The following discussion should be read in conjunction with our audited financial statements and the related notes that appear elsewhere in this registration statement. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this registration statement, particularly in the section entitled "Risk Factors" beginning on page 9 of this registration statement.

Our audited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.

Overview

We are a Nevada corporation incorporated on December 9, 2004. We are an exploration and development stage oil and gas company engaged in the exploration for oil and natural gas in Canada and the United States. We are currently generating revenues from our business operations in Mississippi. We have acquired the right to explore the Strachan Hills oil and gas property in Alberta Canada and assumed a working interest in the Owl Creek Prospect,

Our business plan does not anticipate that we will hire a large number of employees or that we will require extensive office space. We have to date, and plan to continue to acquire most of the industry and geological expertise we require through third party contractual relationships with other companies, which will act as operators of our various interests. Although this exposes us to certain risks on behalf of those operators, it also allows us to participate in the often unique experience and knowledge that local persons have related to certain properties. We plan to continue our current business of acquiring interests in potentially high-impact oil and gas property interests that offer a high probability of being able to drill without significant time delays. In our North American interests, we also try to choose properties where, if drilling is successful, the wells could be quickly connected to infrastructure and thus, with success, brought into production and able to generate cash flow as quickly as possible.

Alberta

We have acquired an interest in a property located 80 miles northwest of Calgary, Alberta, Canada. On September 23, 2005, we signed an agreement to participate in a 13,330 foot drill program. As of October 31, 2008, our company has paid $405,407 for a 4% gross interest to participate in any oil and gas produced (before recovery of the costs of the drill program), reducing to a 2% interest after recovery of the drilling costs. We expect to pay further costs equal to it's 4% interest in completing and equipping an earning well to a pipeline tie in if warranted. The property is reached by traveling 100 miles north from the city of Calgary on Highway #22, and is approximately a one-half hour drive past the town of Rocky Mountain House.

Drilling of this well has been completed and some evaluation has been completed. The well appears to be noncommercial and it is possible that we could abandon our interest in this well. Odin Capital Inc. of Calgary, Alberta, with whom we entered into this agreement, is a Canadian exploration finance company that arranges all aspects of identifying, financing, exploring and drilling properties. The operator of the earning well is Rosetta Exploration Inc. of Calgary, Alberta.

During the year ended October 31, 2008, the Company wrote down the cost of the property to a nominal value of $1 as the future realization of the property is uncertain.

Mississippi

As of October 31, 2008, we currently own a 30% gross working interest in 12 wells; a 45% gross working interest in 7 wells; and a 50% gross working interest in 43 wells (of which 38 remain to be drilled); all located in Mississippi under various agreements with Griffin and Griffin Exploration, L.L.C. Additional details of these interests are noted below.

We entered into a 10-hole drilling program agreement (the "Griffin Drilling Program Agreement") with Griffin and Griffin Exploration, L.L.C. ("Griffin") dated December 21, 2005, whereby we acquired a 20% gross interest in any oil and gas produced, in a 10-well drilling program (the "Drilling Program"), to be carried out at Palmetto Point, Southwest Mississippi. Palmetto Point is approximately 150 miles southwest of Jackson, Mississippi and approximately 50 miles north/northwest of Baton Rouge, Louisiana. It is 30 miles west of Woodville, Mississippi off of State Highway 33.

By January 17, 2006, we paid $700,000 to Griffin, which represented the full cost of our company's 20% working interest in the Drilling Program. There were no further costs to our company in earning its interest, including well development costs or pipeline connections. Griffin has agreed that the leases held by it covering any mineral estate underlying the applicable well site acreage shall not provide for more than twenty-five (25%) percent royalty and overriding royalty interest. Our net interest in any oil and gas produced is calculated by subtracting the applicable royalties from our 20% gross interest. Consequently, our original net working interest in the drilling program was a minimum fifteen (15%) percent net working interest. Griffin conducted the Drilling Program in its capacity as Operator. We subsequently increased our participation under this program by spending $140,000 to earn the same

Phase I Palmetto Point 30% gross interest

Well Name Spud/Start Complete     Results            Depth Status
PP F-40   May 11/06  May 16/06  Frio Gas; 12 ft.     3850  Temporary shut-in
PP F-118  May 18/06  May 22/06  Frio Gas; 14 ft.     3808  Temporary shut-in
PP F-121  May 24/06  May 29/06  Dry                  3850  Plug & abandon
PP F-7    May 31/06  June 4/06  Dry                  3800  Plug & abandon
PP F-39   June 10/06 June 16/06 Frio Gas/Oil; 12 ft. 3900  Producing
PP F-42   June 18/06 June 21/06 Frio Gas/Oil; 10 ft. 3170  Temporary shut-in
PP F-36-2 June 23/06 July 2/06  Frio Gas; 8 ft.      3450  Shut-in
PP F-4    Oct 31/06  Nov. 5/06  Frio Gas; 8 ft.      4200  Temporary shut-in
PP F- 29  Nov 11/06  Nov. 14/06 Frio Gas; 37 ft.     4100  Temporary shut-in
PP F-12-1 Dec 18/06  Dec. 24/06 Frio Gas; 3 ft.      4016  Producing
                                Frio Oil, 26 ft.
PP F-6B              July 27/06 Frio Gas                   Producing
PP F-52A             July 27/06 Frio Gas                   Temporary shut-in

On August 3, 2006, we entered into our Phase II agreement with Griffin and Griffin Exploration LLC, which covers an Area of Mutual Interest (AMI) exclusive to the participants, which includes 50 prospects for drilling of wells to depths sufficient to test prospectively producible hydrocarbons from the top of the Frio Formation to the bottom of the Wilcox Formation. From these 50 prospects, Griffin and Griffin and the participants will select all drill locations. We had contracted to assume a 40% gross interest in this AMI, meaning we were obligated to pay 40% of costs related to licensing, permitting, drilling, completion and all other related costs. This 50-well AMI is intended to be drilled in several stages. Lexaria's pro rate share of the first stage had a total cost $1.6 million. As of October 31 2007, our company had placed $1,600,000 in trust to completely fund this initial commitment. During the drill program, an unrelated third party participant elected not to continue their participation in the program, and we assumed our pro-rata portion of their 10% gross working interest as our own, at no additional cost, bringing our total gross working interest in these seven wells and their leases, to 45%.

The first of these 7 wells was successfully drilled and completed and entered into production. The second well in this Phase II program targeted the Wilcox formation, did not encounter commercially viable quantities of hydrocarbons, and was plugged and abandoned, with total costs associated with this well of $162,420. All 7 of these wells have now been drilled, with results as follows:

Phase II 45% gross interest

Well Name Spud/Start Complete Results Depth Status CMR-USA-39- 14 Sept. 8/06 Sept. 12/06 Frio Gas 14 ft. 3,200 Producing RB F-3

Dixon #1       Jan. 03/07  Jan. 20/07 Wilcox Target; Dry 8,650 Plug & abandon
Faust #1,      Feb. 05/07 Feb. 11/07  Frio Gas 9 ft      5,350 Connection pending
TEC F-1
CMR/BR F-24    Feb. 20/07  Feb. 24/07 Frio Gas           3,250 Status unknown
RB F-1         May 08/07  May 13/07   Frio Gas 10 ft     3,180 Connection pending
Red Bug #2
BR F-33        May 20/07   May 24/07  Frio Gas 12 ft     3,837 Producing
Randall #1     May 27/07  June 03/07  Frio Target: Dry   5,100 Plug & abandon
Closure F-4

Phase III 50% gross interest

As of October 31, 2008, five additional wells were drilled under the 50-well AMI. Each of these wells encountered non commercial quantities of hydrocarbons and were plugged and abandoned. There are 38 wells remaining to be drilled under the terms of the 50-well AMI as of October 31, 2008.

After a well has been drilled and completed and enters into production, we are responsible for paying our share of production and operations costs. As a matter of course, we will have to pay pipeline transmission costs if and when each well starts transporting natural gas or oil.

Oklahoma

On August 3, 2006, we entered an agreement to acquire a 7.5% working interest in the Owl Creek Prospect, Oklahoma. The operator is Ranken Energy Ltd. We paid $100,000 for a 7.5% interest and to participate in the Isbill #1-36 well. The Isbill #1-36 well was drilled and on September 11, 2006, our company elected to abandon the well but reserved the right under the agreement to participate in future additional wells in the AMI in the Owl Creek Prospect.

During the second quarter ended April 30, 2007, our second participatory well was drilled at Owl Creek, the Isbill #2-36 well, in which we also have a 7.5% interest. The Isbill#2-36 well was successful and is in production of both oil and natural gas and is contributing to our revenue generation.

Because of increased operational activity, our overhead, exploration and property costs rose for the period ending October 31, 2008.

On August 16, 2008, the Company signed an Assignment of Working Interest and Bill of Sale for its interest in Owl Creek Prospect and Isbill #2-36. On September 9, 2008 the Company received formal documentation and the Company's portion for the sale of Isbill #2-36 in the amount of $206,021.

Purchase or Sale of Equipment

At this time we do not expect to purchase or sell any significant equipment. As a participating partner in our Mississippi development program, we have an interest in certain oilfield production equipment purchased and maintained by our Operating partner.

Going Concern

There are no assurances that we will be able to obtain further funds required for our continued operations. As noted herein, we are pursuing various financing alternatives to meet our immediate and long-term financial requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will be unable to conduct our operations as planned, and we will not be able to meet our other obligations as they become due. In such event, we will be forced to scale down or perhaps even cease our operations.

Results of Operations: Alberta Property

Our company was formed on December 9, 2004. We acquired our oil and gas interest located in the Strachan Hills area of Alberta, Canada and commenced exploration on this property during 2005. By December 8, 2005 we had raised funds in the amount of $1,270,060 through private placements. During 2005 we commenced drilling operations on the Strachan property, which produced sufficiently encouraging results to justify the installation of well casing and testing. During 2006 we continued our exploration and development of our Strachan property, although we are a minority partner and are subject to the majority partner's intentions with regards to additional exploration, drilling or production at this property.

The well was originally planned to reach total drilling depth by early December 2005, but encountered an overstressed Wabamun formation before reaching total depth. Technical challenges in penetrating this zone were eventually successful, but also delayed the well completion and led to higher than originally budgeted costs.

Sustained high gas pressures of up to 10,000 per square inch have been encountered in the drill hole thus the hole has been cased and was undergoing testing. It was determined by the technical team that a testing program was needed which involves specialized high-penetration, low-diameter guns from the USA to determine the potential of any reserves. The operator, Rosetta Exploration, was purchased by a third party in 2006. Odin Capital, Inc., the Farm Out partner for Lexaria, has advised us that the well is not likely to be successfully brought into production and we could abandon our interest in this well.

Results of Operations: Mississippi Property

We had no operations at our Mississippi property in 2005. In January 2006 we completed our Phase I interest acquisition. Griffin and Griffin Exploration L.L.C., our drilling program partner and operator, undertook the 2006 drilling program of ten (10) wells on the Palmetto Point property in Mississippi. Drilling of all ten wells took place between March and December, 2006. In total, $3,500,000 was raised by the Palmetto Point participants, including the $700,000 contribution for our 20% gross interest. A 20% gross interest was subsequently purchased and paid for by us in two additional wells in this Phase, expending it to a total of 12 wells. The Palmetto Point Phase I, twelve-well drilling program has been completed and our 20% interest fully paid for; and our additional interest of 10% has been partially paid for.

Because we successfully discovered oil at the Belmont Lake oil field as a result of the 12-well program, we subsequently drilled one additional development oil well in October 2007, of which we also have a 30% gross interest. The revenue received from these initial wells for the year ended October 31, 2008 was $537,670 (October 31, 2007 $174,059)

The Phase II seven-well program has been completed and we have paid in full for our 45% interest. As of January 24, 2008, two of these wells were producing and two were awaiting tie-in. The Phase III five-well program has been completed as of January 24, 2008 and our 50% interest has been paid for. None of these five wells are expected to go into production. The specific results of these programs are reported in the tables above.

Results of Operations for the Year Ended October 31, 2008 and 2007

The following summary of our results of operations should be read in conjunction with our audited financial statements for the year ended October 31, 2008 and 2007.

We had cash and cash equivalents of $669,633 as of October 31, 2008 compared to cash and cash equivalents of $78,061 as of October 31, 2007. We had a working capital of $414,350 as of October 31, 2008 compared to working capital deficit of $266,988 as of October 31, 2007.

Our operating results for the year ended October 31, 2008 and 2007 and the changes between those periods for the respective items are summarized as follows:

                         Year Ended         Year Ended         Change Between
                      October 31, 2008   October 31, 2007        Year Ended
                                                              October 31, 2008
                                                            and October 31, 2007
Oil and Gas Revenue $     900,789      $     253,148      $       647,641
Cost of Revenue     $     912,745      $     273,414      $       639,331
Gross Profit (Loss) $     (11,956)     $     (20,266)     $        8,310
Operating Expenses  $     970,627      $    1,054,514     $       (83,887)
Other Income        $      4,093       $      18,892      $       (14,799)
Net loss            $    (978,490)     $   (1,055,888)    $        77,398

For the year ended October 31, 2008, we had natural gas and oil revenue of $900,789, compared to $253,148 in the prior year. Cost of revenue including operating costs, depletion and write-down in carrying value of oil and gas properties, was $912,745 for the year ending October 31, 2008, compared to $273,414 in the year ending October 31, 2007.

Our entire loss for the year ended October 31, 2008 was $978,490. For the period ending October 31, 2008, most of our overhead expenses relate to operating expenses as our company makes the transition to an operating entity. We

Liquidity and Capital Resources

We had no operational revenue in 2005. Beginning in August, 2006, modest revenue of $20,307 was realized from the sale of natural gas from our Mississippi wells, 2007 operational revenue amounted to $253,148 and as at October 31, 2008 operational revenue amounted to $900,789. At October 31, 2007, we had $78,061 in cash and cash equivalents. At October 31, 2008, we had $669,633 in cash and cash equivalents. We anticipate that our total operating expenses will be less than $500,000 for the next twelve months. In the opinion of our management, available funds together with funds generated from operations should satisfy our current minimum working capital requirements up to October 31, 2009. As of October 31, 2007 our total assets were $3,795,887 and our total liabilities were $400,979. As of October 31, 2008, our total assets were $3,763,039 and our total liabilities were $1,000,832. On March 20, 2007, our company's chairman, director and chief executive officer forwarded $50,000 as a demand loan and on June 23, 2007, we received a secured loan on the purchase of an additional interest in the Mississippi Phase 1 prospect of $520,000. The Company calculated the net present value of the secured loan payable by applying 8% interest rate, which was based on a T-bill rate of 4.28% plus a risk premium.
The net present value of the secured loan payable on June 23, 2007 was $501,922. The Company had made total of $350,000 repayment and accrued $18,016 interest expense since June 23, 2007 with ending balance of $169,938 as at April 30, 2008.

On May 13, 2008 the Company entered into an Assignment of Debt between 0743868 BC Ltd. (the "Assignor") and the President and shareholder of the Company (collectively the "Assignees").

The Assignor has agreed to accept US$46,000 from the Company in satisfaction of the outstanding amount and has agreed to assign the Assignees all of the Assignor's right, title and interest in and to the US$124,000 balance of the outstanding amount. As a result, the Assignor no longer has any claim against the Company.

On May 14, 2008 the Company entered into an unsecured Loan Agreement with each of the President and a shareholder of the Company for $62,000. The purpose of this Loan Agreement is to set out terms of the arrangement by which the Company agrees to make a Loan of US$124,000 at an interest rate of 16.8% and no set principal payments for one year available to the Company. The purpose of the Loan Agreement is to provide the Company with capital funds for oil and gas exploration and/or general corporate purposes. On October 27, 2008, the loan to the President in the amount of US$62,000 was terminated in favor of a new loan agreement.

On November 13, 2007, the Company made an unsecured loan agreement in the amount of $250,000 with C.A.B. Financial Services Ltd. ("CAB"). CAB is owned by the president of the Company. The Maturity Date of the loan repayment will be the first annual anniversary of the date of the Loan Agreement. Interest is 16.8% simple interest per annum and will be calculated and payable monthly in arrears.
This interest payment is $3,500 per month. This loan was terminated on October 27, 2008.

On November 14, 2007, the Company made an unsecured loan agreement in the amount of CAD$250,000 with G K Braun Limited. The Maturity Date of the loan repayment will be the first annual anniversary of the date of the Loan Agreement.
Interest is 16.8% simple interest per annum and will be calculated and payable monthly in arrears. This interest payment is CAD$3,500 per month. This loan was paid in full on November 14, 2008.

On October 27, 2008 the Company entered into a Purchase Agreement in the amount of CDN$900,000 of Notes being purchased by the President, the President's wholly-owned private holding company, and a shareholder of the Company ("Purchasers"). The Purchasers agreed to purchase an 18% interest bearing Promissory Note of the Company subject to and upon the terms and conditions of the Purchase Agreement. The Company's obligations to repay the promissory Note will be secured by certain specified assets of the Company pursuant to a Security Agreement. As long as the Promissory Note is outstanding, the Purchasers may voluntarily convert the Promissory Note to Common Shares at the conversion price of $.45 per share of Common Stock.

Our accounting and auditing fees in 2007 were $49,905, while in 2008 they were $54,862, legal fees in 2007 were $71,462, while in 2008 they were $35,298, the decrease was caused by legal fees in 2007 relating to the filing of an option plan and filing of a prospectus in 2007. We expect to incur not more than a total of $150,000 for legal, accounting and auditing fees in 2009. Operational overhead in 2007 was $1,054,514 and in 2008 was $970,627. The decrease was caused by a stock based compensation charge of $682,312 in 2007;decrease in legal fees due to filing of the option plan and the preparation and filing of a prospectus in 2007; increases in investor relations costs of $118,916 (October 31, 2007: $69,722); increase in interest expense on loan payable due to deemed interest on the loan payable of $103,856 (October 31, 2007 $15,434); decrease in advertising and promotions amounting to $4,110 (October 31, 2007: $20,071); decrease in travel costs of $28,317 (October 31, 2007: $32,306); and increase in impairment of oil and gas acquisitions for the Strachan Property of $405,406 (October 31, 2007: $0).

Based on current operations we do not anticipate requiring additional funds within the next 12 months. If, however, we participate in additional programs whether on our existing properties or on as yet undefined potential future properties, we will require additional funds. We have already paid all of our pro rata costs for all the wells in which we have interests on all our properties. We have no overdue or pending property payments and no overdue exploration payments pending, and we do not anticipate any material cost overruns.

In 2009, we expect to generate increasing revenue streams as a result of the successful drilling programs we have participated in within Mississippi. As of October 31, 2008, we are not confident that any of our Mississippi wells are producing at their highest potential, and for this reason we are not yet able to accurately determine the volumes of hydrocarbons that we might be able to sell. However in general terms, our company feels that sufficient cash flow will be generated from oil and gas sales during 2009 to, at a minimum, more than cover all of the administrative and general operating costs of our company. As more production information is created over time, our company will be better able to determine whether sufficient cash flow could be generated to cover the costs of additional drilling programs, without the need to raise additional money.

Specifically, our company notes that the Belmont Lake oil field has the potential to materially impact our financial performance in 2009. Further development of this field is planned and the results of that development could have a material impact upon our company.

Many factors can and will impact our ability to generate revenue, which have been listed as risk factors in our SEC filings from time to time. In the main, these include inclement weather which can affect our ability to drill or service wells; international prices for oil and gas, which we have no ability to influence; availability of crews to drill and to service or operate our exploration and production wells; natural decline rates of oil and gas wells, which could at any time degrade or eliminate the flow of natural gas or oil; lack of working capital which can prevent us from participating in additional drilling programs or prevent us from servicing existing wells; good working . . .