Lexaria Bioscience Corp. 10-Q

Item 1. Financial Statements LEXARIA BIOSCIENCE CORP. CONSOLIDATED BALANCE SHEETS (Expressed in US Dollars) November 30, August 31, 2023 2023 ASSETS (Unaudited) Current Cash $ 1,954,165 $ 1,352,102 Marketable securities 72,427 125,642 Accounts receivable 534,731 126,686 Prepaid expenses and other current assets 132,311 546,783 Total Current Assets 2,693,634 2,151,213 Non-current assets, net Long-term receivables 48,559 48,559 Right of use assets 156,565 167,446 Intellectual property, net 494,377 462,625 Property & equipment, net 233,639 254,143 Total Non-current Assets 933,140 932,773 TOTAL ASSETS $ 3,626,774 $ 3,083,986 LIABILITIES and STOCKHOLDERS' EQUITY Current Liabilities Accounts payable and accrued liabilities $ 98,969 $ 239,941 Lease liability, current 25,554 27,794 Total Current Liabilities 124,523 267,735 Lease liabilities - non-current 129,517 136,173 TOTAL LIABILITIES $ 254,040 $ 403,908 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: 10,311,641 and 8,091,650 at 11/30/23 and 8/31/23, respectively. $ 10,311 $ 8,091 Additional paid-in capital 50,670,556 48,799,454 Accumulated Deficit ( 46,942,750 ) ( 45,763,427 ) Accumulated other comprehensive income 4,372 - Equity attributable to shareholders of Lexaria 3,742,489 3,044,118 Non-controlling Interest ( 369,755 ) ( 364,040 ) Total Stockholders' Equity 3,372,734 2,680,078 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,626,774 $ 3,083,986 The accompanying notes are an integral part of these consolidated interim financial statements. Page 3 of 34 Table of Contents LEXARIA BIOSCIENCE CORP. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Expressed in US Dollars except share amounts) (Unaudited) THREE MONTHS ENDED November 30, 2023 2022 Revenue $ 151,278 $ 97,735 Cost of goods sold 4,822 15,795 Gross profit 146,456 81,940 Operating expenses Research and development 574,491 829,489 General and administrative 711,107 947,870 Total operating expenses 1,285,598 1,777,359 Loss from operations ( 1,139,142 ) ( 1,695,419 ) Other income (loss) Interest income 7,319 3,741 Unrealized loss on marketable securities ( 53,215 ) ( 77,628 ) Total other income (loss) ( 45,896 ) ( 73,887 ) Net loss for the period $ ( 1,185,038 ) $ ( 1,769,306 ) Less: Net loss attributable to non-controlling interest ( 5,715 ) ( 13,362 ) Net loss attributable to Lexaria shareholders $ ( 1,179,323 ) $ ( 1,755,944 ) Other comprehensive income Foreign currency translation adjustment $ ( 4,372 ) $ - Total comprehensive loss $ ( 1,174,951 ) $ ( 1,755,944 ) Basic and diluted loss per share $ ( 0.13 ) $ ( 0.30 ) Weighted average number of common shares outstanding - Basic and diluted 9,051,531 5,950,998 The accompanying notes are an integral part of these interim consolidated financial statements. Page 4 of 34 Table of Contents LEXARIA BIOSCIENCE CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in US Dollars) (Unaudited) Three Months Ended November 30, 2023 2022 Cash flows used in operating activities Net loss $ ( 1,185,038 ) $ ( 1,769,306 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock based compensation 53,953 68,776 Depreciation and amortization 28,778 24,730 Noncash lease expense 10,881 10,104 Unrealized loss on marketable securities 53,215 77,628 Lease accretion 67 845 Change in operating assets and liabilities Accounts receivable ( 408,045 ) ( 84,538 ) Inventory - 30,791 Prepaid expenses and deposits 414,472 316,419 Accounts payable and accrued liabilities ( 140,973 ) 90,442 Lease Payments ( 8,963 ) ( 11,204 ) Net cash used in operating activities $ ( 1,181,653 ) $ ( 1,245,313 ) Cash flows used in investing activities Intellectual property ( 40,026 ) ( 14,342 ) Purchase of equipment - ( 20,500 ) Net cash used in investing activities $ ( 40,026 ) $ ( 34,842 ) Cash flows from/(used in) financing activities Proceeds from shares sold for cash 1,247,719 - Proceeds from exercise of warrants 571,651 - Net cash from/(used in) financing activities $ 1,819,370 $ - Effect of exchange rate changes on cash $ 4,372 - Net change in cash for the period 602,063 ( 1,280,155 ) Cash at beginning of period 1,352,102 5,813,218 Cash at end of period $ 1,954,165 $ 4,533,063 Supplemental information of cash flows: Income taxes paid in cash $ 3,662 $ - The accompanying notes are an integral part of these consolidated interim financial statements. Page 5 of 34 Table of Contents LEXARIA BIOSCIENCE CORP. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the Three Months Ended November 30, 2023 and 2022 (Expressed in US Dollars) (Unaudited) Common Stock Additional Paid-in Non-controlling Stockholders Shares Amount Capital Deficit AOCI Interest Equity Balance August 31, 2023 8,091,650 $ 8,091 $ 48,799,454 $ ( 45,763,427 ) - $ ( 364,040 ) $ 2,680,078 Stock issued in equity offering 889,272 889 1,246,829 - - - 1,247,718 Stock issued from exercise of warrants 1,330,719 1,331 570,320 - - - 571,651 Foreign currency translation adjustment - - - - 4,372 - 4,372 Stock based compensation - - 53,953 - - - 53,953 Net loss - - - ( 1,179,323 ) - - ( 1,179,323 ) Non-controlling interest - - - - - ( 5,715 ) ( 5,715 ) Balance November 30, 2023 10,311,641 $ 10,311 $ 50,670,556 $ ( 46,942,750 ) $ 4,372 $ ( 369,755 ) $ 3,372,734 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 The accompanying notes are an integral part of these consolidated interim financial statements. Page 6 of 34 Table of Contents LEXARIA BIOSCIENCE CORP. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS November 30, 2023 (Expressed in U.S. Dollars) (Unaudited) 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. Revenues are generated from licensing contracts for the Company’s patented DehydraTECH technology based on the terms of use and defined geographic and licencing arrangements. We derive income from our third party contracted manufacturing of B2B DehydraTECH enhanced products made to customer specifications that are sold online and in-store in the US and Canada. We also perform contract services in R&D for customer specific formulations that are used in comparison testing to customers’ existing products. 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 at least 12 months from the date this report. Since inception, the Company has incurred significant operating and net losses. Net losses attributable to shareholders were $ 1.2 million and $ 1.8 million for the quarters ended November 30, 2023 and 2022, respectively. As of November 30, 2023, we had an accumulated deficit of $ 46.9 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 as to the Company’s ability to continue as a going concern. During the quarter ended November 30, 2023, the Company entered into a Securities Purchase Agreement whereby on October 3, 2023, the Company issued, to a single healthcare-focused institutional investor, 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 sold 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. Page 7 of 34 Table of Contents The net proceeds to the Company from the registered direct offering and concurrent private placement totaled $ 1.25 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. 73 dollars. During the quarter ended November 30, 2023, the Company also issued an aggregate 601,661 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 $ 571,578 . We may also offer securities in response to market conditions or other circumstances if we believe such a plan of financing is required to advance the Company’s business plans. There is no certainty that future equity or debt financing will be available or that it will be at acceptable terms and the outcome of these matters is unpredictable. A lack of adequate funding may force us to reduce spending, curtail or suspend planned programs or possibly liquidate assets. Any of these actions could adversely and materially affect our business, cash flow, financial condition, results of operations, and potential prospects. The sale of additional equity may result in additional dilution to our stockholders. Entering into additional licencing agreements, collaborations, partnerships, alliances marketing, distribution, or licensing arrangements with third parties to increase our capital resources is also possible. If we do so we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. Based on existing cash resources, management believes that current funding will be sufficient to meet the Company’s financial obligations for a period of at least twelve months from the date of this report. 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. 2. Significant Accounting Policies Basis of presentation and consolidation These consolidated financial statements have been prepared in conformity with generally accepted accounting principles of the United States (“US GAAP”) and pursuant to the rules and regulations of the SEC. All amounts, unless otherwise stated, are in U.S. dollars. 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, 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. (an indirect wholly owned subsidiary of Altria Group, Inc.). All significant intercompany balances and transactions have been eliminated upon consolidation. 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 readily convertible to known cash amounts. The Company had no cash equivalents as of November 30, 2023 or November 30, 2022. Page 8 of 34 Table of Contents 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. Leases 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. The lease term includes any renewal options and termination options that we are reasonably certain to exercise. The present value of lease payments is determined by using the interest rate implicit in the lease, if that rate is readily determinable; otherwise, we use our incremental borrowing rate. The incremental borrowing rate is determined by using the rate of interest that we would pay to borrow on a collateralized basis an amount equal to the lease payments for a similar term and in a similar economic environment. 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. 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. We have elected the practical expedient to not separate lease and non-lease components. Our non-lease components are primarily related to property taxes and maintenance, which vary based on future outcomes, and thus differences to original estimates are recognized in rent expense when incurred. Intellectual property 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 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, or the economic life of the improvements, whichever is shorter. Page 9 of 34 Table of Contents 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 recoverable. An impairment loss is recognized when the carrying amount of the long-lived asset is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Any required impairment loss is measured as the amount by which the carrying amount of the long-lived asset exceeds its fair value and is recorded as a reduction in the carrying value of the related asset and a charge to the profit or loss. Intangible assets with indefinite lives are tested for impairment annually and in interim periods if certain events occur indicating that the carrying value of the intangible assets may be impaired. Revenue recognition Licensing revenue from intellectual property 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 recognize the related revenue. Usage fees from intellectual property We recognize usage fees from B2B clients in the period in which the counterparty completes the manufacturing which incorporates DehydraTECH enabled APIs into the related product. We generally recognize revenue when we have satisfied all contractual obligations and are reasonably assured of collecting the resulting receivable. Non-refundable minimum fees are recognized as revenue over the period to which they apply. Product revenue We generally recognize revenue when we have satisfied all contractual obligations and are reasonably assured of collecting the resulting receivable. We are often entitled to bill our customers and receive payment from our customers in advance of recognizing the revenue. Cost of sales Cost of sales includes all expenditures incurred in bringing the goods to the point of sale This includes third-party manufacturing and handling costs, direct costs of the raw material, inbound freight charges, warehousing costs, and applicable overhead expenses. Research and development Research and development costs are expensed as incurred. These expenditures are comprised of both in-house research programs and through third-party contracts including consultants, academic and non-profit institutions, contract manufacturing, and other expenses. Page 10 of 34 Table of Contents Intellectual property expenses 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 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. The use of the Black-Scholes option-pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the common stock. Foreign currency translation The Company’s reporting currency is the U.S. dollar. The Company has foreign operations whose functional currency is the local currency. Assets and liabilities are translated into U.S. dollars, the reporting currency, at the exchange rate on the balance sheet date. Revenues and expenses are translated into U.S. dollars at the average rates of exchange prevailing during the reporting period. Foreign currency translation adjustments resulting from this process are reported as an element of other comprehensive income (loss) on the consolidated statements of operations and comprehensive loss. Transactions executed in different currencies are translated at spot rates and resulting foreign exchange transaction gains and losses are charged to income. Loss per share The calculation of loss per share uses the weighted average number of shares outstanding during the year. 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 is anti-dilutive. Income taxes 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. Page 11 of 34 Table of Contents Financial instruments When measuring fair value, the Company seeks to maximize the use of observable inputs and minimize the use of unobservable inputs. This establishes a fair value hierarchy based on the level of independent objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Inputs are prioritized into three levels used to measure fair value: • Level 1 - Quoted prices in active markets for identical assets or liabilities; • Level 2 - Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and • Level 3 - Unobservable inputs that are supported by little or no market activity, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing. The Company’s financial instruments consist primarily of cash, marketable securities, accounts receivable and payable, accrued liabilities and loan payable. The carrying amounts of instruments approximate their fair values due to their short maturities or quoted market prices. The Company’s headquarters and operations are located in Canada which results in exposure to market risks from fluctuations in foreign currency rates. 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 rate changes for USD/CAD dollars is not expected to be material. The following table provides a summary of financial instruments that are measured at fair value on a recurring basis as of November 30, 2023. Carrying Fair Value Measurement Using Value Level 1 Level 2 Level 3 Total Marketable Securities $ 72,427 $ 72,427 $ - $ - $ 72,427 The following table provides a summary of financial instruments that are measured at fair value on a recurring basis as of August 31, 2023. Carrying Fair Value Measurement Using Value Level 1 Level 2 Level 3 Total Marketable Securities $ 125,642 $ 125,642 $ - $ - $ 125,642 Credit risk and customer concentration The Company places its cash with a high credit quality financial institution. 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 three months ended November 30, 2023, two customers accounted for 96 % (2022 – two customers accounted for 95 %) of consolidated revenues. As of November 30, 2023, the Company had $ 90,925 (2022 - $ 48,598 ) in sales tax receivable. The Company considers its credit risk to be low for such receivables. Commitments and contingencies The Company policy is to record accruals for any such loss contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. In the event that estimates or assumptions prove to differ from actual results, adjustments are made in subsequent periods to reflect more current information. The Company, from time to time, may be subject to legal claims and proceedings related to matters arising in the ordinary course of business. 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. Page 12 of 34 Table of Contents 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 amount of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements and the reported amount of revenue and expenses during the fiscal 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. 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. However, actual results could differ from these estimates. Page 13 of 34 Table of Contents 3. Recent Accounting Guidance Recently Adopted Pronouncements In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . 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 adopted ASU 2016-13 effective September 1, 2023 and determined that its impact on the accompanying consolidated financial statements is immaterial. Page 14 of 34 Table of Contents 4. Accounts and Other Receivables Accounts receivable at November 30, 2023 and August 31, 2023 consist of the following: Amounts Receivable November 30 2023 $ August 31, 2023 $ Territory license fees 127,760 24,635 Sales tax 90,925 102,051 Other Receivable 316,046 - Long Term Receivable 48,559 48,559 583,290 175,245 5. Prepaid Expenses and Other Current Assets Prepaid expenses consist of the following at November 30, 2023 and August 31, 2023: November 30, August 31, 2023 2023 $ $ Advertising & Conferences 25,828 40,342 Consulting - 331,811 Legal & Accounting Fees 31,700 36,795 License, Filing Fees, Dues 3,917 15,668 Office & Insurance 70,866 97,167 Capital Financing - 25,000 132,311 546,783 6. Intellectual Property, net Page 15 of 34 Table of Contents A continuity schedule for capitalized patents is presented below: November 30, August 31, 2023 2023 Balance - beginning $ 462,625 $ 488,462 Addition 40,026 135,862 Impairment - ( 106,761 ) Amortization ( 8,274 ) ( 54,938 ) Balance - ending $ 494,377 $ 462,625 At November 30, 2023 the Company has capitalized a total of $ 494,377 of patents. Included in the capitalized costs is $ 480,762 of costs associated with patents and licenses that have been filed. Also included in the capitalized costs is $ 13,615 of costs associated with provisional patents and pending applications which have not yet been filed. The Company evaluated its patent portfolio and determined that no pending applications have been abandoned or will not be pursued during the three months ended November 30, 2023. As such, no impairment loss has been recognized for the period. The Company recognized $ 8,274 of amortization expense related to patents and licenses in the three-months ended November 30, 2023 (2022 - $ 54,938 ). 7. Property & Equipment, net Consist of: November 30, 2023 Cost Period Amortization Additions Accumulated Amortization Net Balance Leasehold improvements $ 259,981 $ ( 11,258 ) $ - $ ( 259,981 ) $ - Computers 70,781 ( 1,183 ) - ( 67,340 ) $ 3,441 Furniture fixtures equipment 31,126 ( 1,605 ) - ( 30,862 ) $ 264 Lab equipment 367,424 ( 6,458 ) - ( 137,490 ) $ 229,934 $ 729,312 $ ( 20,504 ) $ - $ ( 495,673 ) $ 233,639 August 31, 2023 Cost Period Amortization Additions Accumulated Amortization Net Balance Leasehold improvements $ 259,981 $ ( 54,037 ) $ - $ ( 248,723 ) $ 11,258 Computers 70,781 ( 4,732 ) - ( 66,156 ) 4,625 Furniture fixtures equipment 31,126 ( 6,417 ) - ( 29,257 ) 1,869 Lab equipment 333,675 ( 29,986 ) 33,748 ( 131,032 ) 236,391 $ 695,563 $ ( 95,172 ) $ 33,748 $ ( 475,168 ) $ 254,143 During the three-month period ended November 30, 2023, amortization of $ 0 was included in cost of goods sold. Page 16 of 34 Table of Contents 8. Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities at November 30, 2023 and August 31, 2023 consist of the following: November 31, August 31, 2023 2023 Accounts Payable Trades payable $ 92,127 $ 225,038 Sales tax payable 6,842 14,903 $ 98,969 $ 239,941 9. Revenues A breakdown of our revenues by type for the three-months ended November 30, 2023, and 2022 are as follows: Three Months Ended November 30, 2023 2022 IP Licensing $ 144,990 $ 63,435 B2B 5,388 29,100 Other 900 5,200 $ 151,278 $ 97,735 During the three-month period ended November 30, 2023, the Company recognized B2B product revenues of $ 5,388 (three months ended November 30, 2022 - $ 29,100 ) that relate to sales of our intermediate products for use by 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 $ 144,990 (three months ended November 30, 2022 - $ 63,435 ) in licensing revenue in the same period. 10. Income Taxes For the three months ended November 30, 2023, the Company did not recognize a provision or benefit for income taxes as it has incurred net losses. In addition, the net deferred tax assets generated from operating losses are fully offset by a valuation allowance as the Company believes it is more likely than not that the benefit will not be realized. Page 17 of 34 Table of Contents 11. Common Shares and Warrants During the quarter ended November 30, 2023, the Company completed the following issuances of common shares and warrants: 1. 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 sold 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 were $ 1.25 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. 73 dollars. 2. The Company issued an aggregate 601,661 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 $ 571,578 of which $ 33,250 was being held in Lexaria’s trust account with the warrant agent at November 30, 2023. A continuity schedule for warrants for the three months ended November 30, 2023, is presented below: Number of Warrants Weighted Average Exercise Price $ Balance, August 31, 2023 4,520,483 4.71 Issued 2,347,388 0.65 Exercised ( 1,330,719 ) 0.43 Balance, November 30, 2023 5,537,152 4.02 A summary of warrants outstanding as of November 30, 2023, is presented below: Number of Warrants Weighted Average Exercise Price Weighted Average Remaining Contractual Life (years) 60,798 $ 36.00 . 96 - 1 .00 317,190 $ 10.50 1.43 - 1.45 116,667 $ 9.00 . 37 - 1.29 200,000 $ 7.00 0.38 1,719,828 $ 6.58 2.13 1,504,339 $ 0.95 4.45 1,618,330 $ 0.97 5.34 5,537,152 $ 3.55 4.02 Page 18 of 34 Table of Contents Stock Options The Company has established an Equity Incentive Plan which was most recently amended by the Company’s shareholders on May 9, 2023. Pursuant to the amendments, the Equity Incentive Plan now has an evergreen formula, whereby on January 1 each year commencing January 1, 2024, the number of shares issuable pursuant to the Equity Incentive Plan may be increased to a number equal to up to 10% of the issued share capital on December 31 of the previous year . The Company is currently in the process of preparing its S-8 Registration Statement to register an additional 527,111 common shares issuable pursuant to the Equity Incentive Plan, for an aggregate 1,037,544 common shares issuable under the Equity Incentive Plan. Stock options currently 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. 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, 2022 424,836 $ 6.45 Cancelled/expired ( 47,500 ) $ 2.98 Granted 69,600 $ 1.75 Balance August 31, 2023 446,936 $ 3.32 Cancelled/expired ( 46,000 ) $ 2.98 Granted 85,000 $ 1.15 Balance November 30, 2023 (outstanding) 485,936 $ 2.98 3.36 $ 46,025 Balance November 30, 2023 (exercisable) 474,186 $ 2.97 3.37 $ 46,025 On October 26, 2023, the Company granted 85,000 options to its officers and employees with an exercise price of $ 1.15 and a term of 5 years. Page 19 of 34 Table of Contents The fair value of stock options granted in the three-months ended November 30, 2023, were estimated as of the date of the grant by using the Black-Scholes option pricing model with the following assumptions: November 30, 2023 Expected volatility 92 % Risk-free interest rate 5.03 % Expected life 2.50 Dividend yield 0.00 % Estimated fair value per option $ 0.64 Stock-based compensation expense for the three-month periods ended November 30, 2023, and November 30, 2022, totaled $ 53,953 and $ 68,776 , respectively. The expense for the three months ended November 30, 2023, relates entirely to options awarded during the quarter. As of November 30, 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 0.32 years. All non-vested options are attributable to employees. 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 related lease was renewed until November 15, 2028. In addition to minimum lease payments, the lease requires us to pay property taxes and other operating costs which are subject to annual adjustments. November 30, 2023 August 31, 2023 Right of use assets - operating leases $ 167,446 $ 52,444 Amortization ( 10,881 ) ( 41,564 ) Extension-related remeasurement - 156,566 Total lease assets $ 156,565 $ 167,446 Liabilities: $ 163,967 $ 49,988 Lease payments ( 8,963 ) ( 44,814 ) Interest accretion 67 2,227 Extension-related remeasurement - 156,566 Total lease liabilities $ 155,071 $ 163,967 Operating lease cost $ 156,565 $ 167,446 Operating cash flows for lease $ 8,963 $ 44,814 Remaining lease term 4.92 Years 5.17 Years Discount rate 7.25 % 7.25 % Page 20 of 34 Table of Contents Pursuant to the terms of the Company’s lease agreements in effect, the following table summarizes the Company’s maturities of operating lease liabilities as of November 30, 2023: 2024 26,878 2025 37,094 2026 37,345 2027 38,642 2028 38,901 2029 6,483 Thereafter - Total lease payments 185,343 Less: imputed interest ( 30,272 ) Present value of operating lease liabilities 155,071 Less: current obligations under leases ( 25,554 ) Total 129,517 Page 21 of 34 Table of Contents 13. Segment Information The Company’s operations involve the development and usage, including licensing, of DehydraTECH. 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 four reportable segments: Intellectual Property, B2B Production, Research and Development and Corporate. Licensing revenues are significantly concentrated on three licensees. Three Months Ended November 30, 2023 IP Licensing B2B Product R&D Corporate Consolidated Total Revenue $ 144,990 $ 5,388 $ 900 $ - $ 151,278 Cost of goods sold - ( 4,822 ) - - $ ( 4,822 ) Operating expenses ( 41,478 ) ( 54,169 ) ( 586,605 ) ( 603,345 ) $ ( 1,285,597 ) Other Income(Expense) - - ( 45,897 ) $ ( 45,897 ) Segment loss $ 103,512 $ ( 53,603 ) $ ( 585,705 ) $ ( 649,242 ) $ ( 1,185,038 ) Total assets $ 132,627 $ 63,573 $ 76,245 $ 3,354,327 $ 3,626,773 Three Months Ended November 30, 2022 IP Licensing B2B Product R&D Corporate Consolidated Total Revenue $ 63,435 $ 29,100 $ 5,200 $ - $ 97,735 Cost of goods sold - ( 15,795 ) - - $ ( 15,795 ) Operating expenses ( 707,034 ) ( 10,992 ) ( 829,489 ) ( 229,844 ) $ ( 1,777,359 ) Other Income(Expense) - - ( 73,887 ) $ ( 73,887 ) Segment loss $ ( 643,599 ) $ 2,313 $ ( 824,289 ) $ ( 303,731 ) $ ( 1,769,306 ) Total assets $ 118,096 $ 75,723 $ 136,564 $ 5,883,097 $ 6,213,480 14. Subsequent Events Subsequent to the quarter ended November 30, 2023, the Company issued an aggregate 123,800 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 $ 117,610 of which $57,000 is currently being held in Lexaria’s trust account with the warrant agent. Page 22 of 34 Table of Contents