Company’s report on Form 8-K, filed on January 4, 2022. In December of 2021 the Company entered into a one-year media outreach agreement with SRAX Inc. and issued 224,299 shares as consideration for an aggregate value of $1.2m. Page 18 of 31 Table of Contents