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Item 8. Financial Statements and Supplementary Data

2023-11-20 compared with 2022-11-28 · 280 added, 243 removed, 349 unchanged (60% of the section changed)

4 unchanged sentences

Opinion on the Consolidated Financial Statements

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

(the “Company”), as of August 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for the years ended August 31, 2022 and 2021, and the related notes (collectively referred to as the “financial statements”).

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

(the “Company”), as of August 31, 2022, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for the year ended August 31, 2022, and the related notes (collectively referred to as the “financial statements”).

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

as of August 31, 2022 and 2021, and the results of its operations and its cash flows for the years ended August 31, 2022 and 2021 in conformity with accounting principles generally accepted in the United States of America.

as of August 31, 2022, and the results of its operations and its cash flows for the year ended August 31, 2022 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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

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

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

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

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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

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

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

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

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

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

Accordingly, we express no such opinion.

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

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

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

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

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

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

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

Critical Audit Matters

2 unchanged sentences

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

We have not identified any critical audit matters for the years ended August 31, 2022 and 2021.

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

/s/ DAVIDSON & COMPANY LLP

We have not identified any critical audit matters for the year ended August 31, 2022.

We served as the Company’s auditor from 2016 to 2022.

Vancouver, Canada

/s/ DAVIDSON & COMPANY LLP

Chartered Professional Accountants

November 25, 2022

PCAOB ID - 731

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

Lexaria Bioscience Corp.

CONSOLIDATED BALANCE SHEET

(Expressed in U.S.

Opinion on the Financial Statements

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

and its subsidiaries (collectively, the “Company”) as of August 31, 2023, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of August 31, 2023, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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

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

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

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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

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

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

Accordingly, we express no such opinion.

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

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

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

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters

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

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

We determined that there are no critical audit matters.

/s/ MaloneBailey, LLP

www.malonebailey.com

We have served as the Company's auditor since 2022.

Houston, Texas

November 17, 2023

LEXARIA BIOSCIENCE CORP.

CONSOLIDATED BALANCE SHEETS

(Expressed in US Dollars)

Year Ended August 31,

Marketable securities

Accounts receivable

Prepaid expenses and deposit

Prepaid expenses and other current assets

Total Current Assets

1 unchanged sentence

Right of use assets

Intellectual property

Property and equipment

Intellectual property, net

Property & equipment, net

Total Non-current Assets

LIABILITIES and STOCKHOLDERS' EQUITY

Current Liabilities

Accounts payable and accrued liabilities

Lease liabilities

Lease liability, current

Total Current Liabilities

Lease liabilities - long term

Total Long Term Liabilities

Lease liabilities - non-current

TOTAL LIABILITIES

1 unchanged sentence

Share Capital

220,000,000 common voting shares with a par value of $ 0.001 per share Issued and outstanding:

5,950,998 common shares at August 31, 2022 and 5,726,699 common shares at August 31, 2021

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 August 31, 2023 and August 31, 2022, respectively

Additional paid-in capital

Accumulated deficit

( 45,763,427 )

( 39,098,528 )

Equity attributable to shareholders of the Company

Equity attributable to shareholders of Lexaria

Non-controlling Interest

3 unchanged sentences

LEXARIA BIOSCIENCE CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Expressed in U.S.

Dollars except number of shares)

CONSOLIDATED STATEMENTS OF OPERATIONS

(Expressed in US Dollars except share amounts)

Year Ended August 31,

Cost of goods sold

6 unchanged sentences

( 6,619,039 )

Gain on disposal of assets

Discontinued operations

Net loss and comprehensive loss for the year

Other income (loss)

Interest income

Unrealized loss on marketable securities

Total other income (loss)

Net loss for the year

$ ( 6,712,525 )

$ ( 7,383,653 )

Net loss and comprehensive loss attributable to:

Net loss attributable to:

Common shareholders

3 unchanged sentences

$ ( 114,329 )

$ ( 159,142 )

Basic and diluted loss per share

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

Weighted average number of common shares outstanding

2 unchanged sentences

LEXARIA BIOSCIENCE CORP.

CONSOLIDATED STATEMENT OF CASH FLOWS

(Expressed in U.S.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in US Dollars)

Year Ended August 31,

Cash flows used in operating activities

Net loss and comprehensive loss

$ ( 6,712,525 )

3 unchanged sentences

Depreciation and amortization

Inventory write-off

Amortization on right of use asset

Realized loss on disposal of marketable securities

Impairment loss

Noncash lease expense

Unrealized loss on marketable securities

Gain on asset disposal

( 1,522,704 )

Common shares issued for services

Warrants issued for services

Shares issued for services

Lease accretion

Gain on forgiveness of loan

Change in working capital

Change in operating assets and liabilities

Accounts receivable

2 unchanged sentences

Due to related parties

Deferred revenue

Operating lease liability

Net cash used in operating activities

1 unchanged sentence

$ ( 4,879,339 )

Cash flows from (used in) investing activities

Cash flows used in investing activities

Intellectual property

Asset disposition

Net cash from (used in) investing activities

Purchase of equipment

Net cash used in investing activities

$ ( 169,610 )

$ ( 180,640 )

Cash flows from/(used in) financing activities

Long term loan

Lease payments

Proceeds from issuance of equity

Proceeds from warrant exercises

Lease Payments

Net cash from/(used in) financing activities

Increase in cash

Net change in cash for the year

( 4,461,116 )

Cash, beginning of year

Cash, end of year

( 5,104,579 )

Cash at beginning of year

Cash at end of year

Supplemental information of cash flows:

1 unchanged sentence

Marketable securities received on accounts receivable

Remeasurement of operating lease right of use assets and liabilities

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

1 unchanged sentence

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Expressed in U.S.

Dollars except number of shares)

STOCKHOLDERS’

For the Years Ended August 31, 2023 and 2022

(Expressed in US Dollars)

Balance August 31, 2021

$ ( 31,829,204 )

$ ( 202,085 )

Shares issued for services

Stock based compensation

Warrants issued for services

Exercise of stock options

Private Placements

( 7,269,324 )

3 unchanged sentences

$ ( 39,098,528 )

Shares issued for services

$ ( 316,414 )

Shares sold for cash

Stock based compensation

4 unchanged sentences

$ ( 45,763,427 )

$ ( 364,040 )

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

1 unchanged sentence

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2022

August 31, 2023 and 2022

Nature of Business

4 unchanged sentences

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 it operational, research and development and capital expenditures for a period of at least 12 months from the date this Report.

Liquidity and Going Concern

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 meet its financial obligations for a period of least 12 months from the date of this report.

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

The losses attributable to shareholders were $ 7.34 m, $ 4.2 m and $ 4.1 m for the years ended August 31, 2022, 2021 and 2020, respectively.

As of August 31, 2022, we had an accumulated deficit of $39.1m.

The losses attributable to shareholders were $ 6.7 million and $ 7.34 million, for the years ended August 31, 2023 and 2022, respectively.

As of August 31, 2023, we had an accumulated deficit of $ 45.8 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 the licencing of our technology, if any, and the receipt of payments under any current or future collaborations we may enter into.

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

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

We did not receive any proceeds from the sale of shares or exercise of convertible securities in the year ended August 31, 2022.

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 as to the Company’s ability to continue as a going concern.

During the year ended August 31, 2023, we raised $ 114,456 from the sale of shares pursuant to our ATM offering and on May 11, 2023 we raised an additional $ 2 million pursuant to a brokered registered offering.

Net proceeds from these offerings totaled $ 1,589,731 , respectively.

On October 3, 2023, the Company closed a registered direct offering resulting in net proceeds of approximately $ 1.29 million.

We may offer additional securities for sale during our fiscal year 2024 or thereafter in response to market conditions or other circumstances if we believe such a plan of financing is required to advance the Company’s business plans and is in the best interests of our stockholders.

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

As of August 31, 2022, the Company had cash and cash equivalents of approximately $ 5.8 m and carries no significant debt other than amounts payable in the short term.

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

Impacts of COVID-19 Pandemic

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

As of August 31, 2022, there has been no material impact on the Company’s financial position as a direct result of the pandemic.

However, the Company has experienced some supply chain disruptions and shortages in the timely procurement of ingredients and supplies used in both our R&D activities and B2B production.

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

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

There may be further actions we must take that alter our operations, including those that may be required by federal, state, provincial, or local authorities, or that we determine are in the best interests of our employees and other third parties with which we do business.

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

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

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

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

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

The remaining C$ 10,000 was forgiven and included as net loss in 2022.

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.

Significant Accounting Policies

3 unchanged sentences

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

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

Lexaria Pharmaceutical Corp., Lexaria Hemp Corp., Lexaria CanPharm ULC, Lexaria Nutraceutical Corp., Poviva Corp., Lexaria CanPharm Holding Corp., and Kelowna Management Services Corp.

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

1 unchanged sentence

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

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

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

Cash and cash equivalents

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

The Company had no cash equivalents as at August 31, 2022 or August 31, 2021.

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

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

The Company had no cash equivalents as of August 31, 2023 or August 31, 2022.

Marketable Securities

The Company’s marketable securities consist of investments in common stock.

Investments in equity securities are reported at fair value with changes in unrecognized gains or losses included in other income (loss) on the consolidated statements of operations.

The Company accounts for its leases under ASC 842, Leases (“ASC 842”).

Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the consolidated balance sheet as both a right of use asset and lease liability.

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

4 unchanged sentences

Operating lease expenses are recognized on a straight-line basis, unless the right-of-use asset has been impaired, over the reasonably certain lease term based on the total lease payments.

They are included in operating expenses in the consolidated statements of operations and comprehensive loss.

For operating leases that reflect impairment, we will recognize the amortization of the right-of-use asset on a straight-lined basis over the remaining lease term with rent expense still included in operating expenses in the consolidated statements of operations and comprehensive loss.

They are included in operating expenses in the consolidated statements of operations.

For operating leases that reflect impairment, we will recognize the amortization of the right-of-use asset on a straight-line basis over the remaining lease term with rent expense still included in operating expenses in the consolidated statements of operations.

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

2 unchanged sentences

Intellectual property

Capitalized intellectual property represents US registered patents that include legal costs incurred in pursuing patents applications in the United States.

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

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

Capitalized intellectual property costs include those incurred with respect to both pending and granted patents filed in the United States.

When patent applications are filed, the directly related capitalized costs are amortized on a straight-line basis over an estimated economic life of 20 years.

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

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

Certain production equipment is depreciated by units of production method.

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

Leasehold improvements are amortized over the term of the related leases, or the economic life of the improvements, whichever is shorter.

Impairment of long-lived assets

Long-lived assets, including equipment and intangible assets, namely the Company’s patents, are assessed for potential impairment when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recovered.

An impairment loss is recognized when the carrying amount of the long-lived asset is not recoverable and exceeds its fair value.

5 unchanged sentences

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 and recognizes the related revenue, which in certain cases may require us to estimate our royalty revenue.

Royalty revenues are recognized in the period in which our licensees sell the related products and recognize the related revenue.

Usage fees from intellectual property

1 unchanged sentence

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.

Non-refundable minimum fees are recognized as revenue over the period to which they apply.

Product revenue

7 unchanged sentences

Intellectual property expenses

Costs associated with intellectual property-related matters are expensed as incurred and included in general and administrative expenses within the consolidated statements of operations.

Non-capitalizable costs associated with intellectual property-related matters are expensed as incurred and included in general and administrative expenses within the consolidated statements of operations.

Stock-based compensation

The Company accounts for its stock-based compensation awards whereby all stock-based grants are recognized as expenses in the statements of operations based on the fair value at grant date subject to vesting dates.

The Company accounts for its stock-based compensation awards whereby all stock-based grants are recognized as expenses in the consolidated statements of operations based on the fair value at grant date subject to vesting dates and amortized over the related vesting period.

The grant date fair value of each option award is estimated using the Black-Scholes option-pricing model.

8 unchanged sentences

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

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

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

The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns using the liability method.

Under this method, deferred tax liabilities and assets are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the year in which the differences are expected to reverse.

Comprehensive loss

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

Comprehensive loss comprises equity changes except those transactions resulting from investments by stakeholders and owners and distributions to owners, if any.

Financial instruments

10 unchanged sentences

The foreign currency exchange risk is the financial risk to the Company’s operations that arise from fluctuations in foreign exchange rates and the degree of volatility of these rates.

Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk as the impact of a rate changes for USD/CAD dollars is not expected to be material.

Credit risk and receivable concentration

Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk as the impact of rate changes for USD/CAD dollars is not expected to be material.

Credit risk and customer concentration

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

As of August 31, 2022, the Company had approximately $ 5.8 m on deposit.

(August 31, 2021:

In the year ended August 31, 2022, one licensee accounted for 100 % (2021 – 72 %) of revenues.

At fiscal year end 2022, we had $ 37,248 (2021 - $Nil) in licence fees receivable.

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

As at August 31, 2022, the Company had $ 84,162 (2021 - $ 47,741 ) in sales tax receivable.

Periodically, the Company may carry cash balances at such financial institution in excess of the federally insured limit of $ 250,000 .

The Company has not experienced losses on these accounts and management believes, based upon the quality of the financial institution, that the credit risk with regard to these deposits is not significant.

In the year ended August 31, 2023, four customers accounted for 95% (2022 – one customer was accounted for 100%) of consolidated revenues.

At fiscal year-end 2023, we had $ 24,635 (2022 - $ 37,248 ) in license fees receivable.

The Company did not incur any bad debt expense in fiscal 2022 or 2023.

As of August 31, 2023, the Company had $ 102,051 (2022 - $ 84,162 ) in sales tax receivable.

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

4 unchanged sentences

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

Reclassifications

Certain amounts in the prior period have been reclassified to conform with current period presentation.

Recent Accounting Guidance

3 unchanged sentences

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.

This Accounting Standards Update represents a significant change in the accounting for credit losses model by requiring immediate recognition of management’s estimates of current expected credit losses (CECL).

Under the prior model, losses were recognized only as they were incurred.

The Company has determined that it has met the criteria of a smaller reporting company ("SRC") as of November 15, 2019.

As such, ASU 2019-10, Financial Instruments-Credit Losses, Derivatives and Hedging, and Leases:

Effective Dates amended the effective date for the Company to be for reporting periods beginning after December 15, 2022.

The Company will adopt ASU 2016-13 effective September 1, 2023.

Estimates and Judgments

4 unchanged sentences

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.

Management reviews our estimates, judgments, and assumptions periodically and reflect the effects of any revisions in the period in which they are deemed to be necessary.

Management reviews our estimates, judgments, and assumptions periodically and reflects the effects of any revisions in the period in which they are deemed to be necessary.

We believe that these estimates are reasonable.

1 unchanged sentence

Significant accounting estimates and assumptions are used for, but not limited to:

Revenue Recognition

The Company records revenue from out-licensing our technology, including the License Agreement with Premier Wellness Science Co.

Judgment is necessary to determine the appropriate amount of revenue to be recognized as the Company fulfils its obligations under these agreements.

The Company has granted the counterparty a license to develop and commercialize the underlying licensed product and these agreements contain license fee payments, sales-based royalty payments and additional performance obligations related to the license after delivery.

The Valuation of Deferred Tax Assets

1 unchanged sentence

The recognition of deferred tax assets requires management to assess the likelihood that the Company will generate taxable income in future periods to utilize the deferred tax assets.

Due to the Company’s history of losses, deferred tax assets have not been recognized by Lexaria.

Due to the Company’s history of losses, valuation allowances are established when necessary to reduce deferred tax assets to the amount more likely than not to be realized.

Value of Stock Options and Warrants

7 unchanged sentences

Disposals of Assets - Value of Note Receivable

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

The Asset Purchase Agreement for the sale of assets to Hill Inc.

Beverages included C$ 2 million note (the “Note”) receivable as partial payment of the agreement.

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

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

Therefore, with any repayment being highly doubtful, management determined at that time and as at August 31, 2022 & 2021 that the value of the note to be notional and recorded the note at a $Nil value for accounting purposes.

Therefore, with any repayment being highly doubtful, management determined at that time and as of August 31, 2023 and 2022 that the value of the note to be notional and recorded the note at a zero value for accounting purposes.

During fiscal 2023, we received interest income on the note totaling $ 43,190 (2022 - $ 29,060 ).

continues to operate and make ongoing interest payments to us in relation to this Note.

Impairment of Long-Lived Assets

The Company evaluated its patent portfolio and determined that certain pending applications had been abandoned or would not be pursued.

As such, during the year ended August 31, 2023, the Company recognized an impairment loss of $ 106,761 related to those abandoned applications.

Marketable Securities

3 unchanged sentences

August 31, 2021

$ ( 219,427 )

August 31, 2022

$ ( 1,102,236 )

August 31, 2023

$ ( 1,325,785 )

Marketable securities represented the common shares of Hill Street Beverage Company Inc.

Marketable securities represented the common shares of Hill Inc.

held by Lexaria.

which are carried at fair value using Level 1 inputs.

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

1 unchanged sentence

Accounts and Other Receivables

Trade and deposits receivable

Territory license fee receivable

Sale of assets - shares receivable

Sales tax receivable

Accounts receivable at August 31, 2023 and August 31, 2022 consist of the following:

Trade and deposits

Territory license fees

Inventory of raw materials on August 31, 2023, and August 31, 2022, consist of the following:

Raw materials

In the year ended August 31, 2022, inventory valued at $2,465 (2021 $2,482) was written off to reflect its net realisable value.

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

Prepaid Expenses

Prepaid expenses consist of the following as at August 31, 2022 and August 31, 2021:

Advertising and conferences

Licence, filing fees, dues

Office and insurance

In the year ended August 31, 2023, raw materials inventory valued at $ 38,418 was expensed to R&D.

Prepaid Expenses and Other Current Assets

Prepaid expenses consist of the following at August 31, 2023 and August 31, 2022:

Advertising & conferences

Legal & accounting fees

License, filing fees, dues

Office & insurance

Capital financing

Intellectual Property

Intellectual Property, net

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

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#18 Compositions and Methods for Enhanced Delivery of Antiviral Agents

Schedule of continuity for capitalized patents:

US 11,700,875

#20 Compositions and Methods for Sublingual Delivery of Nicotine

US 11,666,544

#21 Compositions and Methods for Treating Hypertension

US 11,666,543

A continuity schedule for capitalized patents is presented below:

Balance – beginning

Balance – ending

Patents are amortized over their legal life of 20 years.

Property & Equipment

Year Ended Aug.

At August 31, 2023 the Company has capitalized a total of $ 462,625 of patents.

Included in the capitalized costs is $ 457,445 of costs associated with patents and licenses that have been filed.

Also included in the capitalized costs is $ 5,180 of costs associated with provisional patents and pending applications which have not yet been filed.

The Company evaluated its patent portfolio and determined that certain pending applications had been abandoned or would not be pursued.

As such, during the year ended August 31, 2023, the Company recognized an impairment loss of $ 106,761 (2022 - $Nil) related to those abandoned applications.

The Company recognized $ 54,938 of amortization expense related to patents and licenses in the year ended August 31, 2023 (2022 - $ 7,609 ).

Property & Equipment, net

Property and equipment, net consists of:

August 31, 2023

Period Amortization

Accumulated Amortization

Leasehold improvements

Furniture & fixtures

$ ( 248,723 )

Furniture fixtures equipment

Lab equipment

Year Ended Aug.

$ ( 475,168 )

August 31, 2022

Period Amortization

Accumulated Amortization

Leasehold improvements

Furniture & fixtures

$ ( 194,685 )

Furniture fixtures equipment

Lab equipment

During the year ended August 31, 2022, amortization of $ 3,655 (2021 - $ 10,926 ) was included in the cost of goods sold.

$ ( 101,900 )

$ ( 379,993 )

During the year ended August 31, 2023, amortization of $ 4,651 (2022 - $ 3,655 ) was included in cost of goods sold.

Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consist of the following as of August 31, 2023 and August 31, 2022:

Accounts Payable

Vendors payable

Trade payables

Sales tax payable

Accrued Liabilities

Corporate tax payable

Vendors payable

Related Party Transactions

Related party transactions, Aug 31, 2022, ($Nil), Aug 31 2021, ($ 5,223 ) are included in accounts payable and represent expenses incurred in the ordinary course of business.

Licensing Revenue

Research & Development

Other Revenue

The Company recognized B2B product revenues of $ 113,438 (2021 - $ 383,179 ) that relate to sales of our intermediate products for use by four B2B customers in their products.

Licensing revenue consist of IP licensing fees for transfer of the DehydraTECH technology in line with definitive agreements and also includes royalty fees.

Trade payables

Revenues for the years ended August 31, 2023 and 2022 consist of the following:

Year Ended August 31,

The Company recognized B2B product revenues of $ 44,167 (2022 - $ 113,438 ) that relate to sales of our intermediate products for use by two B2B customers in their products.

Licensing revenue consists of IP licensing fees for transfer of the DehydraTECH technology in line with definitive agreements and includes royalty fees.

The Company recognized $ 146,800 (2022 - $ 54,560 ) in licensing revenue during the year.

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( 6,712,525 )

( 7,383,653 )

Expected income tax recovery

( 1,427,529 )

( 1,619,854 )

Non-deductible items

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Marketable securities

Total unrecognized deferred tax assets

The Company has net operating loss carry-forwards of approximately $ 36,387,000 which may be carried forward to apply against future year income tax for U.S.

Stock based compensation

PPE and intangibles

Total deferred tax assets

Valuation Allowance

( 9,580,837 )

( 7,865,660 )

Net Deferred tax assets

The Company has net operating loss carry-forwards of approximately $ 40 million which may be carried forward to apply against future year income tax for U.S.

tax purposes.

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Fiscal 2023 Activity

During the year ended August 31, 2022, the Company issued 224,299 restricted shares valued at $ 1,200,000 for payment of contracted services.

We did not issue any warrants, no warrants were exercised, and 25,292 warrants expired.

A summary of share issuances for the year ended August 31, 2022, is presented below:

Type of Issuance

Warrant exercise

Private placement

Per agreements (1)

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

During the year ended August 31, 2023, the Company completed the following issuances of common shares and warrants:

34,652 shares were sold pursuant to an at-the-market offering (“ATM”) for gross proceeds of $ 114,456 .

Offering costs netted against proceeds amounted to $ 125,122 ;

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 and 7,500 warrants expired during the year ended August 31, 2023.

Presented below is a continuity schedule for warrants:

Balance August 31, 2020

Weighted Average Exercise Price $

Balance, Aug 31, 2021

Cancelled/expired

Balance August 31, 2021

Balance, Aug 31, 2022

Cancelled/expired

Balance, August 31, 2023

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

Expected volatility

Risk-free interest rate

Expected life

Dividend yield

Estimated fair value per warrant

Presented below is a summary of warrants outstanding as of August 31, 2023:

Number of Warrants

Weighted Average

Exercise Price

Weighted Average Remaining

Contractual Life

Weighted Average Exercise Price $

1.63 - 2.68 years

Contractual Life (years)

Fiscal 2022 Activity

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

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

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

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

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

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

The Company granted 300,000 warrants with an exercise price of $ 9.00 pursuant to consulting agreements in fiscal 2021.

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

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

During the year ended August 31, 2022, the Company issued 224,299 restricted shares valued at $ 1,200,000 for payment of contracted services.

We did not issue any warrants, no warrants were exercised, and 25,292 warrants expired.

Stock Options

The Company established an Equity Incentive Plan whereby our Board may grant up to 261,290 stock options to directors, officers, employees, and consultants.

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

The aggregate number of shares issuable under the Equity Incentive Plan is 510,433 shares, representing 10% of the Company’s issued share capital at the time of the 2021 Annual General Meeting.

Stock options granted must be exercised no later than five years from the date of grant as determined by our Board.

The Company established an Equity Incentive Plan whereby our Board, pursuant to shareholder approved amendments, may grant up to 809,165 stock options to directors, officers, employees, and consultants with such number being increased to up to 10% of the issued share capital at the end of each calendar year, at the discretion of the board, pursuant to an evergreen formula.

While these amendments have been approved by the Company’s shareholders, the Company has not filed an S-8 Registration Statement to register these additional securities, accordingly, until such S-8 Registration Statement is filed with the SEC, the Company may only issue up to 510,433 shares under the current registered Equity Incentive Plan .

Stock options may be exercised for a maximum period of up to ten ( 10 ) years but to date all currently issued options must be exercised, as determined by our Board, by no later than five years from the date of grant.

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.

Vesting terms are set by our Board.

The estimated fair value of each stock option award is estimated on the date of grant using Black-Scholes option pricing model.

The estimated fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model.

Fiscal 2023 Activity

The Company granted the following stock options in the year ending August 31, 2022:

The Company granted the following stock options during the year ended August 31, 2023:

Weighted Average

Exercise Price

August 31, 2022

Contractual Life) 5

Fiscal 2022 Activity

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

The Company granted the following stock options during the year ending August 31, 2022:

Exercise Price $

Contractual Life (years)

August 31, 2022

During the year ended August 31, 2021 87,935 previously granted options at a strike price of $9.60 were cancelled and re-issued at $ 7.08 .

During the year ended August 31, 2023, 267,969 previously granted 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.

A continuity schedule for stock options is presented below:

Weighted Average Exercise Price

Weighted Average Remaining Contractual Term (years)

Aggregate Intrinsic Value

Balance August 31, 2021

Expired/Cancelled

Cancelled/expired

Balance August 31, 2022

Expired/Cancelled

Cancelled/expired

Balance August 31, 2023 (Outstanding)

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

The fair value of options awarded during the fiscal years ended August 31, 2023 and August 31, 2022 totaled $ 89,057 and $ 680,511 , respectively.

The fair value of options granted was estimated as of the date of the grant by using the Black-Scholes option pricing model with the following assumptions:

2 unchanged sentences

0.78 % – 3.30

0.42 % – 0.85

Expected life

2.5 – 5 years

Dividend yield

1 unchanged sentence

$ 2.25 – $ 5.10

$ 4.00 – $ 4.86

Stock-based compensation expense for the fiscal years ended August 31, 2023 and August 31, 2022 totalled $ 170,382 and $ 752,591 , respectively.

Of the current fiscal year expense, $ 89,057 relates to current year option awards, $ 25,194 relates to the repricing of 267,969 options disclosed above, and $ 56,131 relates to the vesting of options awarded in previous fiscal years.

Commitments, Significant Contracts and Contingencies

Right of Use Assets - Operating Lease

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

Corporate offices and R&D lab space is leased in Kelowna, British Columbia, Canada which lease was renewed during fiscal 2023 until November 15, 2028.

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

Right of use assets - operating leases

Extension-related remeasurement

Total lease assets

1 unchanged sentence

Interest accretion

Extension-related remeasurement

Total lease liabilities

8 unchanged sentences

current obligations under leases

Non-Current Portion

Segment Information

1 unchanged sentence

Lexaria is centrally managed and its chief operating decision makers, being the President and the CEO, use the consolidated and other financial information supplemented by revenue information by category of business-to-business product production and technology licensing to make operational decisions and to assess the performance of the Company.

The Company has identified two reportable segments:

Intellectual Property Licensing and B2B Production.

Licensing revenues are significantly concentrated on three licensees.

For year ended August 31, 2022

External revenue

The Company has identified four reportable segments:

Intellectual Property Licensing, B2B Production, Research and Development and Corporate.

Licensing revenues are concentrated on three licensees.

Year Ended August 31, 2023

Cost of goods sold

2 unchanged sentences

( 2,708,623 )

For year ended August 31, 2021

External revenue

$ ( 6,728,730 )

Other income/(expense)

$ ( 178,503 )

$ ( 270,042 )

$ ( 3,631,480 )

$ ( 2,887,126 )

$ ( 6,712,525 )

Year Ended August 31, 2022

Cost of goods sold

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Year Ended August 31, 2023

Net Balance Canada

Total Net Balance

Leasehold Improvements

Furniture Fixtures Equipment

Furniture & Fixtures

Lab Equipment

Capital Asset by Region

Year Ended August 31, 2022

Net Balance Canada

Total Net Balance

Leasehold Improvements

Furniture Fixtures Equipment

Furniture & Fixtures

Lab Equipment

Discontinued Operations

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

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

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

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

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

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

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

The third and final tranche of 4,188,948 shares was received on April 8, 2022.

The gain on the transaction is presented below:

Gain on asset disposal

Book value of assets sold

Cash consideration

Shares received

Promissory note

The financial results of the group of assets sold are presented as income (loss) from discontinued operations, net of income taxes in our consolidated statement of income.

The following table presents financial results of the assets:

Operating expenses

Net income (loss)

The following table presents cash flows of discontinued operations:

Cash flows used in discontinued operating activities

Change in working capital

Net cash provided by (used in) discontinued operating activities

Net cash provided by (used in) discontinued operations

Subsequent Events

On September 2, 2022, Catherine Turkel, PharmD, PhD was appointed to our Board and was awarded 3,400 options at a strike price of $ 3.04 , vesting immediately with a 5 year term and a value of $ 7,757 using the Black Scholes pricing model.

Subsequent to the year ended August 31, 2022, the Company issued 41,200 stock options to the Company’s independent directors at a strike price of $ 1.96 , vesting immediately with a 5 year term and a value of $ 61,109 using the Black Scholes pricing model.

On November 5, 2022, 7,500 warrants with a strike price of $ 24.00 expired.

On October 3, 2023, the Company entered into a securities purchase agreement with a single healthcare-focused institutional investor to purchase 889,272 shares of common stock and 729,058 pre-funded warrants in a registered direct offering.

In a concurrent private placement, the Company also agreed to issue and sell to the investor warrants to purchase up to 1,618,330 shares of common stock.

The combined effective offering price for each share of common stock (or pre-funded warrant in lieu thereof) and accompanying warrant was $0.97 (to note the pre-funded warrants were issued at a price of $0.9699 and have an exercise price of $0.0001).

The warrants will become exercisable six months from issuance, expire five and a half years from the issuance date, and have an exercise price of $0.97 per share .

The net proceeds to the Company from the registered direct offering and concurrent private placement totaled $ 1.29 million, after deducting placement agent fees and other estimated offering expenses payable by the Company.

To date all of the pre-funded warrants have been exercised, resulting in an issuance by the Company of an aggregate 729,058 common shares for gross proceeds of approx.

The shares issued pursuant to the pre-funded warrant exercises were registered pursuant to an S-3 registration statement (333-262402).

Subsequent to the fiscal year end, the Company issued an aggregate 566,661 common shares pursuant to the exercise of warrants that were issued under our May 11, 2023 financing, at an exercise price of $ 0.95 per share for gross proceeds of $ 538,328 of which $29,569 is currently held in Lexaria’s trust account with the warrant agent.

The shares issued pursuant to the warrant exercise were registered pursuant to an S-1 registration statement (333-271096).

Subsequent to the fiscal year end, the Company issued an aggregate 85,000 options for the issuance of 85,000 shares at an exercise price of $ 1.15 and exercisable for a five-year term expiring October 27, 2028.

The options were issued pursuant to the Company’s registered equity incentive plan.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

During the year ended August 31, 2022, our principal accountants indicated that they have declined to stand for re-election after the completion of the current audit of our fiscal year 2022.

During the past two years there have been no adverse opinions, disclaimer of opinion or qualification or modification as to uncertainty, audit scope or accounting principles.

During the year ended August 31, 2022, our principal accountants indicated that they declined to stand for re-election after the completion of the current audit of our fiscal year 2022.

During the two previous years there had been no adverse opinions, disclaimer of opinion or qualification or modification as to uncertainty, audit scope or accounting principles.

The decision to change accountants was recommended by the Company’s Audit Committee and approved by our Board.

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-K

Item 8. Financial Statements and Supplementary Data