Lexston Mining Corporation — Audit Report / Information 2021

Sep 27, 2021

LEXSTON LIFE SCIENCES CORP.

(formerly Lexston Capital Corp.)

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD FROM JULY 1, 2020 (DATE OF INCORPORATION) TO MAY 31, 2021

(EXPRESSED IN CANADIAN DOLLARS)

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INDEPENDENT AUDITOR’S REPORT

To the Shareholders of Lexston Life Sciences Corp. (formerly Lexston Capital Corp.)

Opinion

We have audited the consolidated financial statements of Lexston Life Sciences Corp. (formerly Lexston Capital Corp.) (the “Company”), which comprise the consolidated statement of financial position as at May 31, 2021 and the consolidated statements of operations and comprehensive loss, changes in equity, and cash flows for the period from July 1, 2020 (date of incorporation) to May 31, 2021, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at May 31, 2021 and its consolidated financial performance and its consolidated cash flows for the period from July 1, 2020 (date of incorporation) to May 31, 2021 in accordance with International Financial Reporting Standards.

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Material Uncertainty Related to Going Concern

We draw attention to Note 1 in the consolidated financial statements, which indicates that the Company used cash for operating activities of $483,162 and incurred a net loss of $876,130 during the period ended May 31, 2021 and had an accumulated deficit of $876,130 as at May 31, 2021. As stated in Note 1, these events or conditions, along with other matters as set forth in Note 1, indicate that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Other Information

Management is responsible for the other information. The other information comprises the information included in the Management’s Discussion and Analysis, but does not include the consolidated financial statements and our auditor’s report thereon.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information, and in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

The engagement partner on the audit resulting in this independent auditor’s report is Henry Chow.

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Saturna Group Chartered Professional Accountants LLP

Vancouver, Canada September 24, 2021

LEXSTON LIFE SCIENCES CORP.

(formerly Lexston Capital Corp.) CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Expressed in Canadian dollars)

	May 31,
	2021
	$
ASSETS
Current assets
Cash	949,171
Accounts receivable (Note 5)	37,459
Prepaid expenses and deposits	2,000
Total current assets	988,630
Non-current assets
Property and equipment (Note 7)	114,201
Total assets	1,102,831
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities	34,747
Due to related party (Note 11)	4,061
Total current liabilities	38,808
Shareholders' deficit
Share capital (Note 8)	1,506,184
Share-based reserves	433,969
Deficit	(876,130)
Total shareholders’equity	1,064,023
Total liabilities and shareholders’ equity	1,102,831

Nature of operations and continuance of business (Note 1) Subsequent events (Note 14)

Approved and authorized for issuance by the Board of Directors on September 24, 2021:

/s/ Harinder Bains /s/ Jagdip Bal Harinder Bains, Director Jagdip Bal, Director

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

3

LEXSTON LIFE SCIENCES CORP.

(formerly Lexston Capital Corp.)

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Expressed in Canadian dollars)

	Period from
	July 1, 2020
	(date of
	incorporation) to
	May 31,
	2021
	$
Revenues (Note 6)	149,110
Cost of sales	89,007
Gross profit	60,103
Operating expenses
Advertising and promotion	3,021
Amortization (Note 7)	11,267
Bad debt expense (Note 5)	32,530
Consulting	29,744
Office and miscellaneous	21,743
Professional fees	104,529
Regulatory and transfer agent fees	4,588
Rent	16,100
Research and development	43,198
Salaries and benefits (Note 11)	287,396
Share-based compensation (Notes 10 and 11)	21,194
Traveland promotion	8,409
Total operating expenses	583,719
Net loss before other expense	(523,616)
Other expense
Listing expense (Note 4)	(352,514)
Net loss and comprehensive loss	(876,130)
Lossper share,basic and diluted	(0.03)
Weighted average number of shares outstanding	25,315,352

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

4

LEXSTON LIFE SCIENCES CORP. (formerly Lexston Capital Corp.) CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(Expressed in Canadian dollars)

	Share capital Share-based reserves $ Deficit $ Total $ Number ofshares Amount $
Balance, July 1, 2020 (date of incorporation) Issuance of founders’ shares Proceeds from issuance of common shares Shares issued pursuant to reverse takeover transaction Fair value of stock options granted Net loss for the period	100 1 – – 1 14,999,900 14 – – 14 8,000,000 120,000 – – 120,000 26,968,260 1,386,169 412,775 – 1,798,944 – – 21,194 – 21,194 – – – (876,130) (876,130)
Balance, May 31, 2021	49,968,260 1,506,184 433,969 (876,130) 1,064,023

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

5

LEXSTON LIFE SCIENCES CORP. (formerly Lexston Capital Corp.) CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in Canadian dollars)

	Period from
	July 1, 2020
	(date of
	incorporation) to
	May 31,
	2021
	$
OPERATING ACTIVITIES
Net loss for the period	(876,130)
Items not involving cash:
Amortization	11,267
Listing expense	352,514
Share-based compensation	21,194
Changes in non-cash operating working capital:
Amounts receivable	(34,623)
Prepaid expenses and deposits	4,000
Accounts payable and accrued liabilities	34,555
Due torelated parties	4,061
Net cashusedinoperating activities	(483,162)
INVESTING ACTIVITIES
Cash acquired from recapitalization	937,786
Purchase of property and equipment	(125,468)
Net cash provided by investing activities	812,318
FINANCING ACTIVITIES
Proceeds from shares issued	120,015
Proceedsfrom loanpayable	500,000
Net cashprovided byfinancing activities	620,015
Change in cash	949,171
Cash, beginning ofperiod	–
Cash,end ofperiod	949,171
Non-cash investing and financing activities:
Fair value of consideration issued for recapitalization transaction	1,798,944

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

6

LEXSTON LIFE SCIENCES CORP. (formerly Lexston Capital Corp.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM JULY 1, 2020 (DATE OF INCORPORATION) TO MAY 31, 2021 (Expressed in Canadian dollars)

1. NATURE OF OPERATIONS AND CONTINUANCE OF BUSINESS

Lexston Life Sciences Corp. (formerly Lexston Capital Corp.) (the “Company”) was incorporated on January 3, 2020 under the laws of the province of British Columbia. The address of the Company’s registered and records of is 1150 – 789 West Pender Street, Vancouver, BC, V6C 1H2 and its principal place of business is 929 Mainland Street, Vancouver, BC V6B 1S3. On January 18, 2021, the Company changed its name to Lexston Life Sciences Corp. in conjunction with the Share Exchange Agreement (the “Agreement”) with Egret Biosciences Inc. (“Egret”). Refer to Note 4.

On September 22, 2020 (as amended on October 20, 2020, December 3, 2020, December 28, 2020, and January 6, 2021), the Company entered into an Agreement with Egret, a company specializing in the research and development of pharmaceutical products which included a research license issued by Health Canada to the principal of Egret in accordance with the Cannabis Act and Cannabis Regulations. On September 3, 2020, Egret was issued an analytical testing license by Health Canada, which authorizes Egret to acquire and hold cannabis for the purpose of testing. Concurrent with the Agreement, Lexston issued 18,843,260 units at $0.075 per unit for proceeds of $1,413,245 prior to the closing date of the Agreement. On February 4, 2021, the Agreement was completed. Refer to Note 4.

On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. This contagious disease outbreak and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, leading to an economic downturn. The impact on the Company has not been significant, but management continues to monitor the situation.

During the period ended May 31, 2021, the Company incurred a net loss of $876,130 and has used net cash in operating activities of $483,162. As at May 31, 2021, the Company has an accumulated deficit of $876,130.

The Company expects to incur further losses in the development of its operations. While the Company has positive working capital, the ability of the Company to carry out its business objectives is dependent on its ability to secure continued financial support from related parties, to obtain public equity financing, or to ultimately attain profitable operations in the future. If and when the Company can attain profitability and positive cash flows is uncertain. While the Company has been successful in securing financing in the past, there is no assurance that financing will be available in the future on terms acceptable to the Company.

These consolidated financial statements do not give effect to any adjustments which would be necessary should the Company be unable to continue as a going concern and thus be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in these financial statements.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation

These consolidated financial statements have been prepared on a historical cost basis and in accordance with International Financial Reporting Standards (“IFRS”). These consolidated financial statements have been prepared on a historical cost basis, except for financial instruments which are measured at fair value. These financial statements are presented in Canadian dollars, which is also the Company’s functional currency.

7

LEXSTON LIFE SCIENCES CORP. (formerly Lexston Capital Corp.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM JULY 1, 2020 (DATE OF INCORPORATION) TO MAY 31, 2021 (Expressed in Canadian dollars)

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

Principles of Consolidation

These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Egret Bioscience Ltd.

The Company’s consolidated financial statements include the accounts of all subsidiaries subject to control by the Company. Control is achieved when the Company has the power to, directly or indirectly, govern the financial and operating policies of an entity so as to obtain benefits from its activities. Subsidiaries are fully consolidated from the date on which control is obtained and continue to be consolidated until the date that such control ceases. Intercompany balances, transactions, and unrealized intercompany gains and losses are eliminated upon consolidation.

Use of Estimates and Judgments

The preparation of these consolidated financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these estimates. The consolidated financial statements include estimates which, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the consolidated financial statements and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and the revision affects both the current and future periods.

Significant areas requiring the use of management estimates include the collectability of accounts receivable, the useful lives and carrying value of property and equipment, fair value of share-based compensation, and recoverability of unrecognized deferred income tax assets.

Significant judgments include:

• Assessment of whether the going concern assumption is appropriate which requires management to take into account all available information about the future, which is at least, but not limited to, 12 months from the end of the reporting period;

• Determining whether the acquisition of Egret is a business combination or an asset acquisition. In a business combination, all identifiable assets, liabilities, and contingent liabilities acquired are recorded at their fair values. In determining the allocation of the purchase price in a business combination, including any acquisition related contingent consideration, estimates include market based and appraisal values are used. The contingent consideration is measured at its acquisition date fair value and included as part of the consideration transferred in the acquisition transaction. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity.

• Judgment with respect to contracts that may have multiple performance obligations or be in process and require a pro-rata estimate of revenues and costs incurred as at the reporting date;

• Costs to develop products that will be sold are capitalized to the extent that the criteria for recognition as intangible assets in IAS 38, Intangible Assets, are met. Those criteria require that the product is technically and economically feasible, which management assesses based on the attributes of the development project, perceived user needs, industry trends and expected future economic conditions. Management considers these factors in aggregate and applies significant judgment to determine whether the product is feasible. As at May 31, 2021, the Company has not capitalized any product development costs as the capitalization criteria under IAS 38 has not been met.

8

LEXSTON LIFE SCIENCES CORP. (formerly Lexston Capital Corp.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM JULY 1, 2020 (DATE OF INCORPORATION) TO MAY 31, 2021 (Expressed in Canadian dollars)

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

Cash and cash equivalents

The Company considers all highly liquid investments with a maturity of three months or less at the time of issuance, are readily convertible to known amounts of cash, and which are subject to insignificant risks of changes in value to be cash equivalents.

Accounts receivable

The Company reviews the collectability of its accounts receivable and establishes an allowance for doubtful accounts based on the age of the receivable and factors that identify receivables that are at risk of collection.

Property and equipment

Property and equipment is recorded at historical cost less related accumulated depreciation and impairment losses. Cost is determined as the expenditure directly attributable to the asset at acquisition, only when it is probable that future economic benefits will flow to the Company and the cost can be reliably measured. When an asset is disposed of, its carrying cost is derecognized. All repairs and maintenance costs are charged to the statement of operations during the financial period in which they are incurred. The Company provides for depreciation of property and equipment on a straight-line basis unless otherwise noted using the following annual rates:

Computer equipment 3 years straight line Laboratory equipment 5 years straight line

Financial instruments

Classification and measurement – initial recognition

On initial recognition, all financial assets and liabilities are classified and recorded at fair value, net of attributable transaction costs, except for financial assets and liabilities classified as at fair value through profit or loss (“FVTPL”).

Classification and measurement – subsequent to initial recognition

Subsequent measurement of financial assets and liabilities depends on their classification and measurement basis.

Financial Assets

Subsequent to initial recognition, financial assets are measured at amortized cost, fair value through other comprehensive income, or fair value through profit or loss, depending on the business model in which a financial asset is managed and its contractual cash flow characteristics.

• A financial asset is measured at amortized cost if both of the following conditions are met:

• a) the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and

• b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

9

LEXSTON LIFE SCIENCES CORP. (formerly Lexston Capital Corp.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM JULY 1, 2020 (DATE OF INCORPORATION) TO MAY 31, 2021 (Expressed in Canadian dollars)

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial instruments (continued)

A financial asset shall be measured at fair value through other comprehensive income if both of the following conditions are met:

• a) the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and

• b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Financial assets that do not meet the above conditions are classified as fair value through profit or loss. The Company’s cash and accounts receivable are measured at amortized cost.

Financial Liabilities

Subsequent to initial recognition, financial liabilities are measured at amortized cost, unless designated as fair value through profit or loss. The Company’s accounts payable and accrued liabilities and amounts due to a related party are measured at amortized cost.

Impairment of Financial Assets

The Company applies the expected credit loss (“ECL”) model to its financial assets measured at amortized cost. Under the ECL model, loss allowances are measured on either of the following bases:

• 12-month ECLs: these are ECLs that result from possible default events within the 12 months after the reporting date; and

• lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument.

Upon recognition of a financial asset, 12-month ECLs are recognized in the consolidated statement of operations and a loss allowance is established. At each reporting date, if the credit risk associated with a financial asset has increased significantly and is not considered low, lifetime ECLs are recognized in the consolidated statement of operations.

Impairment of non-financial assets

At the end of each reporting period, the Company reviews the carrying amounts of long-lived assets to determine whether there is an indication that those assets have suffered an impairment. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment charge (if any). The Company’s long-lived assets consists of property, equipment and furniture, and intangible assets.

The recoverable amount used for this purpose is the higher of the fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

If the recoverable amount of an asset is estimated to be less than its recorded amount, the recorded amount of the asset is reduced to its recoverable amount. An impairment charge is recognized immediately in the consolidated statements of operations and comprehensive loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

10

LEXSTON LIFE SCIENCES CORP. (formerly Lexston Capital Corp.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM JULY 1, 2020 (DATE OF INCORPORATION) TO MAY 31, 2021 (Expressed in Canadian dollars)

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

Impairment of non-financial assets (continued)

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, to a maximum amount equal to the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years.

Loss per share

Basic loss per share is computed using the weighted average number of common shares outstanding during the period. The treasury stock method is used for the calculation of diluted loss per share. Stock options, share purchase warrants, and other equity instruments are dilutive when the average market price of the common shares during the period exceeds the exercise price of the options, warrants and other equity instruments. As at May 31, 2021, the Company had 20,843,260 potentially dilutive shares outstanding.

Income taxes

• (i) Current income taxes

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the end of each reporting period.

• (ii) Deferred income tax

Deferred income tax is provided using the statement of financial position method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and recognized only to the extent that it is probable that sufficient taxable income will be available to allow all or part of the deferred income tax asset to be utilized. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.

Share capital

Proceeds received on the issuance of units, consisting of common shares and warrants, are allocated first to common shares based on the market trading price of the common shares at the time the units are issued, and any excess is allocated to warrants.

Incremental costs directly attributed to the issuance of common shares are shown in equity as a reduction, net of tax, of the proceeds received on issue. Shares issued for non-monetary consideration are valued based on the fair value of the goods or services received unless the fair value of the shares are a more reliable measure.

11

LEXSTON LIFE SCIENCES CORP. (formerly Lexston Capital Corp.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM JULY 1, 2020 (DATE OF INCORPORATION) TO MAY 31, 2021 (Expressed in Canadian dollars)

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue recognition

The Company’s accounting policy for revenue recognition under IFRS 15 is to follow a five-step model to determine the amount and timing of revenue to be recognized:

• 1) Identifying the contract with a customer;

• 2) Identifying the performance obligations within the contract;

• 3) Determining the transaction price;

• 4) Allocating the transaction price to the performance obligations; and

• 5) Recognizing revenue when/as performance obligation(s) are satisfied.

Revenue is earned through the product sales and consulting services. Revenues from product sales is primarily derived from product outputs and data derived from the Company’s laboratory which is based an agreement with a customer on their specific needs and a transaction price. The amounts are billed when the output or data has been completed and received by the customer.

Revenue from consulting services is derived from services provided to third parties where the Company provides services based on the direction of the customer at pre-determined consulting rates which are billed monthly and is based on the amount of time incurred to the customer.

Share-based payments

The Company grants share-based awards to employees, directors, and consultants as an element of compensation. The fair value of the awards is recognized over the vesting period as share-based compensation expense and share-based payment reserve. The fair value of share-based payments is determined using the Black-Scholes option pricing model using estimates at the date of the grant. At each reporting date prior to vesting, the cumulative expense representing the extent to which the vesting period has expired and management’s best estimate of the awards that are ultimately expected to vest is computed. The movement in cumulative expense is recognized in the statement of operations with a corresponding entry within equity, against share-based payment reserve. No expense is recognized for awards that do not ultimately vest. When stock options are exercised, the proceeds received, together with any related amount in share-based payment reserve, are credited to share capital.

Share-based payments arrangements in which the Company receives goods or services as consideration for its own equity instruments are accounted for as equity-settled share-based payment transactions, unless the fair value cannot be estimated reliably. If the Company cannot reliably estimate the fair value of the goods or services received, the Company will measure their value by reference to the fair value of the equity instruments granted.

Research and development

The Company incurs costs on activities that relate to research and development of new products. Research and development costs are expensed, except in cases where development costs meet certain identifiable criteria for deferral, including technical feasibility. Development costs are capitalized only if the expenditures can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to, and has sufficient resources to, complete development and to use or sell the asset. Deferred development costs are amortized over the life of related commercial production, or in the case of serviceable property and equipment, are included in the appropriate property group and are depreciated over its estimated useful life.

12

LEXSTON LIFE SCIENCES CORP. (formerly Lexston Capital Corp.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM JULY 1, 2020 (DATE OF INCORPORATION) TO MAY 31, 2021 (Expressed in Canadian dollars)

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

Foreign currency translation

The functional and reporting currency is the Canadian dollar. Transactions denominated in foreign currencies are translated using the exchange rate in effect on the transaction date or at an average rate. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange in effect at the statement of financial position date. Non-monetary items are translated using the historical rate on the date of the transaction. Foreign exchange gains and losses are included in the consolidated statement of operations.

Recent Accounting Pronouncements

A number of new standards, and amendments to standards and interpretations, are not yet effective for the period ended May 31, 2021, and have not been early adopted in preparing these consolidated financial statements. These new standards, and amendments to standards and interpretations are either not applicable or are not expected to have a significant impact on the Company’s consolidated financial statements.

3.

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The Company is exposed to various financial instrument risks and assesses the impact and likelihood of this exposure. These risks include liquidity risk, credit risk, price risk, currency risk and interest rate risk. Where material, these risks are reviewed and monitored by the Board of Directors.

Fair values

Fair value measurements of financial instruments are required to be classified using a fair value hierarchy that reflects the significance of inputs used in making the measurements. The levels of the fair value hierarchy are defined as follows:

• Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

• Level 3 - Inputs for assets or liabilities that are not based on observable market data. comprehensive income or loss.

The fair values of other financial instruments, which include cash, accounts receivable, accounts payable and accrued liabilities, and amounts due to related parties approximate their carrying values due to the relatively short-term maturity of these instruments.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company currently settles its financial obligations out of cash. The ability to do this relies on the Company raising debt and equity financing in a timely manner and by maintaining sufficient cash in excess of anticipated needs. The Company has cash of $949,171 at May 31, 2021 in order to meet short-term liabilities of $38,808. There is no assurance that financing will be available or, if available, that such financing will be on terms acceptable to the Company. The Company monitors its risk of shortage of funds by monitoring the maturity dates of its existing liabilities. The Company’s accounts payable and amounts due to related parties are all due within one year.

13

LEXSTON LIFE SCIENCES CORP. (formerly Lexston Capital Corp.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM JULY 1, 2020 (DATE OF INCORPORATION) TO MAY 31, 2021 (Expressed in Canadian dollars)

3. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Credit risk

Credit risk is the risk of potential loss to the Company if the counterparty to a financial instrument fails to meet its contractual obligations. The Company’s credit risk is primarily attributable to its liquid financial assets which primarily is cash. The Company limits exposure to credit risk on liquid financial assets through maintaining its cash with high-credit quality financial institutions. The Company’s cash is held with a major Canadian-based financial institution. The carrying amount of financial assets represents the maximum credit exposure.

Foreign exchange rate and interest rate risk

The Company is not exposed to any significant foreign exchange rate or interest rate risk.

Capital management

The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders.

The Company depends on external financing to fund its activities. The capital structure of the Company currently consists of cash, and equity comprised of issued share capital and share subscriptions receivable. The Company manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may issue new shares through private placements, or sell assets to fund operations. Management reviews its capital management approach on a regular basis. The Company is not subject to externally imposed capital requirements.

4. ACQUISITION OF EGRET BIOSCIENCE LTD.

On February 4, 2021, the Company completed a reverse takeover transaction (the “Transaction”) pursuant to which it acquired all of the issued and outstanding common shares of Egret Bioscience Ltd. (“Egret”), a company incorporated in the province of British Columbia. Under the terms of the Transaction, the Company issued 23,000,000 common shares and up to 10,000,000 additional common shares (the “performance shares”) for certain milestones attained by Egret management subsequent to the Transaction.

The acquisition has been accounted for as an asset acquisition for accounting purposes, as the Transaction is considered to be outside of the scope of IFRS 3, Business Combinations, as Lexston was not a business prior to the Transaction. As such, the Transaction is accounted for in accordance with IFRS 2, Share-based Payments , whereby Egret is deemed to have issued common shares in exchange for the net assets of Lexston. The accounting for the Transaction includes the consolidated financial information of Lexston and Egret but are issued under the legal parent, Lexston, but are considered a continuation of the financial statements of the legal subsidiary, Egret. As Egret is deemed to be the acquirer for accounting purposes, its assets and liabilities are included in the consolidated financial statements at their historical carrying values.

14

LEXSTON LIFE SCIENCES CORP. (formerly Lexston Capital Corp.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM JULY 1, 2020 (DATE OF INCORPORATION) TO MAY 31, 2021 (Expressed in Canadian dollars)

4. ACQUISITION OF EGRET BIOSCIENCE LTD. (continued)

The total consideration of the common shares and the performance shares has been allocated to the fair value of the net assets acquired and liabilities assumed, as follows:

Net Assets Acquired	$
Cash	937,786
Loan receivable	500,000
Sales tax receivable	2,836
Prepaid expenses and deposits	6,000
Accounts payable and accrued liabilities	(192)
Net assets over liabilities	1,446,430
Consideration:
Fair value of common shares	1,386,169
Fair value of performance shares	412,775
Fair value of consideration	1,798,944
Listingexpense	352,514

The fair value of the common shares issued was $1,386,169, which was determined based on concurrent private placement offering at $0.075 per unit related to the transaction, bifurcated to remove the portion of the fair value of the unit offering related to the share purchase warrant.

The fair value of the performance shares was $412,775 and was determined based on an independent valuation. Each performance share is issuable based on the following performance milestones:

• (i) Egret generating monthly revenues of at least $100,000 for six consecutive months (the calculation of which to exclude revenues relating to Pre-Exiting Profits as detailed in Section 19 of the Share Exchange Agreement);

• (ii) Egret generating at least $3,000,000 in total cumulative gross revenues;

• (iii) Egret expanding and upgrading a licensed revenue generating cannabis research and development laboratory;

• (iv) Lexston or Egret within 18 months from the date of the signing of this Letter submitting and obtaining an Exemption To Use Controlled Substance For Clinical Studies pursuant to Section 56 of the Controlled Drugs and Substances Act (S.C. 1996, c. 19);

• (v) Lexston or Egret obtaining a license to sell products under the Controlled Drugs and Substances Act (S.C. 1996, c. 19);

• (vi) Lexston or Egret entering into a commercial agreement satisfactory to Lexston to generate revenue in a foreign jurisdiction; and

• (vii) Lexston or Egret entering into a commercial agreement satisfactory to Lexston to generate revenue in the United States of America.

5. ACCOUNTS RECEIVABLE

ACCOUNTS RECEIVABLE
	2021
	$
Trade accounts receivable	26,530
Taxes receivable	10,929
	37,459

During the period ended May 31, 2021, the Company recorded an allowance for doubtful accounts of $32,529.

15

LEXSTON LIFE SCIENCES CORP.

(formerly Lexston Capital Corp.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM JULY 1, 2020 (DATE OF INCORPORATION) TO MAY 31, 2021 (Expressed in Canadian dollars)

6. REVENUES

REVENUES
	Period from
	July 1, 2020
	(date of
	incorporation) to
	May 31,
	2021
	$
Consulting	32,666
Product sales and services	116,444
	149,110

7. PROPERTY AND EQUIPMENT

PROPERTY AND EQUIPMENT
	Computer	Laboratory
	equipment	equipment	Total
	$	$	$
Cost
Balance, July 1, 2020 (date of incorporation)	–	–	–
Additions	8,057	117,411	125,468
Balance,May31,2021	8,057	117,411	125,468
Accumulated depreciation:
Balance, July 1, 2020 (date of incorporation)	–	–	–
Additions	1,137	10,130	11,267
Balance,May31,2021	1,137	10,130	11,267
Carrying amount:
Balance,July1,2020(date of incorporation)	–	–	–
Balance,May31,2021	6,920	107,281	114,201

8. SHARE CAPITAL

Authorized

The Company has authorized share capital of an unlimited number of common shares without par value.

Escrow Shares

Pursuant to an escrow agreement to be effective June 7, 2021, 21,300,000 common shares of the Company have been deposited into escrow for certain principal shareholders. Under the escrow agreement, 10% of the escrowed common shares are to be released (date of listing) and 15% will be subsequently released every 6 months thereafter over a period of 36 months. As of May 31, 2021, 21,300,000 shares are to be held in escrow.

16

LEXSTON LIFE SCIENCES CORP.

(formerly Lexston Capital Corp.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM JULY 1, 2020 (DATE OF INCORPORATION) TO MAY 31, 2021 (Expressed in Canadian dollars)

8. SHARE CAPITAL (continued)

Share Issuances

• (a) On July 1, 2020, the Company issued 100 founders’ share to the Chief Executive Officer and Director of the Company for proceeds of $1.

• (b) On October 2, 2020, the Company issued 14,999,900 founders’ share for proceeds of $14, including 8,624,900 common shares to the Chief Executive Officer and Director of the Company.

• (c) On October 29, 2020, the Company issued 8,000,000 common shares at $0.015 per share for proceeds of $120,000.

• (d) On February 4, 2021, the Company finalized its reverse takeover transaction and issued 26,968,260 common shares. The common shares included the issuance of 18,843,260 units at $0.075 per unit for proceeds of $1,413,245 in accordance with the share exchange agreement between Lexston and Egret, which was received prior to the closing date of the agreement. Each unit is comprised of one common share and one share purchase warrant where each share purchase warrant entitles the holder to purchase one additional common share of the Company at $0.15 per share for a period of three years from the date of issuance subject to the following acceleration clause: if the common shares of the Company are listed on a Canadian stock exchange and trade at a price of $0.40 per share or higher for ten consecutive business days, the share purchase warrants will expire within 30 days from the date when the acceleration clause was achieved.

9. SHARE PURCHASE WARRANTS

The continuity of warrants for the period ended May 31, 2021 is summarized below:

			Weighted
			average
			exercise
		Number of	price
		warrants	$
Balance, July	1, 2020 (date of incorporation)	–	–
Issued		18,843,260	0.15
Balance,May	31,2021	18,843,260	0.15

The following table summarizes the warrants outstanding and exercisable at May 31, 2021:

NUMBER OF	EXERCISE
WARRANTS	PRICE	EXPIRY DATE
7,139,932	$0.15	June 25, 2023
8,996,664	$0.15	July 14, 2023
2,706,664	$0.15	October 16, 2023
18,843,260

The share purchase warrants are subject to an acceleration where they will expire within 30 days if the common shares of the Company are listed on a Canadian stock exchange and trade at a price of $0.40 per share or higher for ten consecutive business days. As at May 31, 2021, the weighted average remaining contractual life of all warrants outstanding was 2.14 years.

17

LEXSTON LIFE SCIENCES CORP. (formerly Lexston Capital Corp.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM JULY 1, 2020 (DATE OF INCORPORATION) TO MAY 31, 2021 (Expressed in Canadian dollars)

10. STOCK OPTIONS

The Company has a Stock Option Plan whereby stock options are granted in accordance with the policies of regulatory authorities at an exercise price equal to the market price of the Company’s stock on the date of the grant and, unless otherwise stated, vest on the grant date and with a term not to exceed five years. Under the plan, the board of directors may grant up to 10% of the issued number of shares outstanding as at the date of the stock option grant.

			Weighted
			average
			exercise
		Number of	price
		options	$
Outstanding, July	1, 2020 (date of incorporation)	–	–
Granted		2,000,000	0.10
Outstanding,May	31,2021	2,000,000	0.10

Additional information regarding stock options outstanding as at May 31, 2021 is as follows:

			Weighted average
Range of exercise			remaining
prices	Stock options	Stock options	contracted life
$	outstanding	exercisable	(years)
0.10	2,000,000	–	5.00

During the period ended May 31, 2021, the Company granted 2,000,000 stock options to officers, directors, and consultants of the Company with 10% vested upon the Company being listed on a Canadian stock exchange (not listed as at May 31, 2021) and 15% for every six months from the Listing Date. For the period ended May 31, 2021, the Company recorded share-based compensation in the amount of $21,194 using the Black-Scholes option pricing model to estimate the fair value of the options granted using the following assumptions and assuming no expected dividends or forfeiture rates:

dividends or forfeiture rates:
	2021
Annualized volatility	127%
Risk-free interest rate	0.34%
Expected life	5years

11. RELATED PARTY TRANSACTIONS

Key Management Compensation

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly. Key management personnel include the Company’s executive officers and Board of Director members.

18

LEXSTON LIFE SCIENCES CORP. (formerly Lexston Capital Corp.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM JULY 1, 2020 (DATE OF INCORPORATION) TO MAY 31, 2021 (Expressed in Canadian dollars)

11. RELATED PARTY TRANSACTIONS (continued)

• (a) As at May 31, 2021, the Company owed $4,061 to the Chief Scientific Officer and Director of the Company. The amount owing is unsecured, non-interest bearing, and due on demand. During the period ended May 31, 2021, the Company incurred $60,000 of salaries and benefits to the Chief Scientific Officer and Director of the Company.

• (b) On January 18, 2021, the Company granted 1,333,333 stock options to officers and directors of the Company, of which 10% vests on the date the Company lists on a Canadian stock exchange, and 15% vests for every six months after the listing date. For the period ended May 31, 2021, the Company recorded share-based compensation of $14,256 for stock options granted to officers and directors.

12.

INCOME TAXES

The tax effect (computed by applying the Canadian federal and provincial statutory rate) of the significant temporary differences, which comprise deferred income tax assets and liabilities, are as follows:

follows:
	2021
	$
Canadian statutory income tax rate	27%
Income tax recovery at statutory rate	(236,555)
Tax effect of:
Permanent differences and other	85,961
Change in unrecognized deferred income tax assets	150,594
Income taxprovision	–
The significant components of deferred income tax assets and liabilities are as follows:
	2021
	$
Deferred income tax assets
Non-capital losses carried forward	147,552
Property and equipment	3,042
Unrecognized deferredincome taxassets	(150,594)
Net deferred income tax asset	–

As at May 31, 2021, the Company has non-capital losses carried forward of $546,488 which are available to offset future years’ taxable income which will expire as follows:

	$
2041	546,488

13. SEGMENTED INFORMATION

The Company has two reportable operating segments, being the research laboratory located in Kelowna, British Columbia, and the head office location located in Vancouver, British Columbia. All of the Company’s non-current assets and revenues are generated from its research facility in Kelowna, British Columbia.

19

LEXSTON LIFE SCIENCES CORP.

(formerly Lexston Capital Corp.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM JULY 1, 2020 (DATE OF INCORPORATION) TO MAY 31, 2021 (Expressed in Canadian dollars)

14. SUBSEQUENT EVENTS

• (a) Subsequent to May 31, 2021, the Company issued 4,691,665 common shares for proceeds of $703,750 pursuant to the exercise of share purchase warrants.

• (b) Subsequent to May 31, 2021, the Company issued 1,000,000 common shares for proceeds of $177,500 pursuant to the exercise of stock options.

• (c) On July 5, 2021, the Company granted 2,500,000 stock options to officers, directors, and consultants of the Company which vests immediately, and are exercisable over a five-year period at $0.175 per share.

• (d) On July 7, 2021, the Company acquired 750,000 Class C non-voting common shares of Psy Integrated Health Inc. for $75,000.

• (e) On September 8, 2021, the Company granted 780,000 stock options to officers, directors, and consultants of the Company which vests immediately, and are exercisable over a fiveyear period at $0.18 per share.

• (f) On September 21, 2021, the Company acquired 100% of the issued and outstanding common shares of Zen Analytics Ltd. in exchange for $50,000 and the issuance of 1,173,709 common shares.

20