Lobe Sciences Ltd. — Interim / Quarterly Report 2023

Apr 28, 2023

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LOBE SCIENCES LTD.

Condensed Interim Consolidated Financial Statements

For the three and six months ended February 28, 2023 and 2022

(Unaudited - Expressed in Canadian dollars)

Notice of Disclosure of Non-auditor Review of the Condensed Interim Consolidated Financial Statements for the Three and Six Months ended February 28, 2023 and 2022.

Pursuant to National Instrument 51-102 Continuous Disclosure Obligations , part 4, subsection 4.3(3)(a) issued by the Canadian Securities Administrators, if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the interim financial statements have not been reviewed by an auditor.

The accompanying unaudited condensed interim consolidated financial statements of Lobe Sciences Ltd. for the interim periods ended February 28, 2023 and 2022, have been prepared in accordance with the International Accounting Standard 34 - Interim Financial Reporting as issued by the International Accounting Standards Board and are the responsibility of management.

The independent auditors, Davidson & Company LLP, have not performed a review of these condensed interim consolidated financial statements.

April 27, 2023

LOBE SCIENCES LTD. Condensed Interim Consolidated Statements of Financial Position

(Unaudited - Expressed in Canadian dollars)

		February 28,	August 31,
	Note	2023	2022
		$	$
ASSETS
Current
Cash		172,565	907,537
Receivables	4	37,041	18,282
Prepaid expenses and deposits	5	268,822	110,102
		478,428	1,035,921
Investment in Krysalis	9	665,524	681,996
Intangible assets	10	28,011	29,778
Total assets		1,171,963	1,747,695
LIABILITIES
Current
Accounts payable and accrued liabilities	16	1,738,136	1,302,005
Convertible notes	11	211,860	-
Derivative liability	12	37,828	-
Total liabilities		1,987,824	1,302,005
SHAREHOLDER’S EQUITY
Share capital	13(b)	26,200,288	25,221,396
Shares to be issued		-	671,000
Reserves	13(g)	6,978,089	5,528,320
Accumulated other comprehensive income		196	-
Deficit		(33,994,434)	(30,975,026)
Total shareholder’s equity		(815,861)	445,690
Total liabilities and shareholder’s equity		1,171,963	1,747,695

Nature of operations and going concern (Note 1) Contingency (Note 6(c)) Subsequent events (Note 17)

Approved and authorized for issue on behalf of the Board of Directors:

/s/ “Philip J. Young” /s/ “Baxter Phillips III” Director Director

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

3

LOBE SCIENCES LTD.

Condensed Interim Consolidated Statements of Loss and Comprehensive Loss

(Unaudited - Expressed in Canadian dollars, except share numbers)

Three months ended February 28, Six months ended February 28, Note 2023 2022 2023 2022	Three months ended February 28, Six months ended February 28, Note 2023 2022 2023 2022
$ $ $ Advertising 114,176 11,573 174,176 Amortization 10 547 - 1,767 Consulting fees 16 273,218 540,859 1,654,240 General and administrative 37,324 53,272 103,961 Insurance 90,785 83,709 180,906 Professional fees 94,272 155,767 140,741 Research 13(c) 295,819 - 581,334 Share-based compensation 13 78,055 185,440 96,162	$ 102,990 - 904,088 123,947 166,161 217,456 323,537 334,979
Operating loss 984,196 1,030,620 2,933,287 Accretion expense 11 (147) - (147) Interest expense 11 (851) - (851) Foreign exchange loss (32,247) (16,309) (91,619) Dividend income 6(a) 352,993 868,275 709,907 Other income - 1,097 - Gain on change in fair value of derivative liability 12 22,968 - 22,968 Loss on change in fair value of common shares 6(b) - (1,258,781) - Loss on change in fair value of dividends receivable 6(a) (352,993) - (709,907) Loss on change in fair value of preferred shares 6(a) - (1,608,724) - Loss on change in fair value of warrants 7 - (51,496) - Share of loss on Krysalis 9 (7,500) (16,076) (16,472)	2,173,158 - - (44,289) 1,593,665 2,193 - (1,635,236) - (5,192,872) (195,316) (42,137)
Net loss (1,001,973) (3,112,634) (3,019,408)	(7,687,150)
Currency translation differences 196 - 196	-
Comprehensive loss (1,001,777) (3,112,634) (3,019,212)	(7,687,150)
Net loss per share: Basic and diluted (0.01) (0.08) (0.04) Weighted average number of shares: Basic and diluted 76,837,215 37,438,997 73,688,842	(0.21) 37,438,997

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

4

LOBE SCIENCES LTD. Condensed Interim Consolidated Statements of Cash Flows

(Unaudited - Expressed in Canadian dollars)

	Six	months ended
		February 28,
	2023	2022
	$	$
Operating activities
Net loss	(3,019,408)	(7,687,150)
Items not affecting cash:
Amortization	1,767	-
Consulting fees	1,024,838	-
Research	19,408	-
Share-based compensation	96,162	334,979
Accretion expense	147	-
Interest expense	851	-
Dividend income	(709,907)	(1,593,665)
Other income	-	(2,193)
Gain on change in fair value of derivative liability	(22,968)	-
Loss on change in fair value of common shares	-	1,635,236
Loss on change in fair value of dividend receivable	709,907	-
Loss on change in fair value of preferred shares	-	5,192,872
Loss on change in fair value of warrants	-	195,316
Share of loss on Krysalis	16,472	42,137
Unrealized foreign exchange loss (gain)	196	(767)
Changes in non-cash working capital items:
Receivables	(18,759)	178,774
Prepaid expenses and deposits	(158,720)	(211,719)
Accounts payable and accrued liabilities	440,381	462,545
Cash used in operating activities of continuing operations	(1,619,633)	(1,453,635)
Investing activities
Proceedsfromsale ofcommonshares	-	1,439,752
Cash provided by investing activities	-	1,439,752
Financing activities
Shares issued - private placement	676,500	-
Shares issued - exercise of stock options	25,000	-
Shares issued - exercise of share purchase warrants	14,000	-
Share issue costs	(102,497)	-
Convertible notes issued	270,021	-
Cash provided by financing activities	883,024	-
Effect of exchange rate changes in cash	1,637	-
Change in cash	(736,609)	(13,883)
Cash, beginning of period	907,537	1,141,839
Cash, end ofperiod	172,565	1,127,956

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

5

LOBE SCIENCES LTD.

Condensed Interim Consolidated Statements of Changes in Shareholder’s Equity

(Unaudited - Expressed in Canadian dollars, except number of shares)

					Accumulated
					other		Total
	Number of		Shares to		comprehensive		shareholders’
	shares	Share capital	be issued	Reserves	income	Deficit	equity
	#	$	$	$	$	$	$
Balance, August 31, 2021	37,439,035	24,841,218	115,000	5,059,203	(247,999)	(18,474,175)	11,293,247
Shares issued - service agreement	166,667	115,000	(115,000)	-	-	-	-
Share-based compensation	-	-	-	334,979	-	-	334,979
Cumulative translation adjustment reclassified to deficit	-	-	-	-	247,999	(247,999)	-
Net loss for the period	-	-	-	-	-	(7,687,150)	(7,687,150)
Balance, February 28, 2022	37,605,702	24,956,218	-	5,394,182	-	(26,409,324)	3,941,076
Shares issued - exercise of stock options	694,445	178,686	-	(53,686)	-	-	125,000
Shares issued - RSU vesting	187,501	129,376	-	(129,376)	-	-	-
Share issue costs	-	(42,884)	-	-	-	-	(42,884)
Shares to be issued - private placement	-	-	671,000	-	-	-	671,000
Share purchase warrants	-	-	-	31,567	-	-	31,567
Share-based compensation	-	-	-	285,633	-	-	285,633
Net loss for the period	-	-	-	-	-	(4,565,702)	(4,565,702)
Balance, August 31, 2022	38,487,648	25,221,396	671,000	5,528,320	-	(30,975,026)	445,690
Shares issued - private placement	26,950,000	-	(671,000)	1,347,500	-	-	676,500
Shares issued - exercise of options	138,888	38,301	-	(13,301)	-	-	25,000
Shares issued - mutual separation agreement	9,800,836	1,029,088	-	-	-	-	1,029,088
Shares issued - exercise of share purchase warrants	280,000	14,000	-	-	-	-	14,000
Share issue costs	1,312,800	(102,497)	-	-	-	-	(102,497)
Share purchase warrants	-	-	-	19,408	-	-	19,408
Share-based compensation	-	-	-	96,162	-	-	96,162
Currency translation differences	-	-	-	-	196	-	196
Net loss for the period	-	-	-	-	-	(3,019,408)	(3,019,408)
Balance, February 28, 2023	76,970,172	26,200,288	-	6,978,089	196	(33,994,434)	(815,861)

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

6

LOBE SCIENCES LTD. Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended February 28, 2023 and 2022 (Unaudited - Expressed in Canadian dollars, except where noted)

1. NATURE OF OPERATIONS AND GOING CONCERN

Lobe Sciences Ltd. (the “Company” or “Lobe”) was incorporated under the Business Corporations Act (British Columbia) on May 13, 2010. The head office, principal address and registered office of the Company are located at 1400 - 1199 West Hastings Street, Vancouver, B.C. V6E 3T5.

The Company’s common shares are listed under the symbol “LOBE” on the Canadian Securities Exchange and under the symbol “LOBEF” on the OTCQB.

On June 10, 2022, the Company consolidated its issued share capital on the basis of 6 old common shares for every 1 new post-consolidated common share. All current and comparative references to the number of common shares, weighted average number of common shares, loss per share, share purchase options, share purchase warrants, performance warrants, restricted share units and deferred share units have been restated to give effect to this share consolidation.

Lobe is a biopharmaceutical company committed to discovering and developing patient-focused medicines for orphan and rare diseases. The Company, through collaborations with industry-leading partners, is engaged in drug research and development using sub-hallucinatory doses of proprietary psychedelic compounds to improve brain and mental health and wellness. Initially the Company will develop psilocin-based therapeutics for the treatment of severe forms of anxiety such as post-traumatic stress disorder, cluster headaches, and an undisclosed pediatric Orphan disease associated with severe anxiety. With our acquisition of Altemia & Company LLC (“Altemia”) on April 17, 2023 (Note 17), we intend to commercialize a medical food named Altemia[tm] for the treatment of Sickle Cell Disease (“SCD”).

Going concern

These unaudited condensed interim consolidated financial statements for the three and six months ended February 28, 2023 and 2022 (the “financial statements”) have been prepared on a going concern basis, which assumes that the Company will be able to meet its obligations and continue its operations for at least the next twelve months. As at February 28, 2023, the Company had a working capital deficiency of $1,509,396 (August 31, 2022 - deficiency of $266,084) and an accumulated deficit of $33,994,434 (August 31, 2022 - $30,905,026). During the six months ended February 28, 2023, the Company incurred a net loss of $3,019,408 (2022 - $7,687,150). These factors form a material uncertainty that casts significant doubt over the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to raise sufficient financing to acquire or develop a profitable business. The Company intends on financing its future development activities and operations from the sale of equity securities. There can be no certainty that future financing will be available on terms acceptable to the Company or at all.

2. BASIS OF PRESENTATION

a) Statement of compliance

These financial statements were approved by the Board of Directors and authorized for issue on April 27, 2023.

These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”) applicable to the preparation of financial statements including International Accounting Standard 34 - Interim Financial Reporting . These financial statements do not include all disclosures required for annual audited financial statements. Accordingly, they should be read in conjunction with the notes to the Company’s audited financial statements for the years ended August 31, 2022 and 2021 (“annual financial statements”).

b) Basis of measurement

These financial statements have been prepared on a historical cost basis except for those financial instruments which have been classified at fair value through profit or loss. In addition, except for cash flow information, these financial statements have been prepared using the accrual method of accounting.

c) Basis of consolidation

These financial statements include the financial statements of the Company and entities controlled by the Company. Control exists where the parent entity has power over the investee and is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Subsidiaries are included in the financial statements from the date control commences until the date control ceases.

7

LOBE SCIENCES LTD. Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended February 28, 2023 and 2022 (Unaudited - Expressed in Canadian dollars, except where noted)

2. BASIS OF PRESENTATION (continued)

All intercompany balances, and transactions have been eliminated on consolidation.

A summary of the Company’s subsidiaries included in these financial statements as at February 28, 2023 is as follows:

	Country of	Percentage	Functional
Name of subsidiary	incorporation	ownership	currency
Green Star Biosciences Inc.(1)	Canada	100%	USD
Eleusian Biosciences Corp.	Canada	100%	CAD
Lobe Sciences Australia PtyLtd.(2)	Australia	100%	AUD

(1) Green Star Biosciences Inc. was amalgamated with Lobe Sciences Ltd. on September 1, 2021.

(2) Lobe Sciences Australia Pty Ltd. was incorporated on September 7, 2022.

3. SIGNIFICANT ACCOUNTING POLICIES

The accounting policies applied in the preparation of these financial statements are consistent with those applied and disclosed in Note 3 to the annual financial statements, with the exception of the following:

(a) Significant estimates and assumptions

Convertible instruments

Convertible notes are compound financial instruments which are accounted for separately by their components: a financial liability and a derivative liability. The derivative liability, which represents the conversion option is initially measured at fair value using the Black-Scholes option pricing model. The financial liability, which represents the obligation to pay the principal and coupon interest on the convertible notes in the future, is initially measured using the residual method as principal amount of the debt obligation less the initial fair value of the derivative liability at issuance.

The identification of convertible note components is based on interpretations of the substance of the contractual arrangement and therefore requires judgement from management. The separation of the components affects the initial recognition of the convertible notes at issuance and the subsequent recognition of accretion on the liability component. The determination of the fair value of the derivative liability is also based on a number of assumptions as the Company utilizes the Black-Scholes option pricing model for this measurement. The use of the Black-Scholes option pricing model requires management to make various estimates and assumptions that impact the value assigned to the derivative liability including the forecasted future volatility of the stock price, the risk-free interest rate, dividend yield and the expected life of the conversion options. Changes in these input assumptions can significantly affect the fair value estimate.

(b) Convertible notes

The convertible notes were determined to be compound instruments, comprising a financial liability (debt obligation) and a derivative liability (conversion option). The derivative liability is recognized at fair value using the Black-Scholes option pricing model. Using the residual method, the carrying amount of the debt obligation represents the difference between the principal amount and the derivative liability. The convertible notes, net of the conversion option, are accreted to the principal balance using the effective interest rate method over the term of the convertible notes, such that the carrying amount of the debt obligation will equal the principal balance at maturity.

The derivative liability associated with the conversion option of the convertible notes is measured using the Black-Scholes option pricing model. The derivative liability is initially measured on the transaction date, remeasured on each balance sheet date, and on such a date that the conversion option is exercised. The change in fair value is recognized as a gain or loss on the condensed interim consolidated statements of loss and comprehensive loss. Upon exercise of a conversion option, the conversion option's fair value is de-recognized and allocated to equity.

Upon exercise of the convertible debentures, the conversion option and the carrying value of debt obligation are reclassified to share capital. Transaction costs are allocated on a pro-rata basis between the debt obligation and the conversion option.

8

LOBE SCIENCES LTD. Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended February 28, 2023 and 2022

(Unaudited - Expressed in Canadian dollars, except where noted)

4. RECEIVABLES

A summary of the Company’s receivables is as follows:

	February 28,	August 31,
	2023	2022
	$	$
Sales tax receivable	37,041	18,282
	37,041	18,282

Sales tax receivable is comprised of Goods and Services Tax receivable from the Canadian government.

5. PREPAID EXPENSES AND DEPOSITS

A summary of the Company’s prepaid expenses and deposits is as follows:

	February 28,	August 31,
	2023	2022
	$	$
Advertising	106,793	-
Insurance	66,397	84,453
Deposits	76,707	15,291
Other	18,925	10,358
	268,822	110,102

6. PREFERRED AND COMMON SHARES

a) Preferred shares

On February 22, 2021, the Company signed a definitive binding asset purchase agreement (the "Agreement") with respect to the sale to Ionic Brands Corp (“Ionic”) of certain assets relating to Washington-based Cowlitz County Cannabis Cultivators LLC (the “Cowlitz Disposal Group”). Pursuant to the Agreement, the Company received 100,406,705 Ionic preferred shares, from which 8,638,751 were paid as finder’s fee. The Ionic preferred shares are convertible on a one-for-one basis into Ionic common shares but cannot be converted for a period of four years if that results in the Company holding 10% or more of the common shares of Ionic. The Ionic preferred shares are subject to trading restrictions whereby the Ionic preferred shares or converted Ionic common shares will be restricted from trading and released as follows: 20% of the total preferred shares on October 5, 2021, January 5, 2022, April 5, 2022, June 5, 2022, and September 5, 2022.

A summary of the Company’s Ionic preferred shares is as follows:

	Number of
	preferred
	shares	Total
	#	$
Balance, August 31 2021	81,737,325	6,693,437
Conversion to common shares	(45,030,145)	(1,038,064)
Loss on change in fair value of preferred shares	-	(5,655,373)
Balance, August 31, 2022 and February 28, 2023	36,707,180	-

The Ionic preferred shares are measured at fair value through profit and loss. Fair value of the Ionic preferred shares was calculated using the Black-Scholes option pricing model due to the vesting terms and lack of marketability at the current market price of Ionic common shares which the Ionic preferred shares can be converted into.

9

LOBE SCIENCES LTD. Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended February 28, 2023 and 2022 (Unaudited - Expressed in Canadian dollars, except where noted)

6. PREFERRED AND COMMON SHARES (continued)

A summary of the Company’s assumptions for the Black-Scholes option pricing model on the respective revaluation dates is as follows:

Date Expected life	Unitprice Expected volatility Risk-free rate Dividend yield	Fair value
Years March 5, 2021(1) 0.58 - 1.50 August 31, 2021 0.10 - 1.01 August 31,2022 0.01	$ 0.2350 125.0% 0.24% 0.00% 0.0950 105.0% 0.24% 0.00% 0.0050 105.0% 0.24% 0.00%	$ 14,094,450 6,693,438 183,536

(1) Fair value of $14,094,450 represents the addition of $17,582,307 less finders’ fee of $1,489,632 and March 5, 2021 conversion of 10,030,629 Ionic preferred shares to Ionic common shares valued at $1,998,225.

As at and during the year ended August 31, 2022, the Company recorded and loss on the change of the fair value of the Ionic preferred shares of $5,655,373. This loss was based on the fair value measurement as noted in the table above and adjusted for qualitative factors related to the significant uncertainty of the Company recovering the value of the Ionic preferred shares due to the deteriorating credit quality of Ionic, the Voting Support and Lock-up Agreement (“VLA”) (Note 6(c)) and the probability of the completion of the plan of arrangement (Note 6(c)) completing as currently structured or without further significant delays. Currently, the common shares of Ionic have been suspended for trading.

Each Ionic preferred share carries a 13% annual, cumulative, preferential dividend on the deemed issue price per share of $0.30, accrued daily and with the first payment due January 1, 2022 or on conversion, for a period of two years from the date of issuance. The dividend may be settled in cash or Ionic common shares at the option of Ionic. If settled in Ionic common shares, the Company will receive common shares equal to the amount payable divided by the closing price of Ionic common shares as of the dividend date.

A summary of the Company’s dividend receivable is as follows:

	$
Balance, August 31 2021	1,563,310
Dividend income	2,194,718
Converted to 72,011,555 Ionic common shares	(1,114,379)
Loss onchangein fair value ofdividendsreceivable	(2,643,649)
Balance, August 31 2022	-
Dividend income	709,907
Loss onchangein fair value ofdividendsreceivable	(709,907)
Balance, February 28, 2023	-

During the six months ended February 28, 2023, the Company recorded an impairment expense of $709,907 (year ended August 31, 2022 - $2,643,649) with respect to the dividend receivable due to same qualitative factors as noted above in relation to the Ionic preferred shares.

b) Common shares

A summary of the Company’s Ionic common shares is as follows:

	Number of
	shares	Total
	#	$
Balance, August 31 2021	10,030,629	952,910
Conversion of preferred shares	45,030,145	1,038,064
Conversion of dividend receivable	72,011,434	1,114,379
Ionic common shares sold	(106,549,397)	(1,743,311)
Loss onchangein fair value ofcommonshares	-	(1,362,042)
Balance, August 31, 2022 and February 28, 2023	20,522,811	-

10

LOBE SCIENCES LTD. Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended February 28, 2023 and 2022 (Unaudited - Expressed in Canadian dollars, except where noted)

6. PREFERRED AND COMMON SHARES (continued)

During the year ended August 31, 2022, the Company converted 45,030,145 Ionic preferred shares into Ionic common shares which were valued at $1,038,064. In addition, the Company received 72,011,434 Ionic common shares as payment of dividend receivable of $1,340,609. The Company sold 106,549,397 Ionic common shares gross proceeds of $1,743,311. At August 31, 2022, the Company held 20,522,811 Ionic common shares.

During the year ended August 31, 2022, the Company recorded and loss on the change of the fair value of the Ionic common shares of $1,362,042. This loss was based on the last quoted market price Ionic common shares and adjusted for the same qualitative factors as noted above in relation to the preferred shares.

On March 5, 2021, the Company converted 10,030,629 Ionic preferred shares into Ionic common shares which were valued at $1,998,225 using the Black-Scholes option pricing model. On August 31, 2021, the Company recorded a loss of $1,045,315 on these Ionic common shares due to the decline in market price to $0.095 per common share as at August 31, 2021.

c) Contingency

On April 20, 2022, the Company entered a VLA with Ionic and Yourway Cannabis Brands Inc. (“Yourway”). The VLA is contingent on the execution of a plan of arrangement between Yourway and Ionic (“Plan of Arrangement”) in which Yourway would acquire all Ionic issued and outstanding common shares and preferred shares. There is no expiry date for the Plan of Arrangement; however, it may be cancelled if Ionic and Yourway mutually consent or by either party if certain conditions are not met. As at February 28, 2023, the Plan of Arrangement had not been cancelled and had not been executed. Due to the contingent nature of the VLA, the Company has not reflected the impact of the VLA in these financial statements.

Pursuant to the VLA, the Company agreed to the following on the effective date of the Plan of Arrangement:

• convert 36,707,180 Ionic preferred shares to Ionic common shares resulting in the Company holding 57,229,991 Ionic common shares;

• convert 57,229,991 Ionic common shares to Yourway common shares at an exchange ratio of 0.0525 Yourway common shares for each Ionic common share resulting in the Company holding approximately 3,000,000 Yourway common shares;

• • enter into an escrow agreement for the Yourway common shares held by the Company whereby the Yourway common shares will be released quarterly in 5 equal tranches commencing 12 months from the effective date of the Plan of Arrangement;

• accept 9,900,000 Ionic common share purchase warrants (the “Consideration Warrants”) with each Consideration Warrant entitling the Company to acquire one Ionic common share at $0.05 per Ionic common share for three years from the date of issuance in exchange for forgiveness of the dividend receivable; and

• convert the 4,000,000 Warrants and 9,900,000 Consideration Warrants, at an exchange ratio of 0.0525, into warrants exercisable into approximately 720,000 Yourway common shares at an exercise price of $0.95.

7. WARRANTS

Pursuant to the sale of the Cowlitz Disposal Group, the Company received warrants to purchase up to 4,000,000 Ionic common shares, where each Warrant entitles the holder thereof to acquire one Ionic common share at $0.30 per share for a period of five years from the date of issuance. The Warrants are measured at fair value through profit and loss.

A summary of the Company’s Warrants is as follows:

	$
Balance, August 31 2021	200,926
Loss on change in fair value of Warrants	(200,926)
Balance, August 31, 2022 and February 28, 2023	-

11

LOBE SCIENCES LTD. Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended February 28, 2023 and 2022

(Unaudited - Expressed in Canadian dollars, except where noted)

7. WARRANTS (continued)

A summary of the Company’s assumptions for the Black-Scholes option pricing model on the respective revaluation dates is as follows:

				Expected
	Date	Expectedlife	Unit price	volatility	Risk-freerate	Dividend yield	Fair value
		Years	$				$
March 5, 2021		5.00	0.2350	100.00%	0.24%	0.00%	662,741
August 31, 2021		4.50	0.0950	100.00%	0.24%	0.00%	200,926
August 31,2022		3.50	0.0050	231.75%	3.65%	0.00%	16,842

During the year ended August 31, 2022, the Company recorded a fair value adjustment of $200,926 with respect to the warrants. The loss was based on the fair measurement as noted in the table above and adjusted for the same qualitative factors as noted above in relation to the preferred shares.

8. PROMISSORY NOTE RECEIVABLE

The balance represents a secured promissory note of $65,555 (USD$50,000) related to the sale of the Cowlitz Disposal Group. The promissory note matures on March 5, 2023 and accrues interest at a rate of 7% per annum.

A summary of the Company’s promissory note receivable is as follows:

	$
Balance, August 31 2021	65,409
Interest income	4,451
Unrealized foreign exchange gain	2,534
Impairment ofpromissorynotereceivable	(72,394)
Balance, August 31, 2022 and February 28, 2023	-

During the year ended August 31, 2022, the Company recorded an impairment expense of $72,394 with respect to the promissory notes receivable due to the deteriorated credit profile of Ionic.

9. INVESTMENT IN KRYSALIS

On April 26, 2021, the Company entered into an agreement with Virtual Psychedelics Incorporated ("VPI") with respect to the joint design, development and commercialization of a new psychedelic/virtual experience pod. The activity will be conducted through Krysalis which is an entity jointly controlled 50% by each of the Company and VPI. As the Company and VPI have joint control of Krysalis the acquisition has been accounted as an investment in joint venture in accordance with IAS 28 - Investments in Associates and Joint Ventures , and as such, the Company has used the equity method to account for its investment.

The Company’s initial investment was comprised of the following:

	$
833,334 common shares of the Company(1)	525,000
83,334 common shares of the Company(1)	52,500
100,000 share purchase warrants(2)	30,655
Legal fees	123,012
Cashcontribution	322,394
	1,053,561

• (1) The Company issued 833,334 common shares of the Company with a fair market value of $0.63 per common share and 83,334 common shares of the Company with a fair market value of $0.63 per common share as a finder’s fee.

(2) On June 9, 2021, the Company issued 100,000 share purchase warrants in relation to Krysalis. The warrants have an exercise price of $1.20 and expire on June 9, 2023. A fair value of $30,655 was assigned to the warrant issued using the Black-Scholes option pricing model (average volatility - 100%, expected life - 2.00 years, risk free rate - 0.32%, dividend yield - 0%).

12

LOBE SCIENCES LTD. Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended February 28, 2023 and 2022

(Unaudited - Expressed in Canadian dollars, except where noted)

9. INVESTMENT IN KRYSALIS (continued)

A summary of the Company’s investment, recorded using the cost method, is as follows:

	$
Balance, August 31 2021	961,508
Company’s share of loss during the period	(279,512)
Balance, August 31 2022	681,996
Company’s share of loss during the period	(16,472)
Balance, February 28, 2023	665,524

A summary of Krysalis’ financial information is set out below:

February 28, 2023	August 31, 2022
$ Cash 37 Prepaid expenses and deposits 44,214 Short term investments 15,000	$ 480 44,214 47,500
Assets 59,521	92,194
February 28, 2023	August 31, 2022
$ Expenses 455 Foreign exchange gain (12) Loss on change in fair value of short-term investments 32,500	$ 124,129 (3,106) 438,000
Net loss for the period 32,943	559,023
Company ownership percentage 50% Net loss attributable to the Company 16,472	50% 279,512

No dividends were received from Krysalis during the six months ended February 28, 2023 and year ended August 31, 2022.

Krysalis is a private company; therefore, no quoted market prices are available for its shares.

As per the agreement with VPI, the Company is required to make cumulative contributions of $1,500,000. The Company is committed to further cash contributions of $664,678.

10. INTANGIBLE ASSETS

A summary of the Company’s intangible assets is as follows:

	February 28,	August 31,
	2023	2022
	$	$
Cost
Balance, beginning of period	40,000	40,000
Balance, end of period	40,000	40,000
Accumulated amortization
Balance, beginning of period	10,222	-
Amortization	1,767	10,222
Balance, end of period	11,989	10,222
Carrying amount	28,011	29,778

13

LOBE SCIENCES LTD. Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended February 28, 2023 and 2022

(Unaudited - Expressed in Canadian dollars, except where noted)

11. CONVERTIBLE NOTES

A summary of the Company’s convertible notes is as follows:

	$
Balance, August 31 2022	-
Convertible notes issued	270,021
Derivative liability	(60,796)
Interest expense	851
Accretion expense	147
Foreign exchange loss	1,637
Balance, February 28, 2023	211,860

In accordance with IFRS 9 - Financial Instruments: Presentation , the convertible notes were determined to be compound instruments, comprising separate financial instruments, being the debt obligation and the conversion option, which are bifurcated and are presented separately on the condensed interim consolidated statement of financial position. As the number of common shares to be issued on exercise of the conversion option is contingent on the variable share price of the Company and in the case of these US dollar denominated instruments, the variable foreign exchange rate, the conversion option has been classified as a derivative liability.

On February 8, 2023, the Company issued a convertible note to a private investor for gross proceeds of $134,290 (USD$100,000). The convertible note bears interest at 11% per annum and matures on February 1, 2024. The note is convertible upon listing the Company's on the Australian Stock Exchange or another recognized securities exchange in the United States before maturity, or if there is a change in control while it is still outstanding. Upon the issuance of the convertible notes, the Company measured the fair value of the conversion option using a Black-Scholes option pricing model (Note 12). The Company determined that the fair value of the conversion option to be $34,728 (Note 12), the residual of $99,562 was allocated to the convertible note.

On February 27, 2023, the Company issued a convertible note to a private investor for gross proceeds of $135,730 (USD$100,000). The convertible note bears interest at 11% per annum and matures on February 1, 2024.The note is convertible upon listing the Company's on the Australian Stock Exchange or another recognized securities exchange in the United States or Australia before maturity, or if there is a change in control while it is still outstanding. Upon the issuance of the convertible notes, the Company measured the fair value of the conversion option using a Black-Scholes option pricing model (Note 12). The Company determined that the fair value of the conversion option to be $26,068 (Note 12), the residual of $109,662 was allocated to the convertible note.

During the three and six months ended February 28, 2023, the Company incurred accretion expense of $147 and $147, respectively (USD$109 and USD$109) (2022 - $nil and $nil, respectively in relation to these convertible notes.

During the three and six months ended February 28, 2023, the Company incurred interest expense of $851 and $851, respectively (USD$633 and USD$633) (2022 - $nil and $nil, respectively in relation to these convertible notes. This interest compounds daily.

12. DERIVATIVE LIABILITY

A summary of the Company’s derivative liability is as follows:

	$
Balance, August 31 2022 and 2021	-
Derivative conversion features	60,796
Gainonchangein fair value ofderivative conversion feature	(22,968)
Balance, February 28, 2023	37,828

Upon the issuance of the convertible notes (Note 11), the Company measured the fair value of the conversion option using a Black-Scholes option pricing model. The Company determined that the fair value of the conversion option at initial recognition was $60,796. The fair value was subsequently remeasured at February 28, 2023 as $37,828 (August 31, 2022 - $nil), resulting in a gain of $22,968 and $22,968 during the three and six months ended February 28, 2023, respectively (2022 - $nil and $nil, respectively).

14

LOBE SCIENCES LTD. Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended February 28, 2023 and 2022 (Unaudited - Expressed in Canadian dollars, except where noted)

12. DERIVATIVE LIABILITY (continued)

A summary of the assumptions used in the Black-Scholes option pricing model is as follows:

	February 28,	February 27,	February 8,
	2023	2023	2023
Risk-free interest rate	4.20%	4.3%	4.0%
Share price	$0.03	$0.04	$0.04
Exercise price	$0.05	$0.05	$0.05
Expected life (years)	0.93	0.93	0.98
Expected volatility	100%	100%	100%
Dividend rate	0%	0%	0%

13. SHARE CAPITAL

a) Authorized

The Company is authorized to issue an unlimited number of common shares and preferred shares with no par value.

b) Issued

On June 10, 2022, the Company consolidated its issued share capital on a ratio of 6 old common shares for every 1 new postconsolidated common share. All current and comparative references to the number of common shares, weighted average number of common shares, loss per share, stock options and warrants have been restated to give effect to this share consolidation.

The Company had the following common share transactions during the six months ended February 28, 2023:

• On September 8, 2022, the Company issued 26,950,000 units pursuant to a non-brokered private placement at $0.05 per unit for gross proceeds of $1,347,500. Each unit consists of one common share and one common share purchase warrant. Each share purchase warrant entitles the subscriber to acquire one additional common share at a price of $0.05 per share purchase warrant until September 8, 2025. The fair value of warrants was determined to be $4,303,384 using the BlackScholes option pricing model with the following inputs: share price of $0.19, average volatility of 100%, expected life of 3 years, risk-free rate of 3.63% and dividend yield of 0.00%. As the fair value of warrants exceeded the cash proceeds of $1,347,500, the value recorded in reserves was limited to the cash proceeds. No residual value remained to be allocated to the common share capital. The Company paid a finder’s fee equal to 8% of funds raised in Australia. The total finder’s fee was $65,640 which was settled through the issuance of 1,312,800 units. Each unit consists of one common share and one common share purchase warrant. Each share purchase warrant entitles the holder to acquire one additional common share at a price of $0.05 per share purchase warrant until September 8, 2025. Using the Black-Scholes option pricing model, the warrants were determined to have a fair value of $209,628 using the following inputs: share price of $0.19, average volatility of 100%, expected life of 3 years, risk-free rate of 3.63% and dividend yield of 0.00%. As the fair value of warrants exceeded the fair value of services received of $65,640, the amount recorded in reserves was limited to $65,640. The Company incurred $102,380 in cash share issuance costs.

• On September 9, 2022, the Company issued 69,444 common shares pursuant the exercise of 69,444 stock options with an exercise price of $0.18 for proceeds of $12,500.

• On September 30, 2022, the Company entered into a mutual separation agreement whereby, Mr. Gilbert agreed to resign as Executive Chairman of the board of directors of the Company, effective immediately. As part of the agreement, the Company agreed to issue to Mr. Gilbert an aggregate of 5,300,836 common shares of the Company. The common shares were values at $0.11 per common share for total consideration of $556,588 which was recorded as a consulting expense on the condensed interim consolidated statement of loss and comprehensive loss.

• On October 3, 2022, the Company and an arm's length independent consultant (the "Consultant") entered into a separate mutual separation agreement, whereby the Consultant and the Company agreed to terminate a consulting agreement entered into by the parties, effective immediately. As part of the agreement, the Company agreed to issue to the Consultant an aggregate of 4,500,000 common shares of the Company. The common shares were values at $0.11 per common share for total consideration of $472,500 which was recorded as a consulting expense on the condensed interim consolidated statement of loss and comprehensive loss.

15

LOBE SCIENCES LTD. Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended February 28, 2023 and 2022 (Unaudited - Expressed in Canadian dollars, except where noted)

13. SHARE CAPITAL (continued)

• On December 7, 2022, the Company issued 69,444 common shares pursuant the exercise of 69,444 stock options with an exercise price of $0.18 for proceeds of $12,500.

• On January 11, 2022, the company issued 280,000 common shares pursuant to the exercise of share purchase warrants.

• The Company had the following common share transactions during the year ended August 31, 2022:

• On February 14, 2022, pursuant to a service agreement, the Company issued 166,667 common shares with a fair value of $0.69 for total consideration of $115,000.

• On March 15, 2022, the Company issued 555,555 common shares pursuant to the exercise of 555,555 stock options with an exercise price of $0.18 for proceeds of $100,000.

• On May 9, 2022, the Company issued 69,445 common shares pursuant the exercise of 69,445 stock options with an exercise price of $0.18 for proceeds of $12,500.

• On June 1, 2022, the Company issued 69,445 common shares pursuant the exercise of 69,445 stock options with an exercise price of $0.18 for proceeds of $12,500.

• On June 22, 2022, the Company issued 187,501 common shares pursuant the exercise of vested restricted share unit plan options with an exercise price of $0.69 and fair value of $129,376.

c) Share purchase warrants

A summary of share purchase warrant activity is as follows:

		Weighted
	Number of	average
	warrants	exercise price
	#	$
Balance, August 31, 2021	7,959,921	1.48
Issued	833,333	0.05
Expired	(1,846,758)	1.20
Balance, August 31, 2022	6,946,496	1.31
Issued	29,262,800	0.05
Exercised	(280,000)	0.05
Expired	(5,743,080)	0.28
Balance, February 28, 2023	30,466,216	0.15

On September 8, 2022, the Company granted 28,262,800 warrants, pursuant the non-brokered private placement (Note 13(b)).

On January 11, 2022, the company issued 280,000 common shares pursuant to the exercise of share purchase warrants (Note 13).

On February 2, 2023. the Company granted 1,000,000 warrants to a consultant during the year ended August 31, 2022 with a weighted average fair value at grant date of $0.02 per warrant for total compensation of $19,407 which has been included in research on the consolidated statement of loss and comprehensive loss. The fair value of warrants was calculated using the Black-Scholes option pricing model (average volatility - 100%, expected life - 2.00 years, risk free rate - 3.79%, dividend yield - 0%).

16

LOBE SCIENCES LTD. Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended February 28, 2023 and 2022 (Unaudited - Expressed in Canadian dollars, except where noted)

13. SHARE CAPITAL (continued)

A summary of the Company’s outstanding share purchase warrants as at February 28, 2023, is as follows:

			Weighted
		Weighted	average
	Number of	average	remaining
Expiry date	Warrants	exercise price	years
	#	$	Years
June 9, 2023	100,000	1.20	0.28
October 2, 2023	270,083	1.20	0.59
February 2, 2025	1,000,000	0.05	1.93
September 8, 2025	28,262,800	0.05	2.53
June 16, 2027	833,333	0.05	4.30
Total	30,466,216	0.06	2.53

d) Performance warrants

On May 18, 2018, the Company issued 776,000 non-transferable performance warrants (each a “Performance Warrant”). Each Performance Warrant is exercisable into one common share of the Company at an exercise price of $2.10.

A summary of the Company’s outstanding Performance Warrants as at February 28, 2023, is as follows:

	Number of	Number of
	Performance	Performance	Weighted	Weighted
	Warrants	Warrants	average	average
Expiry date	outstanding	exercisable	exercise price	remaining life
	#	#	$	Years
May 18, 2026	776,000	776,000	2.10	3.22
Total	776,000	776,000	2.10	3.22

In connection with Performance Warrants, the Company recognized share-based compensation expense of $40,001 and $80,002 during the three and six months ended February 28, 2023, respectively (2022 - $40,001 and $80,002, respectively).

e) Share purchase options

A summary of share purchase options activity is as follows:

	Number of
	share
	purchase	Weighted
	options	average
	outstanding	exercise price
	#	$
Balance, August 31, 2021	3,127,330	0.84
Granted	2,356,669	0.13
Cancelled	(1,476,683)	0.86
Exercised	(694,446)	0.18
Expired	(25,000)	1.20
Balance, August 31, 2022	3,287,870	0.44
Exercised	(138,888)	0.18
Expired	(120,836)	0.90
Balance, February 28, 2023	3,028,146	0.43

As at February 28, 2023, there were 1,623,982 share purchase options vested and exercisable (August 31, 2022 - 1,503,150) at an average exercise price of $0.43 (August 31, 2022 - $0.44).

17

LOBE SCIENCES LTD. Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended February 28, 2023 and 2022 (Unaudited - Expressed in Canadian dollars, except where noted)

13. SHARE CAPITAL (continued)

A summary of the Company’s outstanding share purchase options as at February 28, 2023 and August 31, 2022 is as follow:

				Weighted
	Number of	Number of	Weighted	average
	options	options	average	remaining
Expiry date	outstanding	exercisable	exercise price	years
	#	#	$	Years
October 19, 2023	58,334	58,334	0.60	0.64
January 15, 2024	216,667	216,667	0.90	0.88
June 28, 2024	50,001	50,001	1.50	1.33
July 29, 2024	83,334	83,334	1.20	1.42
August 30, 2024	16,667	16,667	0.69	1.51
January 16, 2025	41,667	41,667	0.84	1.89
February 6, 2025	554,807	554,807	0.51	1.94
June 15, 2025	183,334	100,001	0.78	2.30
August 12, 2025	125,000	62,500	0.60	2.46
August 31, 2025	58,334	37,501	0.60	2.51
May 23, 2026	500,000	62,502	0.18	3.23
June 13, 2026	500,000	100,000	0.05	3.29
July 25, 2026	500,000	100,000	0.06	3.41
May 30,2028	140,001	140,001	1.20	5.25
Total	3,028,146	1,623,982	0.43	2.70

The Company recognized share-based compensation expense of $15,593 and $25,616 during the three and six months ended February 28, 2023, respectively (2022 - $70,449 and $109,816, respectively) with respect to the share purchase options.

The Company did not grant any options during the six months ended February 28, 2023 (2022 - 578,891). The fair value of stock options was calculated using the Black-Scholes option pricing model using the following weighted average assumptions:

	2023	2022
Risk-free rate	-	1.31%
Expected life of options	-	4 years
Annualized volatility	-	100%
Dividend rate	-	0%

f) Restricted share unit plan and deferred share unit plan

On May 28, 2021, the Company adopted a restricted share unit plan (the “RSU Plan”) and a deferred share unit plan (the “DSU Plan”). In addition, the Company increased the cumulative available incentive awards to be issued under the share purchase plan, the RSU Plan and the DSU Plan to 15% of the aggregate issued and outstanding common shares of the Company.

A summary of RSU options activity is as follows:

		Weighted
	Number of	average issue
	RSU options	price
	#	$
Balance, August 31, 2021	750,001	0.69
Exercised	(187,501)	0.69
Balance, August 31, 2022	562,500	0.69
Cancelled	(187,500)	0.69
Balance, February 28, 2023	375,000	0.69

18

LOBE SCIENCES LTD. Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended February 28, 2023 and 2022 (Unaudited - Expressed in Canadian dollars, except where noted)

13. SHARE CAPITAL (continued)

A summary of the Company’s RSU options outstanding as at February 28, 2023 is as follows:

				Weighted
	Number of	Number of	Weighted	average
	RSU	RSU	average issue	remaining
Last vesting date	outstanding	exercisable	price	years
	#	#	$	Years
June 30,2025	375,000	375,000	0.69	2.34
Total	375,000	375,000	0.69	2.34

The Company recognized share-based compensation expense of $22,666 and recovery of $10,073 during the three and six months ended February 28, 2023, respectively (2022 - $64,640 and $129,998, respectively) with respect to the RSU options, due to the cancellation of unvested RSU options. Over their vesting terms the Company will record compensation expense of $39,161 for fiscal 2023, $44,987 for fiscal 2024 and $17,706 for fiscal 2025.

A summary of DSU options activity is as follows:

		Weighted
	Number of	average issue
	DSU options	price
	#	$
Balance, August 31, 2021	50,004	0.60
Granted	410,003	0.22
Cancelled	(100,001)	0.29
Balance, August 31, 2022	360,006	0.25
Cancelled	(120,002)	0.25
Balance, February 28, 2023	240,004	0.25

A summary of the Company’s DSU options outstanding as at February 28, 2023 is as follows:

				Weighted
	Number of	Number of	Weighted	average
	DSU	DSU	average issue	remaining
Last vesting date	outstanding	exercisable	price	years
	#	#	$	Years
June 30, 2025	16,668	4,168	0.69	2.34
August 31, 2025	8,334	2,084	0.42	2.51
November 30, 2025	175,000	43,750	0.24	2.76
February 28, 2026	13,334	3,334	0.18	3.00
May 31, 2026	13,334	-	0.06	3.25
August 31,2026	13,334	-	0.10	3.51
Total	240,004	53,336	0.26	2.80

The Company recognized share-based compensation expense of $4,366 and recovery of $1,382 during the three and six months ended February 28, 2023, respectively (2022 - $9,350 and $13,163, respectively) with respect to the DSU options, due to the cancellation of unvested DSU options. Over their vesting terms the Company will record compensation expense of $8,334 for fiscal 2023, $10,492 for fiscal 2024, $7,255 for fiscal 2025 and, $4,837 for fiscal 2026.

19

LOBE SCIENCES LTD. Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended February 28, 2023 and 2022

(Unaudited - Expressed in Canadian dollars, except where noted)

13. SHARE CAPITAL (continued)

g) Reserves

A summary of changes in reserves is as follows:

	Share				Share
	purchase	RSU	DSU	Performance	purchase	Contributed
	options	options	options	Warrants	warrants	surplus	Total
	$	$	$	$	$	$	$
Balance, August 31, 2021	1,498,707	55,303	2,458	536,683	1,720,071	1,245,981	5,059,203
Share-based payments	109,815	129,998	13,164	-	-	-	252,977
Reclassified on expiration of
options	(25,088)	-	-	-	-	25,088	-
Performance Warrants	-	-	-	82,002	-	-	82,002
Balance, February 28, 2022	1,583,434	185,301	15,622	618,685	1,720,071	1,271,069	5,394,182
Share-based payments	69,867	111,044	22,720	-	-	-	203,631
Exercise of share purchase
options	(53,686)	(129,376)	-	-	-	-	(183,062)
Reclassified on expiration of
options	1,586	-	-	-	-	(1,586)	-
Share purchase warrants	-	-	-	-	31,567	-	31,567
Performance Warrants	-	-	-	82,002	-	-	82,002
Reclassified on expiry of
warrants	-	-	-	-	(1,616,567)	1,616,567	-
Balance, August 31, 2022	1,601,201	166,969	38,342	700,687	135,071	2,886,050	5,528,320
Share-based compensation	25,615	(10,073)	(1,382)	82,002	-	-	96,162
Exercise of share purchase
options	(13,301)	-	-	-	-	-	(13,301)
Reclassified on expiration of
options	(47,308)	-	-	-	-	47,308	-
Share purchase warrants	-	-	-	-	1,366,908	-	1,366,908
Balance, February 28, 2023	1,566,207	156,896	36,960	782,689	1,501,979	2,933,358	6,978,089

14. FINANCIAL RISK MANAGEMENT

IFRS 13 - Fair Value Measurement establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

The three levels of the fair value hierarchy are as follows:

Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. from derived prices); and

Level 3 - Inputs for the asset or liability that are not based on observable market data.

The fair value of cash is measured using Level 1 inputs. The carrying value of accounts payable and accrued liabilities approximate their respective fair values due to the short-term nature of these instruments.

The fair value of Ionic common shares, dividend receivable, promissory note receivable, Ionic preferred shares and Warrants are measured using Level 2 inputs and are measured at fair value through profit or loss. The valuation methodology and significant assumptions for the Ionic preferred shares and dividend receivable are disclosed in Note 6(a), Ionic common shares is disclosed in Note 6(b), Warrants is disclosed in Note 7 and promissory note receivable in Note 8.

The derivative liability is measured using Level 3 as disclosed in Note 12.

20

LOBE SCIENCES LTD. Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended February 28, 2023 and 2022 (Unaudited - Expressed in Canadian dollars, except where noted)

15. CAPITAL RISK MANAGEMENT

The Company manages its capital to maintain its ability to continue as a going concern and to provide returns to shareholders and benefits to other stakeholders. The Company's capital structure consists of all components of shareholders' equity. The Company's objective when managing capital is to maintain adequate levels of funding to support the current operations including corporate and administrative functions to support operations. The Company obtains funding primarily through issuing common stock. Future financing is dependent on market conditions and there can be no assurance the Company will be able to raise funds in the future.

There were no changes to the Company's approach to capital management during the period. The Company is not subject to externally imposed capital requirements.

16. RELATED PARTY TRANSACTIONS

Key management personnel include those who have the authority and responsibility of planning, directing and executing the activities of the Company. The Company has determined that its key management personnel consist of executive and nonexecutive members of the Company’s Board of Directors and corporate officers.

A summary of the Company’s related party transactions is as follows:

	Three	months ended	Six	months ended
		February 28,		February 28,
	2023	2022	2023	2022
	$	$	$	$
Consulting fees	85,805	294,412	215,483	436,995
Directors’ fees included in consulting fees	40,500	65,394	81,000	99,394
Professional fees	28,188	43,313	62,013	74,063
Share-based compensation	27,032	11,790	(11,455)	30,052
	181,525	414,909	347,041	640,504

For the three and six months ended February 28, 2023, included in consulting fees is $nil and $30,173, respectively (2022 - $181,687 and $269,076, respectively) in consulting fees charged by the former executive chairman as per an executive consulting agreement.

For the three and six months ended February 28, 2023, included in consulting fees is $58,806 and $117,873, respectively (2022 - $112,725 and $167,918, respectively) in consulting fees charged by the Chief Executive Officer and executive chairman as per an executive consulting agreement.

For the three and six months ended February 28, 2023, included in consulting fees is $26,999 and $67,438, respectively (2022 - $nil and $nil, respectively) in consulting fees charged by the Chief Science Officer as per an executive consulting agreement.

For the three and six months ended February 28, 2023, included in professional fees is $28,188 and $62,013, respectively (2022 - $43,313 and $74,063, respectively) in consulting fees charged by a Company related to the Chief Financial Officer.

Share-based compensation represents the expense recognized during the period for vesting of share purchase options, RSUs and DSUs. Share-based compensation was a recovery for the three and six months ended February 28, 2023 due to the reversal of expenses associated with unvested RSUs and DSUs which were cancelled pursuant to the mutual separation agreement with a former Director.

A summary of amount due to related parties is as follows:

	February 28,	August 31,
	2023	2022
	$	$
Accounts payable and accrued liabilities	145,702	106,664
	145,702	106,664

21

LOBE SCIENCES LTD. Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended February 28, 2023 and 2022

(Unaudited - Expressed in Canadian dollars, except where noted)

16. RELATED PARTY TRANSACTIONS (continued)

As at February 28, 2023, included in accounts payable and accrued liabilities is $nil (August 31, 2022 - $27,561) payable to a Company owned by the Chief Executive Officer for consulting fees. The amount is unsecured, non-interest bearing and due on demand.

As at February 28, 2023, included in accounts payable and accrued liabilities is $27,218 (August 31, 2022 - $13,111) payable to a Company related to the Chief Science Officer for consulting fees. The amount is unsecured, non-interest bearing and due on demand.

As at February 28, 2023, included in accounts payable and accrued liabilities is $8,844 (August 31, 2022 - $10,763) payable to a Company related to the Chief Financial Officer for professional fees. The amount is unsecured, non-interest bearing and due on demand.

As at February 28, 2023, included in accounts payable and accrued liabilities is $109,640 (August 31, 2022 - $55,229) payable to directors for director fees. The amounts are unsecured, non-interest bearing and due on demand.

17. SUBSEQUENT EVENTS

On April 14, 2023, the Company issued 2,166,000 common shares to directors as settlement of accounts payable of $108,300.

On April 17, 2023, the Company completed the acquisition of 100% of Altemia. Pursuant to a share purchase agreement (the “Agreement”), Altemia shareholders will receive an aggregate of 76,000,000 common shares of Lobe. All Lobe Shares to be issued will be subject to contractual restrictions on transfer, pursuant to which 25% of the Lobe Shares issued will be transferable on the closing of the Transaction and further 25% on delivery of inventory to a Lobe designated storage facility; 25% on the first commercial sale allowing the trademark validation; and 25% on successful completion of SAN100 tech transfer documentation (batch records for R&D batch) and samples of SAN100 are delivered to Lobe.

Lobe will pay a tiered royalty of up to 10% on annual net sales of $125,000,000 or more and issue 3,000,000 warrants upon the first achievement of $20,000,000 in annual sales. The transaction provides a 5% payment on the net sales revenue received for the sale of a pediatric priority review voucher for the approval of our SCD prescription drug for the pediatric orphan indication.

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