Lexaria Bioscience Corp. 10-Q

Item 1. Financial Statements LEXARIA BIOSCIENCE CORP. CONSOLIDATED BALANCE SHEETS (Unaudited) May 31, August 31, 2023 2022 ASSETS Current Cash $ 3,163,906 $ 5,813,218 Marketable securities 269,560 347,335 Accounts receivable 172,284 201,784 Inventory - 38,418 Prepaid expenses and deposit 629,740 576,761 Total Current Assets 4,235,490 6,977,516 Non-current assets, net Right of use assets 178,127 52,444 Intellectual property 549,122 488,462 Property & equipment 276,898 315,505 Total Non-current Assets 1,004,147 856,411 TOTAL ASSETS $ 5,239,637 $ 7,833,927 LIABILITIES and STOCKHOLDERS' EQUITY Current Liabilities Accounts payable and accrued liabilities $ 1,023,587 $ 151,449 Lease payable 32,317 42,587 Total Current Liabilities 1,055,904 194,036 Long Term Liabilities Lease payable 142,587 7,401 Total Long Term Liabilities 142,587 7,401 TOTAL LIABILITIES $ 1,198,491 $ 201,437 Stockholders' Equity Share Capital Authorized: 220,000,000 common voting shares with a par value of $ 0.001 per share Common shares issued and outstanding: 8,091,650 and 5,950,998 at May 31, 2023 and August 31, 2022, respectively $ 8,091 $ 5,951 Additional paid-in capital 48,911,507 47,041,481 Deficit ( 44,524,108 ) ( 39,098,528 ) Equity attributable to shareholders of the Company 4,395,490 7,948,904 Non-controlling Interest ( 354,344 ) ( 316,414 ) Total Stockholders' Equity 4,041,146 7,632,490 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,239,637 $ 7,833,927 The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements. Page 3 of 29 Table of Contents LEXARIA BIOSCIENCE CORP. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three-Months Ended Nine-Months Ended May 31, May 31, 2023 2022 2023 2022 Revenue $ 93,150 $ 99,717 $ 229,641 $ 144,247 Cost of goods sold 12,747 18,635 31,500 30,592 Gross profit $ 80,403 $ 81,082 $ 198,141 $ 113,655 Expenses Research and development 1,640,648 752,095 3,166,315 1,486,487 General and administrative 823,321 1,747,325 2,495,336 4,497,660 Total operating expenses $ 2,463,969 $ 2,499,420 $ 5,661,651 $ 5,984,147 Net Loss $ ( 2,383,566 ) $ ( 2,418,338 ) $ ( 5,463,510 ) $ ( 5,870,492 ) Net loss attributable to: Common shareholders $ ( 2,371,505 ) $ ( 2,382,925 ) $ ( 5,425,580 ) $ ( 5,801,859 ) Non-controlling interest $ ( 12,061 ) $ ( 35,413 ) $ ( 37,930 ) $ ( 68,633 ) Basic and diluted loss per share $ ( 0.37 ) $ ( 0.41 ) $ ( 0.89 ) $ ( 1.00 ) Weighted average shares outstanding - Basic and diluted 6,440,998 5,950,998 6,116,126 5,863,086 The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements. Page 4 of 29 Table of Contents LEXARIA BIOSCIENCE CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine-Months Ended May 31, 2023 2022 (Unaudited) Cash flows used in operating activities Net loss $ ( 5,463,510 ) $ ( 5,870,492 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock based compensation 160,748 519,718 Depreciation and amortization 74,469 77,986 Noncash right-of-use lease expense 30,882 28,678 Unrealized loss on marketable securities 77,775 823,916 Shares issued for services - 600,000 Lease accretion 1,961 4,166 Change in operating assets and liabilities Accounts receivable 29,500 ( 90,574 ) Inventory 43,069 ( 9,196 ) Prepaid expenses and deposits ( 52,979 ) 161,945 Accounts payable and accrued liabilities 872,138 56,352 Due to related parties - ( 5,223 ) Operating lease liability ( 33,610 ) - Net cash used in operating activities $ ( 4,259,557 ) $ ( 3,702,724 ) Cash flows used in investing activities Purchase of equipment ( 33,748 ) ( 49,188 ) Intellectual property ( 67,425 ) ( 81,407 ) Net cash used in investing activities $ ( 101,173 ) $ ( 130,595 ) Cash flows from/(used in) financing activities Proceeds from issuance of equity 1,711,418 - Lease Payments - ( 33,395 ) Net cash from/(used in) financing activities $ 1,711,418 $ ( 33,395 ) Net change in cash for the period ( 2,649,312 ) ( 3,866,714 ) Cash at beginning of period 5,813,218 10,917,797 Cash at end of period $ 3,163,906 $ 7,051,083 Supplemental information of cash flows: Non-cash shares for services included in prepaid expenses $ - $ 600,000 Income taxes paid in cash $ 8,214 $ - Recognition of ROU Asset and Liability due to modification $ 156,565 The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements. Page 5 of 29 Table of Contents LEXARIA BIOSCIENCE CORP. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the Nine-Months Ended May 31, 2023 and 2022 (Unaudited) Additional Non- Common Stock Paid-in controlling Stockholders Shares Amount Capital Deficit Interest Equity Balance August 31, 2022 5,950,998 $ 5,951 $ 47,041,481 $ ( 39,098,528 ) $ ( 316,414 ) $ 7,632,490 Stock based compensation - - 68,776 - - 68,776 Net loss - - - ( 1,755,944 ) - ( 1,755,944 ) Non-controlling interest - - - - ( 13,362 ) ( 13,362 ) Balance November 30, 2022 5,950,998 $ 5,951 $ 47,110,257 $ ( 40,854,472 ) $ ( 329,776 ) $ 5,931,960 Stock based compensation - - 10,526 - - 10,526 Net loss - - - ( 1,298,131 ) - ( 1,298,131 ) Non-controlling interest - - - - ( 12,507 ) ( 12,507 ) Balance February 28, 2023 5,950,998 $ 5,951 $ 47,120,783 $ ( 42,152,603 ) $ ( 342,283 ) $ 4,631,848 At The Market financing 34,652 34 110,987 - - 111,021 S-1 financing 2,106,000 2,106 1,598,291 - - 1,600,397 Stock based compensation - - 81,446 - - 81,446 Net loss - - - ( 2,371,505 ) - ( 2,371,505 ) Non-controlling interest - - - - ( 12,061 ) ( 12,061 ) Balance May 31, 2023 8,091,650 $ 8,091 $ 48,911,507 $ ( 44,524,108 ) $ ( 354,344 ) $ 4,041,146 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 Shares issued for services 224,299 224 1,199,776 - - 1,200,000 Net loss - - - ( 1,425,777 ) - ( 1,425,777 ) Non-controlling interest - - - - ( 22,895 ) ( 22,895 ) Balance February 28, 2022 5,950,998 $ 5,951 $ 46,697,434 $ ( 35,248,138 ) $ ( 235,305 ) $ 11,219,942 Stock based compensation - 111,174 - - 111,174 Net loss - - - ( 2,382,925 ) - ( 2,382,925 ) Non-controlling interest - - - - ( 35,413 ) ( 35,413 ) Balance May 31, 2022 5,950,998 $ 5,951 $ 46,808,608 $ ( 37,631,063 ) $ ( 270,718 ) $ 8,912,778 The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements. Page 6 of 29 Table of Contents LEXARIA BIOSCIENCE CORP. NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS May 31, 2023 1. Nature of Business Lexaria Bioscience Corp. (“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 DehydraTECH TM , our patented proprietary drug delivery technology. We are primarily a research and development company relying on our expanding intellectual property portfolio that continues to investigate the benefits of using DehydraTECH with numerous molecules. We have also begun an investigational new drug (“IND”) registration process with the US Food and Drug Administration (“FDA”). Revenues are generated primarily from intellectual property (“IP”) licensing contracts for DehydraTECH based on the terms of use and defined geographic and licensing arrangements. We also derive income from our third party contracted manufacturing of Business-to-Business (“B2B”) DehydraTECH enhanced ingredients which are processed to corporate customer specifications and sold by them online and in stores in the US. We also perform contract services in R&D for customer specific formulations that are used in comparison testing to customers’ existing products. 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 its operational, research and development and capital expenditures for a period of at least 12 months from the date this Report. Since inception, the Company has incurred significant operating and net losses. Annual losses attributable to shareholders were $ 7.4 million (2022), $ 4.2 million (2021) and $ 4.1 million (2020). As of May 31, 2023, we had an accumulated deficit of $ 44.5 million. 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 corporate expenditures, additional revenues received from the licensing of our technology, if any, and the receipt of payments under any current or future collaborations we may enter into. The recurring losses and negative cash flows from operations raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not contain any adjustments that might result for this uncertainty. The Company entered into a sales agreement with Maxim Group LLC, (“Maxim”) on August 12, 2022, where we may offer and sell shares of our common stock with an aggregate offering price of up to $ 5,925,000 under an At-The-Market (“ATM”) Offering. This 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. Based on the current equity value of the Company’s shares, the Company’s revised ability to use the ATM is limited to $1,965,533. Pursuant to the terms of the Company’s May 11, 2023, financing described below, the Company’s ability to use its ATM is currently on hold. Page 7 of 29 Table of Contents We may also offer securities for sale during our fiscal year 2023 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. On May 8, 2023, the Company announced the pricing of its public offering of 2,106,000 units, with each unit consisting of one share of common stock and one unlisted warrant to purchase one share of common stock. Each unit was sold at a public offering price of $ 0.95 . The warrants were immediately exercisable at a price of $ 0.95 per share on the date of issuance, being May 11, 2023, and will expire five years from the date of issuance. The shares of common stock and accompanying warrants were purchased together in this offering but were immediately separable upon issuance. Gross proceeds, before deducting placement agent fees to Maxim Group LLC, the sole placement agent, and other offering expenses, were approximately $ 2.0 million. The securities described above are registered pursuant to a registration statement on Form S-1, as amended (File No. 333-271096), which was declared effective by the Securities and Exchange Commission (the “SEC”) on May 8, 2023. Based on our existing working capital, management believes the Company has sufficient working capital to satisfy the Company’s estimated liquidity needs for the next 12 months. In making this assessment, 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. If the Company is unable to obtain funding, the Company would be forced to delay, reduce or eliminate some or all of its research and development programs, preclinical and clinical testing or commercialization efforts, which could adversely affect its business prospects. Page 8 of 29 Table of Contents 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, 2022. 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., Lexaria Nutraceutical Corp., and Lexaria Pharmaceutical Corp., and our 83.33 3% owned subsidiary Lexaria Nicotine LLC with the remaining 16.66 7% 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. Basis of Presentation The Company’s unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. 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 for 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, 2022. 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. Estimates and Judgments 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 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. Page 9 of 29 Table of Contents 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, 2022. 3. Marketable Securities The components of Marketable Securities were as follows: Cost Basis Unrealized Gains Unrealized Losses Fair Value August 31, 2021 $ 1,037,025 $ 16,243 $ ( 219,427 ) $ 833,841 Common stock 278,107 118,196 ( 882,809 ) ( 486,506 ) August 31, 2022 $ 1,315,132 $ 134,439 $ ( 1,102,236 ) $ 347,335 Common stock - 1,856 ( 79,631 ) ( 77,775 ) May 31, 2023 $ 1,315,132 $ 136,295 $ ( 1,181,867 ) $ 269,560 Marketable securities held by Lexaria represent available-for-sale common stock of Hill Incorporated (formerly Hill Street Beverage Company Inc.). Unrealized gains and losses from common stock are due to market price movements. In management’s opinion based on the evaluation of available information at May 31, 2023, unrealized losses represent temporary impairments. 4. Accounts Receivable Accounts receivable at May 31, 2023 and August 31, 2022 consist of the following: May 31, 2023 August 31, 2022 Trade and deposits $ 48,559 $ 80,374 Territory license fees 24,634 37,248 Sales tax 99,091 84,162 $ 172,284 $ 201,784 Page 10 of 29 Table of Contents 5. Inventory Inventory of raw materials on May 31, 2023, and August 31, 2022, consist of the following: May 31, 2023 August 31, 2022 Raw materials $ - $ 38,418 $ - $ 38,418 During the nine-month period ended May 31, 2023, raw materials inventory valued at $ 38,418 was expensed to R&D. 6. Prepaid Expenses and Deposits Prepaid expenses consist of the following at May 31, 2023 and August 31, 2022: May 31, 2023 August 31, 2022 Advertising & conferences $ 57,537 $ 359,863 Legal fees 25,000 25,000 License, filing fees, dues 27,417 15,000 Office & insurance 15,090 80,863 Consulting 383,009 - Capital financing 121,687 96,035 $ 629,740 $ 576,761 7. Intellectual Property, net The following is a list of capitalized US patents held by the Company as at May 31, 2023: 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 US 11,311,559 04/26/2022 Compositions and Methods for Enhanced Delivery of Antiviral Agents Page 11 of 29 Table of Contents A continuity schedule for capitalized patents is presented below: May 31, 2023 August 31, 2022 Balance beginning $ 488,462 $ 364,623 Addition 67,425 131,448 Amortization ( 6,765 ) ( 7,609 ) Balance ending $ 549,122 $ 488,462 Patents are amortized over their 20 year legal life. 8. Property & Equipment, net Property and equipment consist of: May 31, 2023 Cost Period Amortization Additions Accumulated Amortization Net Balance Leasehold improvements $ 259,981 $ ( 40,528 ) $ - $ ( 235,213 ) $ 24,768 Computers 70,781 ( 3,549 ) - ( 64,973 ) $ 5,808 Furniture fixtures equipment 31,126 ( 4,813 ) - ( 27,652 ) $ 3,474 Lab equipment 333,675 ( 23,461 ) 33,748 ( 124,575 ) $ 242,848 $ 695,563 $ ( 72,351 ) $ 33,748 $ ( 452,413 ) $ 276,898 August 31, 2022 Cost Period Amortization Additions Accumulated Amortization Net Balance Leasehold improvements $ 259,981 $ ( 54,037 ) $ - $ ( 194,685 ) $ 65,296 Computers 63,964 ( 9,874 ) 6,817 ( 61,424 ) 9,357 Furniture fixtures equipment 31,126 ( 6,417 ) - ( 22,837 ) 8,289 Lab equipment 291,235 ( 31,572 ) 42,375 ( 101,047 ) 232,563 $ 646,306 $ ( 101,900 ) $ 49,192 $ ( 379,993 ) $ 315,505 During the nine-month period ended May 31, 2023, amortization of $ 4,647 was included in cost of goods sold. 9. Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities at May 31, 2023 and August 31, 2022 consist of the following: May 31, 2023 August 31, 2022 Accounts Payable Trades payable $ 998,146 $ 57,150 Sales tax payable 13,068 31,303 Accrued Liabilities Trades payable 12,373 62,996 $ 1,023,587 $ 151,449 Page 12 of 29 Table of Contents 10. Revenues A breakdown of our revenues by type for the nine-months ended May 31, 2023, and 2022 are as follows: Nine-Months Ended May 31, 2023 2022 IP Licensing $ 104,935 $ 16,160 B2B 44,167 111,597 Other 80,539 16,490 $ 229,641 $ 144,247 During the nine-month period ended May 31, 2023, the Company recognized licensing revenue consisting of IP licensing fees for transfer of the DehydraTECH technology in line with definitive agreements and includes royalty fees. B2B product revenues of $ 44,167 (2022 - $ 111,597 ) were recorded that relate to sales of our intermediate products for use by B2B customers in their products. The Company recognized $ 104,935 (2022 - $ 16,160 ) in licensing revenue in the same period. 11. Common Shares, Warrants and Options During the quarter ended May 31, 2023, the Company completed the following issuances of common shares, warrants and options: 1. 34,652 common shares were sold at an average price of $ 3.30 per share for net proceeds of $ 111,021 from our ATM Offering; 2. 267,969 options with exercise prices ranging from $ 9.60 to $ 4.80 were repriced to $ 3.00 following shareholder approval obtained at the Company’s annual shareholder meeting held on May 9, 2023; and 3. 2,106,000 units were sold at a price of $ 0.95 per unit, with each unit consisting of one common share and one warrant exercisable to purchase an additional common share at $0.95 per share, for net proceeds of $1,600,397. The 2,106,000 warrants are exercisable for a period of five ( 5 ) years. No warrants have been exercised during the nine-months ended May 31, 2023. A continuity schedule for warrants for the nine-months ending May 31, 2023, is presented below: Number of Warrants Weighted Average Exercise Price Balance August 31, 2022 2,421,983 $ 8.04 Cancelled/expired ( 7,500 ) $ 24.00 Issued 2,106,000 $ 0.95 Balance May 31, 2023 4,520,483 $ 4.71 Page 13 of 29 Table of Contents A summary of warrants outstanding as of May 31, 2023, is presented below: Number of Warrants Weighted Average Exercise Price Weighted Average Remaining Contractual Life (years) 60,798 $ 36.00 1.46 - 1.5 317,190 $ 10.50 1.93 - 1.95 116,667 $ 9.00 0.88 - 1.79 200,000 $ 7.00 0.88 1,719,828 $ 6.58 2.63 2,106,000 $ 0.95 4.95 4,520,483 $ 4.71 3.53 Stock Options The Company has established an Equity Incentive Plan which currently allows the board of directors to grant up to 510,433 stock options to directors, officers, employees, and consultants. On May 9, 2023, at its annual shareholder meeting, the Company’s shareholders approved amendments to the Equity Incentive Plan, whereby the board of directors were authorized to grant up to 809,165 stock options to directors, officers, employees, and consultants with such amount being adjusted on January 1 each year commencing January 1, 2024, pursuant to an evergreen formula, to be equal to up to 10% of the issued share capital on December 31 of the previous year . As at the current date, the Company has not elected to affect the amendments approved by its shareholders to its Equity Incentive Plan. 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 vesting terms of each grant are also set by the 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 Company granted the following options during the nine-months ended May 31, 2023: Options Weighted Average Exercise Price Contractual Life (years) 41,200 $ 1.96 5 5,000 $ 2.73 5 3,400 $ 3.04 5 Total 49,600 $ 2.11 (Avg. Remaining Life) 4.39 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, 2021 206,170 $ 8.90 Cancelled/expired ( 3,334 ) 9.60 Granted 222,000 4.21 Balance August 31, 2022 424,836 6.45 3.69 $ 5,175 Granted 49,600 2.11 4.39 $ 55,748 Balance May 31, 2023 (granted) 474,436 $ 3.39 3.42 $ 0 Balance May 31, 2023 (exercisable) 462,686 $ 3.40 3.42 $ 0 Page 14 of 29 Table of Contents The fair value of stock options granted in the nine-months ended May 31, 2023, were estimated as of the date of the grant by using the Black-Scholes option pricing model with the following assumptions: Expected volatility 98 %- 1.05 % Risk-free interest rate 3.30 %- 4.12 % Expected life 5 years Dividend yield 0 % Estimated fair value per option $ 1.60 - $ 2.58 As of May 31, 2023, the total unrecognized non-cash compensation costs are $ 39,117 related to 11,750 non-vested stock options with a $ 3.27 weighted average price. These costs are expected to be recognized over a weighted average period of 0.82 years. All non-vested options are attributable to employees. Stock based compensation expense recognized in the nine-months ended May 31, 2023, totaled $ 160,748 , including $ 25,194 related to the repricing of the 267,969 options. 12. Commitments, Significant Contracts and Contingencies Right of Use Assets - Operating Lease The corporate office and R&D laboratory are located in Kelowna, British Columbia, Canada. The facility is leased until November 14, 2023, and the Company has exercised its five-year renewal option, the term of which commences on November 15, 2023, and expires on November 14, 2028. On March 31,2023, the Company remeasured the ROU asset and Lease liability for the lease extension. In addition to minimum lease payments, the lease requires us to pay property taxes and other operating costs which are subject to annual adjustments. May 31, 2023 August 31, 2022 Right of use assets - operating leases $ 52,444 $ 91,041 Remeasurement related to lease extension 156,565 Amortization ( 30,882 ) ( 38,597 ) Total lease assets $ 178,127 $ 52,444 Liabilities: $ 49,989 $ 89,393 Remeasurement related to lease extension 156,565 Lease payments ( 33,610 ) ( 44,600 ) Interest accretion 1,961 5,195 Total lease liabilities $ 174,905 $ 49,988 Operating lease cost $ 178,127 $ 52,444 Operating cash flows for lease $ 33,610 $ 44,599 Remaining lease term 5.42 Years 1.17 Years Discount rate 7.25 % 7.25 % The following table summarizes the Company’s maturities of operating lease liabilities as of May 31, 2023: 2023 (three-months remaining) $ 11,204 2024 35,840 2025 37,094 2026 37,345 Thereafter 84,026 Total lease payments $ 205,509 Less: imputed interest ( 30,605 ) Present value of operating lease liabilities $ 174,904 Less: current obligations under leases ( 32,317 ) Total $ 142,587 Page 15 of 29 Table of Contents 13. 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 B2B Products. Licensing revenues are significantly concentrated on one licensee. Nine-Months Ended May 31, 2023 IP Licensing B2B Corporate Consolidated Total Revenue $ 104,935 $ 44,167 $ 80,539 $ 229,641 Cost of goods sold - ( 31,500 ) - $ ( 31,500 ) Operating expenses ( 58,845 ) ( 235,379 ) ( 5,367,427 ) $ ( 5,661,651 ) Segment income (loss) $ 46,090 $ ( 222,712 ) $ ( 5,286,888 ) $ ( 5,463,510 ) Total assets $ 2,596 $ 67,705 $ 5,169,336 $ 5,239,637 Nine-Months Ended May 31, 2022 IP Licensing B2B Corporate Consolidated Total Revenue $ 16,160 $ 111,597 $ 16,490 $ 144,247 Cost of goods sold - ( 30,592 ) - ( 30,592 ) Operating expenses ( 3,096,910 ) ( 430,951 ) ( 2,456,286 ) ( 5,984,147 ) Segment loss $ ( 3,080,750 ) $ ( 349,946 ) $ ( 2,439,796 ) $ ( 5,870,492 ) Total assets $ 958,586 $ 95,389 $ 8,083,968 $ 9,137,943 Capital Asset by Region May 31, 2023 Cost US Addition US Net Balance US Cost Canada Addition Canada Net Balance Canada Total Net Balance Leasehold Improvements $ - $ - $ - $ 259,981 $ - $ 24,768 $ 24,768 Computers - - - 70,781 - 5,808 5,808 Furniture & Fixtures - - - 31,126 - 3,474 3,474 Lab Equipment 140,487 33,748 124,483 193,185 - 118,365 242,848 $ 140,487 $ 33,748 $ 124,483 $ 555,073 $ - $ 152,415 $ 276,898 Capital Asset by Region August 31, 2022 Cost US Addition US Net Balance US Cost Canada Addition Canada Net Balance Canada Total Net Balance Leasehold Improvements $ - $ - $ - $ 259,981 $ - $ 65,296 $ 65,296 Computers - - - 63,964 6,817 9,357 9,357 Furniture & Fixtures - - - 31,126 - 8,288 8,288 Lab Equipment 98,050 42,375 100,031 193,185 - 132,533 232,564 $ 98,050 $ 42,375 $ 100,031 $ 548,256 $ 6,817 $ 215,474 $ 315,505 14. Subsequent Events None. Page 16 of 29 Table of Contents