Lexaria Bioscience Corp. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Cautionary Note Regarding Forward-Looking Statements This quarterly report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not statements of historical fact may be forward-looking statements. These statements relate to future events or our future financial performance. Any forward-looking statements are based on our present beliefs and assumptions as well as the information currently available to us. In some cases, forward-looking statements are identified by terminology such as “may”, “will”, “should”, “could”, “targets”, “goal”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” set forth in Item 1(A) in our annual report on Form 10-K, as filed with the Securities and Exchange Commission on November 25, 2022, that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We caution you not to place undue reliance on any forward-looking statements as they speak only as of the date on which such statements were made, and we undertake no obligation to update any forward-looking statement or to reflect the occurrence of an unanticipated event. New factors may emerge and it is not possible to predict all factors that may affect our business and prospects. Further, management cannot assess the impact of each factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Our unaudited interim consolidated financial statements are stated in United States Dollars (“US$”) and are prepared in accordance with United States Generally Accepted Accounting Principles (“US GAAP”). The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report. In this quarterly report, unless otherwise specified, all dollar amounts are expressed in US dollars. All references to “common shares” and “shares” refer to the common shares in our capital stock, unless otherwise indicated. The terms “Lexaria” “we”, “us”, “our” and “Company” mean the Company and/or our subsidiaries, unless otherwise indicated. The following discussion should be read in conjunction with our condensed financial statements and accompanying notes in this quarterly report on Form 10-Q, and our audited financial statements with notes in our annual report on Form 10-K for the year ended August 31, 2022. Overview Lexaria’s patented DehydraTECH technology improves the delivery of bioactive compounds while promoting healthy ingestion methods, lowers overall dosing, and is highly effective in active molecule delivery available in a range of formats from oral ingestible to oral buccal/sublingual to topical products. DehydraTECH substantially improves the rapidity and quantity of Active Pharmaceutical Ingredients (“API”) transport to the blood plasma and brain using the body’s natural process for distributing fatty acids. Applications of this technology extends across many categories beyond the primary pharmaceutical focus of the Company, from foods and beverages to cosmetic products and nutraceuticals. Page 17 of 29 Table of Contents Our mission is to obtain FDA approval for a DehydraTECH-CBD drug for use on hypertension. Lexaria operates a federally licensed, in-house research laboratory and continues to build upon our intellectual property portfolio with 34 patents granted internationally and many other patents pending worldwide. Lexaria is advancing several R&D activities in both preclinical and future clinical programs, with our primary focus during the current year, being 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 culminating in the publication of six research articles. 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 products. Patents 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 APIs including, but not limited to, fat soluble vitamins; anti-viral drugs; phosphodiesterase inhibitors; human hormones; regulated cannabinoids, and nicotine and its analogs. 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 has patents issued in the United States, Australia, Europe, India, Mexico, Canada and Japan. Since our last 10-Q quarterly report filing, we were advised of six additional paten issuances; one in Japan, one in Australia, two in Canada and two in the US. Our new US patents, protect the use of DehydraTECH enhanced cannabidiol for use in pharmaceutical compositions and methods for treating hypertension and DehydraTECH enhanced cannabidiol for use in general compositions and methods for treating hypertension. Page 18 of 29 Table of Contents The issued patents of the Company as at the date of this quarterly report are disclosed in the following table: Issued Patent # Patent Family US 9,474,725 B1 #1 Food and Beverage Compositions Infused With Lipophilic Active Agents and Methods of Use Thereof US 9,839,612 B2 US 9,972,680 B2 US 9,974,739 B2 US 10,084,044 B2 US 10,103,225 B2 US 10,381,440 US 10,374,036 US 10,756,180 AU 2015274698 AU 2017203054 AU 2018202562 AU 2018202583 AU 2018202584 AU 2018220067 EP 3164141 JP 6920197 CDN 2949369 AU 2016367036 #2 Methods for Formulating Orally Ingestible Compositions Comprising Lipophilic Active Agents JP 6963507 MX 388 203 B AU 2016367037 #3 Stable Ready-to-Drink Beverage Compositions Comprising Lipophilic Active Agents IN 365864 JP 6917310 MX 390001 JP 7232853 CDN 3093414 #6 Transdermal and/or Dermal Delivery of Lipophilic Active Agents JP 7112510 #7 Lipophilic Active Agent Infused Compositions with Reduced Food Effect AU 2019256805 #8 Compositions Infused with Nicotine Compounds and Methods of Use Thereof CDN 3096580 US 11,311,559 #18 Compositions and Methods for Enhanced Delivery of Antiviral Agents AU 2021261261 US 11,666,544 #21 Compositions and Methods for Treating Hypertension US 11,666,543 Page 19 of 29 Table of Contents 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 leading to an application under the FDA for an IND. Other programs include DehydraTECH formulation development and testing with nicotine for oral pouches and prospective nicotine replacement therapy, human hormones, CBD for 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. During the quarter ended May 31, 2023, Lexaria incurred $1,640,648 (May 2022- $752,095) 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 patent 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 toward pharmaceutical applications. Investigational New Drug The FDA provided Lexaria with a positive written response on August 10, 2022, 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. We have selected InClin Inc. as our contract research organization (“CRO”) to perform the IND study which will be a Phase 1(b) study that we are designating HYPER-H23-1. We have completed manufacturing our IND drug product through our third-party contract manufacturer, in compliance with current Good Manufacturing Practice (“cGMP”) regulations as mandated by the FDA, which has been set down for stability testing. We anticipate receiving the last of the results from the stability testing necessary for disclosure in our IND filing at the end of our fiscal fourth quarter following which we will be in a position to file our IND application. Along with our CRO, we have begun certain administrative study start-up tasks associated with preparation to perform study HYPER-H23-1 when ready to be initiated following IND effectiveness. HYPER-H21-4 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. HYPER-H21-4 was a randomized, double-blinded, placebo-controlled, cross-over study that consisted of male and female volunteers between the ages of 40-70. Sixty-six (66) people were ultimately dosed to completion of the study and, prior to enrollment, they had documented or measured: · elevated blood pressure (120/80 to 139/80 mmHg); · mild (stage 1) hypertension (140/90 to 159/99 mmHg); or · moderate (stage 2) hypertension (160/100 to 179/109 mmHg). Page 20 of 29 Table of Contents All study participants received DehydraTECH-CBD every day for a 5-week duration in the dose-escalating 2.5 week increments noted above. Upon cross-over and wash out, all 66 study participants also received the matching placebo for a 5-week duration following the study randomization schedule. Thirty-three (33) of these patients had been diagnosed with hypertension but were not being treated with any antihypertensive medications, while 33 patients had been diagnosed with hypertension and were receiving commonly used antihypertensive therapies including angiotensin-converting enzyme (“ACE”) inhibitors with or without diuretics; or alternatively, ACE inhibitors with calcium channel blockers. The complete study protocol has and select findings from the study have already been published and is available at PubMed . The initial study results showed a sustained drop in blood pressure in normally active hypertensive patients following multiple weeks of oral CBD therapy, using Lexaria’s patented DehydraTECH-CBD capsule formulation. Lexaria is aware of only a handful of other published research studies, mostly in young, healthy, and normotensive volunteers, that have investigated whether a sustained decrease in resting blood pressure is possible following multiple weeks of oral CBD dosing; none of which have been successful in achieving this. DehydraTECH-CBD appears to reduce blood pressure more effectively than other oral CBD formulations. Subsequent to the announcement of the initial results from HYPER-H21-4, the Company supplemented its findings with additional research results which appeared to demonstrate: · increased CBD blood absorption levels from our patented DehydraTECH-CBD™ relative to those of published, pharmaceutical-grade CBD industry peers; · a potentially novel mechanism of action in reducing blood pressure whereby the antihypertensive effects of DehydraTECH-CBD may be explained, at least in part, by its interaction with the sympatho-chromaffin system via catestatin modulation, thus suggesting a potentially unique mechanistic benefit upon cardiovascular regulation with DehydraTECH-CBD treatment; and · significant reductions in several pro-inflammatory biomarkers known to be linked to cardiovascular disease (“CVD”) and a host of other conditions through evidenced reduction in blood-plasma levels of interleukin (“IL”) 8, 10, and 18 by ~19%, ~27%, and ~43%, respectively. EPIL-A21-1 In March 2022, Lexaria initiated an animal study to determine if DehydraTECH-CBD evidences superior treatment of seizure activity when compared to Epidiolex®. Epidiolex is an FDA-approved oral solution prescription CBD available to children 1 year of age and older to treat seizures associated with Lennox-Gastaut syndrome, Dravet syndrome or tuberous sclerosis complex. On November 29, 2022, Lexaria announced findings from the study indicating its patented DehydraTECH-CBD has demonstrated performance enhancements compared to one of the world’s leading anti-seizure medications, Epidiolex, generally at a lower DehydraTECH-CBD dose. Additional work has been completed in study program EPIL-A21-1 with the final study designed to establish an ED50 (i.e., the dose required to achieve seizure inhibition in 50% of the animals tested) for DehydraTECH-CBD in this animal model, where ED50 determination is a common performance metric in preclinical animal studies for developmental therapeutics. This ED50 study was designed to corroborate the experimental findings to-date and the final results confirmed that DehydraTECH-CBD was most effective at a dose of 75 mg/Kg as compared to the standard Epidiolex dosage of 100 mg/Kg. Further testing would be required to validate these findings in humans, although these dose levels in animals converted to human equivalent doses would be expected to be in the 10-12 mg/Kg and 15-16 mg/Kg ranges respectively based on typical animal to human conversion practices. DEM-A22-1 On November 8, 2022 commencement of animal study program DEM-A22-1 was announced. The study was designed to determine whether DehydraTECH-CBD may offer therapeutic utility against diabetes and dementia respectively. This study had several unexpected complications that produced inconclusive results. Should the Company choose to further pursue research in this area, it will likely be for a longer duration and may involve DehydraTECH-nicotine rather than DehydraTECH-CBD. Page 21 of 29 Table of Contents DIAB-A22-1 We announced the commencement of animal study program DIAB-A22-1 on November 8, 2022. On March 2, 2023 the Company announced that its diabetes animal model study had completed and produced at least three positive outcomes including weight loss in obese diabetic-conditioned animals, together with improved triglyceride and cholesterol levels. Subsequent to the quarter ended May 31, 2023, the Company announced further results indicating that the blood glucose levels were lowered and kidney function improved in the obese diabetic-conditioned animals treated with DehydraTECH-CBD. HOR-A22-1 Lexaria’s animal study HOR-A22-1, being a pharmacokinetic study performed in twenty female Sprague-Dawley rats in order to evaluate the ability of DehydraTECH™ to enhance the delivery characteristics of orally administered estradiol, was successfully completed during the third fiscal quarter, and showed enhancement in the oral delivery of the estrogen hormone estradiol. The DehydraTECH-estradiol formulation achieved an average peak concentration in the bloodstream (or “Cmax”) of 5.65ng/mL that was roughly nine times (900%) higher than that achieved with the control formulation at only 0.63 ng/mL. As well, the study revealed that levels of the estrone metabolite were also significantly higher comparing an average Cmax of 6.49 ng/mL with the DehydraTECH formulation to only 0.302 ng/mL achieved with the control, representing greater than a twenty-fold (2,000%) improvement in delivery. NIC-H22-1 On November 1, 2022, the Company announced that independent review board approval had been received for human clinical nicotine study NIC-H22-1. The study is a 36-person human pharmacokinetic 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 primary study objectives are to determine the quantity of nicotine in blood at various time points and vital-sign data collection including blood pressure, heart rate and respiratory rate. Subjective evaluations related to throat burn, user experience, gastrointestinal experience and more are also being conducted. At the date of this report, dosing in the study has been completed with sample and data analyses underway at varying stages and the results from the study anticipated to be released in the fourth quarter of 2023. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders. Critical Accounting Estimates Our consolidated financial statements and accompanying notes are prepared in accordance with US GAAP. 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. 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. We considered the impact of the COVID-19 pandemic on the assumptions and estimates used and determined that there were no material adverse impacts on the financial statements for the nine-months ended May 31, 2023. 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 Form 10-K. 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 diabetes. As we move forward with our IND 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, 2023, we have funded our operations primarily through the proceeds from the sale of common stock. The Company has consistently incurred recurring losses and negative cash flows from operations, including net losses of $5,463,510 and $5,870,492 for the nine-months ended May 31, 2023, and 2022, respectively. Page 22 of 29 Table of Contents The continuation of Lexaria as a going concern depends on 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 raise substantial 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. On August 12, 2022, we entered into an At-The-Market (“ATM”) Offering equity distribution 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. The sales agreement entitles Maxim to a sales commission equal to 3.0% of the gross sales price per share of all shares sold under the ATM. On May 11, 2023, the Company entered into share purchase agreements for the purposes of completing a $2 million best efforts financing with Maxim resulting in the issuance of 2,106,000 common shares and warrants to purchase common shares. We have performed a review of our cash flow forecast and have concluded that funds on hand, combined with those expected from executed license agreements, will be sufficient to meet the Company’s financial obligations for the twelve-month period following the filing of these consolidated financial statements on Form 10-Q. Results of Operations for the Period Ended May 31, 2023, and 2022 Our net loss for the nine-months ended for the respective items are summarized as follows: Nine-Months Ended May 31, 2023 2022 Change Revenues $ 229,641 $ 144,247 $ 85,394 Research and development 3,166,315 1,486,487 1,679,828 Consulting fees & salaries 1,030,042 1,672,825 (642,783 ) Legal and professional 364,779 439,942 (75,163 ) Other general and administrative 1,100,515 2,384,893 (1,284,378 ) Net Loss $ (5,463,510 ) $ (5,870,492 ) $ 406,982 Revenue Fees from intellectual property licensing increased by $88,775 while B2B sales decreased by $67,430 with other sales higher by $64,049 year-over year. Research and Development Expenditures on R&D increased by $1,679,828 year-over year for the period ended May 31, 2023, as the company continues with applied research and development programs in our pharmaceutical division with our primary focus being on FDA approval for a DehydraTECH-CBD drug to treat hypertension. Page 23 of 29 Table of Contents Consulting Fees and Salaries In the nine-months ended May 31, 2023, consulting fees and salaries decreased by $642,783 primarily due to the prior years’ recognition of stock-based compensation costs recorded for contractors and employees ($358,970), and the charges of salaries to research and development ($305,283), due to increased clinical development activity. Legal and Professional Fees Our legal and professional fees decreased by $75,163 during the period compared to the same prior year period. Previous year expenditures were higher due to increased patent and trademark filings and the utilization of additional legal advisory services. General and Administrative Our other general and administrative expenses decreased overall by $1,284,378 during the period ended May 31, 2023, over the same period last year. Advertising and promotion were down by $474,642 in the current period with a slight decrease in investor relations ($68,457). There was an increase of $ 40,871 in office expenses and unrealized losses on marketable securities were considerably lower in the current year ($77,775 vs $823,916). Liquidity and Financial Condition Working Capital May 31, August 31, 2023 2022 Current assets $ 4,235,490 $ 6,977,516 Current liabilities (1,055,904 ) (194,036 ) Net Working Capital $ 3,179,586 $ 6,783,480 Nine-Months Ended Cash Flows May 31, 2023 2022 Cash flows used in operating activities $ (4,259,557 ) $ (3,702,724 ) Cash flows used in investing activities (101,173 ) (130,595 ) Cash flows used in financing activities 1,711,418 (33,395 ) Decrease in cash $ (2,649,312 ) $ (3,866,714 ) Operating Activities Net cash used in operating activities increased approximately $557,000 for the period compared with cash used during the same period in 2022. The increase relates primarily to a lower unrealized loss on marketable securities ($746,141), combined with lower non-cash expenses related to shares issued for services rendered ($600,000) and stock-based compensation ($358,970); partially offset by increased accounts payable and accrued liabilities ($815,786), and a lower net loss ($406,982). Page 24 of 29 Table of Contents Investing Activities Net cash used in investing activities decreased by $29,422 over 2022 due to decreased spending on acquisitions of equipment and intellectual property. Financing Activities The $1,744,814 increase in cash from financing activities relates to common shares issued in the ATM Offering and common share/warrant units sold. Liquidity and Capital Resources We have incurred net losses of approximately $7.4 million and $4.2 million respectively in the past two fiscal years. We expect to continue to incur significant expenditures for R&D and operational activities resulting in 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 revenues from the licensing of our technology and B2B sales, 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 in the future. On August 12, 2022, we entered an equity distribution agreement with Maxim, under the agreement we may offer and sell shares of our common stock with an aggregate offering price of up to $5,925,000 under an ATM. The sales agreement provides that Maxim will be entitled to a sales commission equal to 3.0% of the gross sale price per share of all shares sold under the ATM. As of July 14, 2023, we have sold 34,652 shares into the market through the ATM for gross proceeds of $114,546. 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. On May 11, 2023, the Company entered into share purchase agreements for the purposes of completing a $2 million best efforts financing with Maxim resulting in the issuance of 2,106,000 common shares and warrants to purchase common shares. 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. 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 licensing 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 favorable to us. Page 25 of 29 Table of Contents 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 May 31, 2023, the Company had cash on hand of approximately $3,163,906 to settle $1,055,904 in current liabilities. We have performed a review of our cash flow forecast and have concluded that funds on hand, combined with those expected from executed license agreements, will be sufficient to meet the Company’s financial obligations for the twelve-month period following the filing of these consolidated financial statements on Form 10-Q. Impact of COVID-19 To date, we have not experienced any material impact on our financial statements, impairments of any of our assets or any major business disruptions, including with our vendors. We will continue to actively monitor the evolving situation related to COVID-19 and may take further actions that alter our operations, including those that may be required by federal, state, provincial, or local authorities, or that we determine are in the best interests of our employees and other third parties with whom we do business. We do not know when, or if, it will become practical to revise or eliminate some or all these measures entirely. Item 3. Controls and Procedures Management’s Report on Disclosure Controls and Procedures 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 SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our President (Principal Executive Officer) and our Chief Executive Officer (currently acting as the Principal Financial and Accounting Officer) to allow for timely decisions regarding required disclosure. As of May 31, 2023, the fiscal quarter covered by this report, we carried out an evaluation, under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of May 31, 2023. Inherent limitations on Effectiveness of Controls Internal control over financial reporting has inherent limitations which include but is not limited to the use of independent professionals for advice and guidance, interpretation of existing and/or changing rules and principles, regulations, segregation of management duties, scale of organization, and personnel factors. Internal control over financial reporting is a process which involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human error. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis, however these inherent limitations are known features of the financial reporting process and it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Changes in Internal Control over Financial Reporting During the quarter ended May 31, 2023, 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 May 31, 2023, that have materially or are reasonably likely to materially affect our internal controls over financial reporting. Page 26 of 29 Table of Contents PART II-OTHER INFORMATION