What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-01-17 compared with 2022-07-14 · 127 added, 175 removed, 109 unchanged (73% of the section changed)

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Research & Development

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

Currently, our primary research program is the investigation of cannabidiol (CBD) for the reduction of hypertension with a human clinical trial initiated in Q3, 2022 and three human clinical trials concluded in calendar 2021.

Other programs include nicotine for oral pouches and nicotine replacement therapy, antivirals and related compounds for COVID-19 and other viral diseases, PDE5 inhibitors, hormones, and others.

From time to time the Company will engage in contract R&D for third parties who are interested in evaluating DehydraTECH in their products.

During the quarter ended May 31, 2022, Lexaria incurred $752,095 (May 2021- $454,443) in R&D expenditures.

Specific R&D programs are in ongoing development and align to our financial ability to undertake each research phase for each API.

Due to our expanding portfolio coverage, we continually examine accelerated timetable options for testing, research, and development of each API.

Fiscal 2022 continues to highlight the direction of our research and development programs with confirmatory results from our ongoing programs.

We continue to devote an increasing proportion of our resources and focus towards pharmaceutical applications.

This focus has led to the successful completion of a letter to request a pre-IND meeting concerning DehydraTECH CBD with the FDA and it is anticipated that the FDA shall be providing its opinions on the details and acceptability of Lexaria’s intended clinical trial program on or around July 30, 2022.

Assuming the FDA’s pending pre-IND meeting feedback is fairly aligned with the proposals Lexaria put forth in its request letter, it is anticipated that Lexaria will be authorized to proceed with its initial clinical trial to enable the development of its DehydraTECH CBD, subject to the approval of a full IND application filing, in late calendar 2022 or early 2023.

In September 2021 the Company reported successful results from its HYPER-H21-2 human study of DehydraTECH-CBD in arterial stiffness.

In April 2022, the Company began its multi-week human clinical hypertension study, HYPER-H21-4 for which it had received Independent Review Board approval on December 29, 2021.

HYPER-H21-4 is a double blinded, randomized cross-over design study with a placebo control of 60 volunteers aged between 40-70 years.

Some volunteers will already be using leading standard of care hypertension drugs such as ACE inhibitors with or without diuretics which will help evaluate the efficacy of DehydraTECH-CBD with and without other hypertension treatments.

The extended duration of the study will allow Lexaria to gather critical data monitoring of DehydraTECH-CBD over time and will evaluate the potential for longer term health benefits.

Further, HYPER-H21-4 should “de-risk” outcomes prior to Lexaria’s planned entry into regulatory pathways for the use of DehydraTECH-CBD to treat hypertension and possibly other forms of cardiovascular disease.

Dosing for the study will be concluding in July 2022 with results to follow.

The HYPER-H21-4 study is entirely funded through the Company's existing cash resources and is not subject to any financing requirement.

In April 2022 the Company announced that all data analyses from its simulated pulmonary hypertension clinical study HYPER-H21-3 have been successfully completed with positive safety and efficacy findings.

The study findings indicated a tendency (p=0.1) during 15 minutes of simulated low levels of oxygen (hypoxia) for reduced pulmonary artery systolic pressure ("PASP") with DehydraTECH-CBD treatment versus placebo.

Most notably, PASP was significantly attenuated by about 5 mmHg or 41% overall (p=0.045) in male participants specifically suggesting differences by sex in responsiveness to CBD treatment under hypoxic stress conditions.

These new findings from HYPER-H21-3 will help direct prospective future research into the efficacy of DehydraTECH-CBD use for the management of elevations in pulmonary arterial pressure under hypoxic conditions (e.g., exposure to altitude), related hypoxemic pathologies (e.g., severe lung disease), and pulmonary hypertension.

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Other API Studies

In October 2021 the Company reported results from its THC-A-21-1 in vivo study of DehydraTECH-THC showing it successfully elevated THC levels in blood plasma, requiring only 15 minutes at levels comparable to those achieved in 45 minutes with concentration-matched controls.

Lexaria also published results from its NIC-A21-1 in vivo trial of DehydraTECH-NICZ (nicotine benzoate) which was delivered via oral pouches.

Favorable results were all statistically significant, supporting further evaluation.

Lexaria plans to progress to a larger investigation in human volunteers of DehydraTECH-nicotine versus leading brands.

Lexaria is currently in the design phase of this proposed human clinical study, which will be independently funded with existing capital.

On February 2, 2022, results of our PDE5-A21-1 animal study were published by the Company which illustrated that in as little as four minutes after dosing, the DehydraTECH formulation delivered 74% more sildenafil into the bloodstream on average than the concentration-matched, generic control formulation.

Seven minutes after dosing, the DehydraTECH-sildenafil formulation achieved an average blood level higher than the generic sildenafil control formulation reached at any point during the study.

On March 15, 2022, the Company announced that the first phase of its epilepsy research program EPIL-A21-1 has commenced.

The EPIL-A21-1 research program consists of two main studies to be performed in rodents following the first phase pilot animal model.

The two main studies within the program are expected to begin in May/June 2022 and will involve both an acute seizure model induced by electrical stimulation ("MES") as well as a chronic chemically induced seizure model ("RISE-SRS").

Lexaria has selected these models because they have been previously employed by other researchers studying the antiepileptic effects of CBD including select study work funded by GW with its Epidiolex® formulation (PubMed Reference Number 30588604).

The Company continues to report progress on its R&D programs through its filing of Form 8-Ks and other public releases.

The results of these programs can also be found on the Company’s website:

www.LexariaBioscience.com.

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

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

In fiscal 2022 we completed three human studies on hypertension with the results of our fourth and largest hypertension study to date continuing to be released throughout fiscal 2023.

Preliminary results announced in October 2022

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

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

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

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

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

Our current patent portfolio includes patent family applications or grants pertaining to our method of improving bioavailability and taste, and the use of DehydraTECH as a delivery platform for a wide variety of Active Pharmaceutical Ingredients (“APIs”) including, but not limited to, fat soluble vitamins;

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regulated cannabinoids, and nicotine and its analogs.

We will continue to pursue patent protection in more than 40 countries around the world as vigorously as we are able, since the successful granting of more of those applications could lead to material increases in shareholder value.

We continue to pursue patent protection in more than 40 countries around the world as vigorously as we are able, since the successful granting of more of those applications could lead to material increases in shareholder value.

The Company currently has over 50 patent applications pending worldwide .

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The Company’s issued patents in the United States, Australia, Europe, India, Mexico, and Japan are as follows:

The Company has patents issued in the United States, Australia, Europe, India, Mexico, and Japan.

On December 29, 2022, Lexaria was granted its first patent in Canada, marking our 28 th patent to date as listed below:

Issued Patent #

Patent Certificate Grant Date

Patent Family

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#3 Stable Ready-to-Drink Beverage Compositions Comprising Lipophilic Active Agents

#6 Transdermal and/or Dermal Delivery of Lipophilic Active Agents

#7 Lipophilic Active Agent Infused Compositions with Reduced Food Effect

AU 2019256805

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#18 Compositions and Methods for Enhanced Delivery of Antiviral Agents

In November of 2021, we were advised that our first patent in Mexico, in the Company’s second patent family, had been allowed.

On March 8, 2022, the Company announced it would be issued a new patent entitled "Compositions Infused with Nicotine Compounds and Methods of Use Thereof".

The new Australian patent expands upon Lexaria's international intellectual property rights to apply DehydraTECH enhancement technology to most oral forms of nicotine, including pills, tablets, lozenges, capsules, pouches, gums and sprays.

The patent covers many different forms of nicotine including free base nicotine, nicotine salts, polymer resins of nicotine and other forms of nicotine complexes.

On April 26, 2022 the Company was granted US Patent 11,311,559 for Compositions and Methods for Enhanced Delivery of Antiviral Agents.

This is Lexaria’s 25 th patent granted worldwide.

Due to the complexity of pursuing patent protection, the quantity of patent applications will vary continuously as each application advances or stalls.

The Company is also filing new patent applications for new discoveries that arise from the Company’s R&D programs and, due to the inherent unpredictability of scientific discovery, it is not possible to predict if or how often such new applications might be filed.

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Reverse Stock Split

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 shares of common stock of the Company.

The purpose of the reverse stock split was to meet Nasdaq’s minimum stock price requirement.

The reverse stock split did not change the number of authorized shares of common stock, which remains at 220,000,000 shares.

All warrants, options, share and per share information in this Report gives retroactive effect to the 1-for-30 reverse stock split.

Public Offering

On January 14, 2021, the Company closed an underwritten public offering with the issuance of 2,102,856 shares of the Company’s common stock priced at $5.25 per share with an equivalent number of five-year warrants at an exercise price of $6.58.

Additionally, 227,161 Representative Warrants were issued as partial consideration to the underwriters of the offering that have a five-year term at an exercise price of $6.58.

Net of fees and disbursements, the Company received net proceeds of $9,471,497.

LEXX Market Listing

The Company’s common stock was uplisted from trading on the OTCQX under “LXRP” to the Nasdaq Capital Market where our common stock and certain of our warrants began trading under the symbols “LEXX” and “LEXXW”, respectively, effective as of the opening of market trading on January 12, 2021.

The Company, trading under the symbol “LXX”, voluntarily delisted from the Canadian Securities Exchange (“CSE”) effective after the closing of trading on Wednesday, July 7, 2021.

The overwhelming majority of trading had moved to Nasdaq and by delisting from the CSE the Company expected to realize savings in fees and managerial time and effort required to maintain a dual listing.

On December 9, 2020, Lexaria CanPharm ULC (“CanPharm”) completed a disposition (the “Disposition”) of its use and licensing rights to use its DehydraTECH technology (the “Assets”) specifically in association with non-pharmaceutical products containing cannabis molecules that contain 0.3% or greater THC.

The purpose of the Disposition was to remove the Company’s association with cannabis as it remains a Schedule 1 Drug and thereby eliminating any such regulatory restrictions cannabis products may create.

The Disposition assisted the Company in obtaining a listing on the Nasdaq Capital Market (“Nasdaq”) on January 12, 2021.

As a result of the Disposition, CanPharm assigned to the purchaser, Hill Street, license agreements with three existing non-related party licensees.

In consideration for the Assets, Hill Street provided CanPharm with C$350,000 cash, a promissory note bearing a principal amount of C$2,000,000 and bearing an interest rate of 10% (the “Note”) and C$1,500,000 in shares of Hill Street, issued in three tranches over a period of 16 months from the closing date.

The repayment of the Note does not have a fixed maturity date and is based on quarterly installments equal to 5% of the gross sales realized by Hill Street of DehydraTECH enabled products.

Due to the uncertainty pertaining to the settlement of the Note, management concluded that the note had $Nil value at the time of the sale and was recorded as such.

Some of the factors considered in the $Nil valuation of the Note were that the legal sales of THC products in the US and Canada have little or no history which made the expectant quarterly payments very difficult to forecast.

Further, Hill Street had no experience selling THC products and at the time of the sale was not licensed to produce and sell such products.

Therefore, the Company considered risk of default high and the collectability of the Note as highly doubtful.

Since the date of sale Hill Street has repaid $5k in the year-ended August 31, 2021.

We have received a further $16k in the nine months ended May 31, 2022, included in other revenues, as payment toward the accumulated interest on the Note.

Research & Development

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

Currently, our primary research program is the investigation of cannabidiol (CBD) for the reduction of hypertension.

Other programs include nicotine for oral pouches and nicotine replacement therapy, hormones, diabetes, dementia and others.

From time to time the Company will engage in contract R&D for third parties who are interested in evaluating DehydraTECH in their products.

The FDA has provided a written response from our pre-IND meeting regarding DehydraTECH-CBD for the treatment of hypertension and has agreed with Lexaria’s proposal to pursue a 505(b)(2) new drug application (“NDA”) regulatory pathway for our program.

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

During the quarter ended November 30, 2022, Lexaria incurred $829,489 (Nov 2021- $458,709) in R&D expenditures.

Specific R&D programs are in ongoing development and align to our financial ability to undertake each research phase for each API.

Due to our expanding portfolio coverage, we continually examine accelerated timetable options for testing, research, and development of each API.

Fiscal 2023 continues to highlight the direction of our research and development programs with confirmatory results from our ongoing programs.

We continue to devote an increasing proportion of our resources and focus towards pharmaceutical applications.

The first results of our hypertension study HYPER-H21-4 were announced on October 27, 2022, with the primary safety and efficacy objectives being met.

The study showed, among other things, a sustained drop in blood pressure in normally active hypertensive patients following multiple weeks of oral cannabidiol ("CBD") therapy, using Lexaria's patented DehydraTECH-CBD capsule formulation.

On December 21, further results were released from our multi-week human clinical hypertension study HYPER-H21-4, indicating superior cannabidiol ("CBD") blood absorption levels from our patented DehydraTECH-CBD™ relative to those of published, pharmaceutical-grade CBD industry comparators.

On November 1, 2022, the Company announced that independent review board ("IRB") approval has now been received for human clinical nicotine study NIC-H22-1.

The study is a 36-person human pharmacokinetic ("pk") randomized, double blinded, cross-over study conducted in current cigarette smokers, wherein each person will visit the laboratory to be dosed three times over a period of weeks.

During each visit only one oral nicotine pouch will be administered and evaluated:

either DehydraTECH-nicotine;

On!™ brand manufactured by Altria™;

or Zyn™ brand manufactured by Swedish Match™.

The study had earlier faced certain time extensions due to manufacturing and logistics, those issues have since been resolved.

Initial dosing began on December 20, 2022.

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On November 8 and 10, 2022 commencement of animal study programs DIAB-A22-1 and DEM-A22-1 were announced, designed to determine whether DehydraTECH-CBD may offer therapeutic utility against diabetes and dementia respectively.

On November 29, 2022 results from our animal study EPIL-A21-1 were released.

Study EPIL-A21-1 was designed to determine whether DehydraTECH-CBD could provide similar seizure inhibiting efficacy, using an established, vehicle-controlled, acute animal seizure model induced by electrical stimulation, at lower doses than were required with Epidiolex®.

The study successfully demonstrated performance enhancements compared to Epidiolex as one of the world's leading anti-seizure medications.

Epidiolex is currently the world's only commercially approved, CBD-powered anti-seizure drug.

Impact of COVID-19

The COVID-19 pandemic continues to present uncertainty and unforecastable new risks to the Company and its’ business plan.

Restrictions on national and international travel and required business closures present challenges in carrying out normal business activities related to corporate finance efforts and the pursuit of new customers throughout North America who might otherwise access the retail products of our licensees.

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

To date, we have not experienced a material impact on our financial statements, impairments of any of our assets or any major business disruptions, including with our vendors.

The extent to which the COVID-19 pandemic will impact the progress of our research and development programs is subject to future developments which are highly uncertain and cannot be predicted with confidence.

We continue our efforts to be proactive in managing the impact from the pandemic, including various actions to communicate with suppliers, customers, and project participants as we may deem appropriate.

We have made modifications to our normal operations including requiring team members to work remotely on a staggered basis.

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These accounting principles require management to make certain estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses during the periods reported.

These estimates, judgments and assumptions are reasonable, based on information available to management at the time that such estimates, judgments and assumptions are made.

Based on information available to management at the time, these estimates, judgments and assumptions are considered reasonable.

We believe that understanding the basis and nature of the estimates, judgments and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financials.

For a discussion of our critical accounting estimates, please read Note 2 to our financial statements in our Annual Report on Form 10-K for the year ended August 31, 2021.

There have been no material changes to the critical accounting estimates previously disclosed in our Annual Report on Form 10-K for the year ended August 31, 2021.

Capital Assets

Capital assets are stated at cost less accumulated depreciation and depreciated using the straight-line method over their useful lives or otherwise by units of production.

For a discussion of our critical accounting estimates, please read Note 4.

Estimates and Judgements as found in the financial statements in our Annual Report on Form 10-K for the year ended August 31, 2022.

There have been no material changes to the critical accounting estimates as previously disclosed in our 2022 10-K.

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Intellectual Property

US patent costs, included in intellectual property, represent legal costs incurred to establish US-granted patents.

These capitalized patent costs are amortized on a straight-line basis over the remaining life of the patent.

When US patents reach a mature stage, any associated legal costs, including typical maintenance fees, are expensed as incurred.

In the nine months ended May 31, 2022, the Company recognized $81k (May 31, 2021 - $79k) attributable to capitalized patents.

All other patent costs are expensed when incurred.

Capital Assets

Capital assets, consisting of property and equipment are stated at cost less accumulated depreciation and depreciated using the straight-line method over their useful lives or otherwise by units of production.

Capitalized patent costs represent legal costs incurred to establish US patents.

All other patent costs are expensed as incurred.

When US patents reach a mature stage, any associated legal costs are typically maintenance fees and therefore expensed as incurred.

Capitalized patent costs are amortized on a straight-line basis over the remaining life of the patent.

In the period ended November 30, 2022, the Company recognized $2,255 in amortization attributable to capitalized patents.

Revenue Recognition

Product Revenue

Revenue from the sale of products is recognized when 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 actual sales returns.

Licensing revenue from intellectual property

We recognize revenue for license fees at a point in time following the transfer of our intellectual property, our patented lipid nutrient infusion technology DehydraTECH for infusing APIs, to the licensee, which typically occurs on delivery of documentation.

Our revenues from licenses that grant the right to access our intellectual property, which we consider symbolic licenses of IP, are recognized over time following the transfer and use of our patented infusion technology DehydraTECH .

Royalty revenues are recognized in the period in which our licensees sell the related products, which in certain cases may require us to estimate our royalty revenue.

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.

We recognize usage fees from B2B clients in the period in which the counterparty completes the manufacturing of products which incorporate DehydraTECH enabled APIs.

We generally recognize revenue when we have satisfied all contractual obligations and are reasonably assured of collecting the resulting receivable.

We are often entitled to bill our customers and receive payment from our customers in advance of recognizing the revenue.

Product revenue

We generally recognize revenue when we have satisfied all contractual obligations and are reasonably assured of collecting the resulting receivable.

We are often entitled to bill our customers and receive payment from our customers in advance of recognizing the revenue.

Cost of sales

Cost of sales includes all expenditures incurred in bringing the goods to the point of sale This includes third-party manufacturing and handling costs, direct costs of the raw material, inbound freight charges, warehousing costs, and applicable overhead expenses.

Funding Requirements

We anticipate that our expenditures will increase in connection with our ongoing R&D program, specifically with respect to our animal and human clinical trials of our DehydraTECH formulations for the purposes of treating hypertension and infectious diseases.

As we move forward with our Investigational New Drug application with the FDA, we anticipate that our expenditures will further increase and accordingly, we expect to incur increased operating losses and negative cash flows for the foreseeable future.

Through May 31, 2022, we have funded our operations primarily with proceeds from the sale of our common stock.

The Company has consistently incurred recurring losses and negative cash flows from operations, including net losses of $5,870,492 and $2,883,483 for the nine months ended May 31, 2022, and 2021, respectively.

The continuation of our Company as a going concern is dependent upon our Company raising additional capital and/or attaining and maintaining profitable operations.

The accompanying financial statements do not include any adjustment relating to the recovery and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should our Company discontinue operations.

The recurring losses from operations and net capital deficiency do raise doubt about the Company’s ability to continue as a going concern within one year following the date that these consolidated financial statements are issued.

As of the issuance date of these consolidated interim financial statements, we expect our cash and cash equivalents of approximately $7.0m as at May 31, 2022, will be sufficient to fund our operating expenses and capital expenditure requirements through the forthcoming 12 months from the issuance date of this report.

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Results of Operations for our Period Ended May 31, 2022, and 2021

Our net loss and comprehensive loss for the nine months ended and the changes between those periods for the respective items are summarized as follows:

Nine Months Ended

Results of Operations

Through November 30, 2022, we have funded our operations primarily with proceeds from the sale of our common stock.

The Company has consistently incurred recurring losses and negative cash flows from operations, including net losses of $1,769,306 and $2,003,482 for the three months ended November 30, 2022 and 2021, respectively.

The continuation of Lexaria as a going concern depends on raising additional capital and/or attaining and maintaining profitable operations.

The recurring losses from operations and net negative cash flows from operation raise substantial doubt about the Company’s ability to continue as a going concern..

As of the issuance date of these consolidated interim financial statements, we expect our positive working capital of approximately $5.07m as at November 30, 2022 will be sufficient to fund our operating expenses and capital expenditure requirements through the forthcoming 12 months from the issuance date of this report.

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

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

As of January 17, 2023 we have not sold any shares under the ATM Offering.

Based on our existing working capital and access to an ATM offering, as disclosed above, management’s plans to improve cash flows, as disclosed above management believes the Company has sufficient working capital to satisfy the Company’s estimated liquidity needs for the next 12 months.

Because of the above factors, the Company believes that this alleviates the substantial doubt in connection with the Company’s ability to continue as a going concern.

However, there is no assurance that management’s plans will be successful due to the current economic climate in the United States and globally.

Results of Operations for our Period Ended November 30, 2022, and 2021

Our net loss and comprehensive loss for the three months ended and the changes between those periods for the respective items are summarized as follows:

Three Months Ended

Research and development

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Other general and administrative

Discontinued operations

Product revenues of $112k and licensing usage fees of $16k for the period ended May 31, 2022, constitute a significant decline in intermediate product sales and related licensing usage fees.

Our primary licensee experienced significant delays in the rollout of their products with a large national chain, creating a surplus of inventory from 2021 product manufactured by Lexaria.

The impacts of COVID-19 including supply chain issues and the delays in legislative amendments effecting the CBD industry in the US, have left the market flat throughout 2021 and 2022.

The abilities of other licensees to generate ongoing sales, thereby increasing product and usage fees, are expected to increase in the near term as new products are developed and gain market acceptance.

We have continued strong interest in our intermediate products in the US, Japan and Europe but cannot predict how long the current market conditions will affect purchasing decisions of retail customers that ultimately affect the consumer product manufacturers that utilize our intermediate products.

Nor can we predict when consumer spending might show sustainable growth in the effected market sectors that could translate into substantially increased licensing or usage revenues.

Our licensing revenues consist of IP licensing fees for the transfer of the Technology and usage fees that occur over time.

IP licensing fees are due at the signing of definitive agreements for the Technology and can include payments due upon transfer of the Technology and installment payments that are receivable within 12 months.

Licencing revenues are expected to increase in late 2022 and early 2023 as our newly signed licensees introduce their products using our DehydraTECH technology to market.

Subsequent to the quarter ended May 31, 2022, the Company announced the granting of an exclusive licence (subject to two previously issued licenses in Japan) to Premier Wellness Science Co., Ltd.

for the Japanese non-pharmaceutical market for use with CBD and hemp ingredients in oral liquid and non-liquid products, as well as for topical, haircare, lip-care and cosmetics products.

In order to retain ongoing exclusivity, the negotiated minimum quarterly payments to Lexaria begin September 1, 2022, and, during the first five years of the Agreement, amount to US$4,527,500.

In addition to the minimum payments, Lexaria will also receive royalty revenue from DehydraTECH licensed product sales.

Fees from intellectual property licencing increased by $63k and B2B sales increased by $22k with other sales marginally higher by $2k year-over year.

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Research and Development

Expenditures on R&D increased by $633k for the period ended May 31, 2022, as the Company undertook several studies within its 2022 applied research and development program.

Our primary focus in R&D has been on DehydraTECH-CBD to treat hypertension and our current study combined with our preparations for the filing of an IND (Investigative New Drug) application has contributed to a majority of the current expenditures.

Expenditures on R&D increased by $371k year-over year for the period ended November 30, 2022, as the company continued with applied research and development programs in our pharmaceutical division with our primary focus being on DehydraTECH-CBD to treat hypertension.

General and Administrative

Our other general and administrative expenses decreased overall by $63k during the period ended November 30, 2022, over the same period last year.

Advertising and promotion were up by $210k in the quarter with slight increases in investor relations and office expense.

Unrealized losses on marketable securities were less in the current year ($78k vs $340k).

Non-cash stock-based compensation on options granted and vested ($69k vs $121k).

Consulting Fees and Salaries

Our consulting fees decreased by $631k primarily due to non-cash stock-based compensation on options granted and vested ($728k) in the nine months ended May 31, 2021 and offset by a $99k increase in salaries in 2022 due to hiring within our R&D, investor relations and accounting departments.

Consulting fees and salaries decreased by $417k primarily due to the prior years recognition of stock-based compensation costs in the quarter ended November 30, 2021 and recognition of contractors and salaries as R&D expenses.

Legal and Professional Fees

Our professional fees decreased by $154k during the period compared to the prior year period.

The previous year’s expenditures were higher due to increased patent and trademark filings, the up-list to the Nasdaq Capital Markets, and additional advisory services utilized.

We recognize certain legal fees, tax advice fees, and accounting services all as “Professional Fees.”

General and Administrative

General and administrative expenses during the nine months ended May 31, 2022, are up significantly year over year due to increased advertising ($563k) and unrealized losses increased by $737k.

Otherwise expenses were generally lower.

A gain on the sale of assets ($1.5m) was recognized in the nine months ended May 31, 2021.

Our professional fees decreased by $47k during the period compared to the same prior year period.

Previous year expenditures were higher due to increased patent and trademark filings, higher accounting fees and the utilization of additional advisory services.

Liquidity and Financial Condition

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Net Working Capital

Nine Months Ended

Cash flows (used in) provided by operating activities

Cash flows (used in) provided by investing activities

Cash flows (used in) provided by financing activities

Net cash flows (used in) discontinued operations

Increase (decrease) in cash

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Cash flows used in operating activities

Cash flows used in investing activities

Cash flows used in financing activities

Decrease in cash

Operating Activities

Net cash used in operating activities for the nine months ended May 31, 2022, increased by $792k for the period compared with cash used in operating during the same period in 2021.

This difference was largely due to the increased expenditures pertaining to R&D and our stakeholders outreach programs.

Net cash used in operating activities increased by $68k for the period compared with cash used in operating during the same period in 2021.

This difference was largely due to decreased stock-based compensation ($69k vs $409k) unrealized losses on marketable securities ($78k vs $340k) and a reduction in prepaid expense balance in the quarter of $316k vs $82k in the prior year.

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Investing Activities

Net cash used in investing activities increased by $324k due to increased spending on capitalized US patents filings and the purchase of equipment in the nine months ended May 31, 2022, compared to 2021 which saw an inflow of cash from the sale of assets to Hill Street.

Net cash from investing activities decreased by $23k over 2022 due to decreased spending on acquisitions of equipment.

Financing Activities

Net cash provided from financing activities during the period ended May 31, 2022, is attributed to the amortized right-of-use lease payments.

Cash provided by financing activities in the nine months ended May 31, 2021, of $9.4m primarily related to the underwritten public offering that closed January 21, 2021.

The change in net cash provided from financing activities was immaterial.

Liquidity and Capital Resources

We have accumulated a large deficit since inception that has primarily resulted from executing our business plan, including R&D expenditures, in seeking to identify and develop our intellectual property patents for licensing and product creation.

We expect to continue to incur losses for at least the short term.

To date, we have obtained cash and funded our operations primarily through equity financings and limited amounts from revenue generation while our licensees ramp up production and market expansions.

We expect to continue to evaluate various funding alternatives on an ongoing basis as needed to maintain operations, to continue our research programs and to expand our patent portfolio.

If we determine it is advisable to raise additional funds, there is no assurance that adequate funding will be available to us or, if available, that such funding will be available on terms that we or our stockholders view as favorable.

Market volatility and global economics may have a significant impact on the availability of funding sources and the terms at which any funding may be available.

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

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

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

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

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

To achieve this objective, we will require substantial funding.

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

As of January 17, 2022 no shares have been sold under the ATM.

We may also offer securities in response to market conditions or other circumstances if we believe such a plan of financing is required to advance the Company’s business plans.

There is no certainty that future equity or debt financing will be available or that it will be at acceptable terms and the outcome of these matters is unpredictable.

A lack of adequate funding may force us to reduce spending, curtail or suspend planned programs or possibly liquidate assets.

Any of these actions could adversely and materially affect our business, cash flow, financial condition, results of operations, and potential prospects.

The sale of additional equity may result in additional dilution to our stockholders.

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

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

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

As of November 30, 2022, the Company had cash on hand of approximately $4.5m to settle $281k in current liabilities.

The Company believes this and our access to an ATM offering are sufficient to fund our expected R&D and operating expenditures for twelve months following the date of filing this report.

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

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Short Term Liquidity

On May 31, 2022, we had $7.0m cash and $8.11m in working capital.

Based on our current and upcoming research and development programs and our projected general and administration expenditures, we have determined that our cash resources are sufficient to allow us to continue operations through at least the next twelve months from the issuance date of this quarterly report.

Long Term Liquidity

It will require substantial cash to achieve our objectives for developing and patenting our intellectual property across all applicable market and industry segments.

This process typically takes many years and potentially millions of dollars for each segment.

If we pursue full commercial exploitation of all applicable market and industry segment opportunities, we will need to obtain significant funding from existing or new relationships, increasing revenue streams or from other sources of liquidity such as the sale of equity, issuance of debt or other transactions.

Cash requirements will vary depending on the results of our research programs and the requirements of each industry segment pursued.

Pursuit of each segment will progress or be curtailed based on available sources of cash with which to execute individual segment business plans.

The requirements will also be affected by transactions with existing or new relationships and the depth of regulatory requirements in each segment for compliance required to approve our IP and to market and license it.

These changes to requirements and transactions may impact our liquidity as well as affect our expenditures.

Controls and Procedures

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We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our President and Chief Executive Officer (Principal Executive Officer) and our Chief Financial Officer (Principal Financial and Accounting Officer) to allow for timely decisions regarding required disclosure.

As of May 31, 2022, the quarter covered by this report, we carried out an evaluation, under the supervision and with the participation of our CEO, President and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures.

Based on the foregoing, our CEO, President, and CFO concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of May 31, 2022.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting.

Responsibility estimates and judgments by management are required to assess the expected benefits and related costs of control procedures.

The objectives of internal control include providing management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management’s authorization and recorded properly to permit the preparation of consolidated financial statements in conformity with US GAAP.

Our management assessed the effectiveness of our internal control over financial reporting as of May 31, 2022.

In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework.

Our management has concluded that, as of May 31, 2022, our internal control over financial reporting is effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US GAAP.

Our management reviewed the results of their assessment with our Board.

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As of November 30, 2022, the fiscal quarter covered by this report, we carried out an evaluation, under the supervision and with the participation of our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures.

Based on the foregoing, our CEO and CFO concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of November 30, 2022.

Inherent limitations on Effectiveness of Controls

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Changes in Internal Control over Financial Reporting

During the quarter ended May 31, 2022, our controls and controls processes remained consistent with our fiscal year ended August 31, 2021.

There have been no changes in our internal controls over financial reporting that occurred during the quarter ended May 31, 2022, that have materially or are reasonably likely to materially affect our internal controls over financial reporting.

Our control processes are designed to include remote workers, which we have utilized for many years.

During the quarter ended November 30, 2022, our controls and controls processes remained consistent with August 31, 2022.

There have been no changes in our internal controls over financial reporting that occurred during the quarter ended November 30, 2022, that have materially or are reasonably likely to materially affect our internal controls over financial reporting.

Our control processes are designed to include remote workers.

The advent of the COVID-19 pandemic has not materially impacted our internal controls over financial reporting other than increasing requirements for social distancing and some additional remote working requirements for staff.

Change of Auditors

Davidson & Company LLP advised Lexaria Bioscience Corp.

that it would not stand for re-election as the Registrant’s Certifying Accountant (Auditor) for the fiscal year ended August 31, 2023.

Subsequent to the year ended August 31, 2022 the company appointed MaloneBailey LLP as our new Auditors.

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1 unchanged sentence

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-Q

Item 2. Management’s Discussion and Analysis