Lexaria Bioscience Corp. 10-Q

Item 1. Financial Statements LEXARIA BIOSCIENCE CORP. CONSOLIDATED BALANCE SHEETS (Expressed in US Dollars except shares amount) (Unaudited) May 31, August 31, 2024 2023 ASSETS Current Cash $ 8,459,081 $ 1,352,102 Marketable securities 46,307 125,642 Accounts receivable 208,445 126,686 Prepaid expenses and other current assets 379,546 546,783 Total Current Assets 9,093,379 2,151,213 Non-current assets, net Long-term receivables 63,575 48,559 Right of use assets 143,316 167,446 Intellectual property, net 498,878 462,625 Property & equipment, net 219,289 254,143 Total Non-current Assets 925,058 932,773 TOTAL ASSETS $ 10,018,437 $ 3,083,986 LIABILITIES and STOCKHOLDERS' EQUITY Current Liabilities Accounts payable and accrued liabilities $ 128,788 $ 239,941 Lease liability, current 27,260 27,794 Total Current Liabilities 156,048 267,735 Lease liabilities - non-current 115,327 136,173 TOTAL LIABILITIES $ 271,375 $ 403,908 Stockholders' Equity Share Capital Authorized: 220,000,000 common voting shares with a par value of $ 0.001 per share Common shares issued and outstanding: 15,810,205 and 8,091,650 at May 31, 2024, and August 31, 2023, respectively. $ 15,810 $ 8,091 Additional paid-in capital 59,502,668 48,799,454 Accumulated deficit ( 49,373,982 ) ( 45,763,427 ) Accumulated other comprehensive loss ( 21,866 ) - Equity attributable to shareholders of Lexaria 10,122,630 3,044,118 Non-controlling interest ( 375,568 ) ( 364,040 ) Total Stockholders' Equity 9,747,062 2,680,078 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,018,437 $ 3,083,986 The accompanying notes are an integral part of these unaudited interim consolidated financial statements. 3 Table of Contents LEXARIA BIOSCIENCE CORP. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Expressed in US Dollars except share amounts) (Unaudited) Three Months Ended Nine Months Ended May 31, May 31, May 31, May 31, 2024 2023 2024 2023 Revenue $ 84,000 $ 77,707 $ 380,278 $ 195,467 Cost of goods sold - 12,747 4,822 31,500 Gross profit 84,000 64,960 375,456 163,967 Operating expenses Research and development 573,089 1,640,648 1,393,359 3,166,315 General and administrative 1,253,830 825,177 2,532,163 2,417,561 Total operating expenses 1,826,919 2,465,825 3,925,522 5,583,876 Loss from operations ( 1,742,919 ) ( 2,400,865 ) ( 3,550,066 ) ( 5,419,909 ) Other income (loss) Interest income - 15,443 7,318 34,174 Unrealized gain (loss) on marketable securities ( 41,393 ) 1,856 ( 79,335 ) ( 77,775 ) Total other income (loss) ( 41,393 ) 17,299 ( 72,017 ) ( 43,601 ) Net loss $ ( 1,784,312 ) $ ( 2,383,566 ) $ ( 3,622,083 ) $ ( 5,463,510 ) Less: Net loss attributable to non-controlling interest ( 2,619 ) ( 12,061 ) ( 11,528 ) ( 37,930 ) Net loss attributable to Lexaria shareholders $ ( 1,781,693 ) $ ( 2,371,505 ) $ ( 3,610,555 ) $ ( 5,425,580 ) Other comprehensive income Foreign currency translation adjustment ( 1,240 ) - ( 21,866 ) - Total comprehensive loss $ ( 1,782,933 ) $ ( 2,371,505 ) $ ( 3,632,421 ) $ ( 5,425,580 ) Basic and diluted loss per share ( 0.13 ) ( 0.37 ) ( 0.32 ) ( 0.89 ) Weighted average number of common shares outstanding - Basic and diluted 13,855,202 6,440,998 11,274,845 6,116,126 The accompanying notes are an integral part of these unaudited interim consolidated financial statements. 4 Table of Contents LEXARIA BIOSCIENCE CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended May 31, 2024 and 2023 (Expressed in US Dollars) (Unaudited) May 31, May 31, 2024 2023 Cash flows used in operating activities Net loss $ ( 3,622,083 ) $ ( 5,463,510 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock based compensation 395,726 160,748 Depreciation and amortization 59,783 74,469 Impairment loss 57,836 - Noncash lease expense 24,130 30,882 Unrealized loss on marketable securities 79,335 77,775 Lease accretion 5,501 1,961 Change in operating assets and liabilites Accounts receivable ( 81,759 ) 29,500 Inventory - 43,069 Prepaid expenses and deposits 167,237 ( 52,979 ) Accounts payable and accrued liabilities ( 111,153 ) 872,138 Operating lease liability ( 26,881 ) ( 33,610 ) Long-term receivables ( 15,016 ) - Net cash used in operating activities $ ( 3,067,344 ) $ ( 4,259,557 ) Cash flows used in investing activities Additions in intellectual property ( 119,018 ) ( 67,425 ) Purchase of equipment - ( 33,748 ) Net cash used in investing activities $ ( 119,018 ) $ ( 101,173 ) Cash flows from financing activities Proceeds from shares sold for cash 4,208,731 1,711,418 Proceeds from exercise of stock options and warrants 6,106,476 - Net cash from financing activities $ 10,315,207 $ 1,711,418 Effect of exchange rate changes on cash ( 21,866 ) - Net change in cash for the period 7,106,979 ( 2,649,312 ) Cash at beginning of period 1,352,102 5,813,218 Cash at end of period $ 8,459,081 $ 3,163,906 Supplemental information of cash flows: Income taxes paid in cash $ - $ 8,214 Remeasurement of operating lease right of use assets and liabilities $ - $ 156,565 The accompanying notes are an integral part of these unaudited interim consolidated financial statements. 5 Table of Contents LEXARIA BIOSCIENCE CORP. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the Nine Months Ended May 31, 2024, and 2023 (Expressed in US Dollars except share amounts) (Unaudited) Accumulated Common Stock Additional Paid-in Other Comprehensive Non-controlling Stockholders' Shares Amount Capital Deficit Income (Loss) Interest Equity Balance August 31, 2023 8,091,650 $ 8,091 $ 48,799,454 $ ( 45,763,427 ) - $ ( 364,040 ) $ 2,680,078 Stock issued in equity offering 889,272 889 1,246,829 - - - 1,247,718 Stock issued from exercise of warrants 1,330,719 1,331 570,320 - - - 571,651 Foreign currency translation adjustment - - - - 4,372 - 4,372 Stock based compensation - - 53,953 - - - 53,953 Net loss - - - ( 1,179,323 ) - - ( 1,179,323 ) Non-controlling interest - - - - - ( 5,715 ) ( 5,715 ) Balance November 30, 2023 10,311,641 $ 10,311 $ 50,670,556 $ ( 46,942,750 ) $ 4,372 $ ( 369,755 ) $ 3,372,734 Stock issued in equity offering 1,444,741 1,445 2,959,568 - - - 2,961,013 Stock issued from exercise of warrants 631,291 632 491,192 - - - 491,824 Foreign currency translation adjustment - - - - ( 24,998 ) - ( 24,998 ) Net loss - - - ( 649,539 ) - - ( 649,539 ) Non-controlling interest - - - - - ( 3,194 ) ( 3,194 ) Balance February 29, 2024 12,387,673 12,388 54,121,316 ( 47,592,289 ) ( 20,626 ) ( 372,949 ) 6,147,840 Stock issued from exercise of warrants 3,420,032 3,420 5,036,707 - - - 5,040,127 Stock issued from exercise of options 2,500 2 2,872 - - - 2,874 Foreign currency translation adjustment - - - - ( 1,240 ) - ( 1,240 ) Stock based compensation - - 341,773 - - - 341,773 Net loss - - - ( 1,781,693 ) - - ( 1,781,693 ) Non-controlling interest - - - - - ( 2,619 ) ( 2,619 ) Balance May 31, 2024 15,810,205 15,810 59,502,668 ( 49,373,982 ) ( 21,866 ) ( 375,568 ) 9,747,062 Balance August 31, 2022 5,950,998 $ 5,951 $ 47,041,481 $ ( 39,098,528 ) $ - $ ( 316,414 ) $ 7,632,490 Stock based compensation - - 68,776 - - - 68,776 Net loss - - - ( 1,755,944 ) - - ( 1,755,944 ) Non-controlling interest - - - - - ( 13,362 ) ( 13,362 ) Balance November 30, 2022 5,950,998 $ 5,951 $ 47,110,257 $ ( 40,854,472 ) $ - $ ( 329,776 ) $ 5,931,960 Shares issued for services - - 10,526 - - - 10,526 Net loss - - - ( 1,298,131 ) - - ( 1,298,131 ) Non-controlling interest - - - - - ( 12,507 ) ( 12,507 ) Balance February 28, 2023 5,950,998 $ 5,951 $ 47,120,783 $ ( 42,152,603 ) $ - $ ( 342,283 ) $ 4,631,848 At The Market financing 34,652 34 110,987 - - - 111,021 S-1 financing 2,106,000 2,106 1,598,291 - - - 1,600,397 Stock based compensation - - 81,446 - - - 81,446 Net loss - - - ( 2,371,505 ) - - ( 2,371,505 ) Non-controlling interest - - - - - ( 12,061 ) ( 12,061 ) Balance May 31, 2023 8,091,650 $ 8,091 $ 48,911,507 $ ( 44,524,108 ) $ - $ ( 354,344 ) $ 4,041,146 The accompanying notes are an integral part of these unaudited interim consolidated financial statements. 6 Table of Contents LEXARIA BIOSCIENCE CORP. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS May 31, 2024 (Expressed in U.S. Dollars Except Share Amounts) (Unaudited) 1. Nature of Business Lexaria Bioscience Corp. (“Lexaria”, “we”, “our” or “the Company”) is a biotechnology company pursuing the enhancement of the bioavailability of a diverse and broad range of active pharmaceutical ingredients (“API”) using DehydraTECH TM , our patented proprietary drug delivery technology. Revenues are generated from licensing contracts for the Company’s patented DehydraTECH technology based on the terms of use and defined geographic and licensing arrangements. We derive income from our third party contracted manufacturing of B2B DehydraTECH enhanced products made to customer specifications that are sold online and in-store in the US and Canada. We also perform contract services in R&D for customer specific formulations that are used in comparison testing to customers’ existing products. Going Concern The Company’s consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with accounting principles generally accepted in the United States (“US GAAP”) applicable to a going concern, which assumes the Company will have sufficient funds to meet its financial obligations for a period of at least 12 months from the date of this report. Since inception, the Company has incurred significant operating and net losses. Net losses attributable to shareholders were $ 3.6 million and $ 5.5 million for the nine-months ended May 31, 2024, and 2023, respectively. As of May 31, 2024, we had an accumulated deficit of $ 49.4 million. We expect to continue to incur significant operational expenses and net losses in the upcoming 12 months. Our net losses may fluctuate significantly from quarter to quarter and year to year, depending on the stage and complexity of our research and development (R&D) studies and corporate expenditures, additional revenues received from the licensing of our technology, if any, and the receipt of payments under any current or future collaborations we may enter into. The recurring losses and negative net cash flows raise substantial doubt as to the Company’s ability to continue as a going concern. During the nine-months ended May 31, 2024, the Company has completed the following: · Entered into Securities Purchase Agreements whereby on February 16, 2024, the Company issued 1,444,741 shares of common stock and 113,702 pre-funded warrants in a registered direct offering. The Company also sold to investors, warrants to purchase up to 1,558,443 shares of common stock. The combined effective offering price for each share of common stock and accompanying warrant was $ 2.31 . The warrants will expire five years from the issuance date, and have an exercise price of $ 2.185 per share. The Company also agreed to partially compensate the placement agent through the issuance of warrants to purchase up to 54,546 shares of common stock. The warrants will expire five years from the issuance date, and have an exercise price of $ 2.8875 per share. The net proceeds to the Company from the registered direct offering was $ 3 .0 million, after deducting placement agent fees and other offering expenses paid by the Company. · Entered into a Securities Purchase Agreement whereby on October 3, 2023, the Company issued, to a single healthcare-focused institutional investor, 889,272 shares of common stock and 729,058 pre-funded warrants in a registered direct offering. In a concurrent private placement, the Company also agreed to issue and sell to the investor, warrants to purchase up to 1,618,330 shares of common stock. The combined effective offering price for each share of common stock (or pre-funded warrant in lieu thereof) and accompanying warrant was $ 0.97 (to note the pre-funded warrants were issued at a price of $ 0.9699 and have an exercise price of $ 0.0001 ). The warrants will become exercisable six months from issuance, expire five and a half years from the issuance date, and have an exercise price of $0.97 per share. The net proceeds to the Company from the registered direct offering and concurrent private placement totaled $ 1.25 million, after deducting placement agent fees and other offering expenses payable by the Company. To date all of the pre-funded warrants have been exercised, resulting in the issuance by the Company of an aggregate 729,058 common shares for gross proceeds of $ 73 . 7 Table of Contents · Issued common shares pursuant to the exercise of the following warrants: o 1,622,250 common shares pursuant to the exercise of warrants that were issued under our May 11, 2023, financing, at an exercise price of $ 0.95 per share for gross proceeds of $ 1,541,137 ; o 1,618,330 common shares pursuant to the exercise of warrants that were issued under our October 3, 2023, financing, at an exercise price of $ 0.97 per share for gross proceeds of $ 1,569,780 ; o 729,058 common shares pursuant to the exercise of pre-funded warrants that were issued under our October 3, 2023, financing, at an exercise price of $ 0.0001 per share for gross proceeds of $ 73 dollars; o 1,298,702 common shares pursuant to the exercise of warrants that were issued under our February 16, 2024, financing, at an exercise price of $ 2.185 per share for gross proceeds of $ 2,837,664 ; and o 113,702 common shares pursuant to the exercise of pre-funded warrants that were issued under our February 16, 2024, financing, at an exercise price of $ 0.0001 per share for gross proceeds of $ 11 dollars. We may offer securities in response to market conditions or other circumstances if we believe such a plan of financing is required to advance the Company’s business plans. There is no certainty that future equity or debt financing will be available or that it will be at acceptable terms and the outcome of these matters is unpredictable. A lack of adequate funding may force us to reduce spending, curtail or suspend planned programs or possibly liquidate assets. Any of these actions could adversely and materially affect our business, cash flow, financial condition, results of operations, and potential prospects. The sale of additional equity may result in additional dilution to our stockholders. Entering into additional licensing agreements, collaborations, partnerships, alliances marketing, distribution, or licensing arrangements with third parties to increase our capital resources is also possible. If we do so, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. Based on existing cash resources, management believes that current funding will be sufficient to meet the Company’s financial obligations for a period of at least twelve months from the date of this report. In making this assessment, the Company believes that this alleviates any substantial doubt in connection with the Company's ability to continue as a going concern. 2. Significant Accounting Policies The significant accounting policies of the Company are consistent with those of our audited financial statements on Form 10-K for the year ended August 31, 2023. Basis of Consolidation These unaudited interim consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries; Lexaria CanPharm ULC, Lexaria CanPharm Holding Corp., PoViva Corp., Lexaria Hemp Corp., Kelowna Management Services Corp., Lexaria Nutraceutical Corp., and Lexaria Pharmaceutical Corp., and our 83.33 3% owned subsidiary Lexaria Nicotine LLC with the remaining 16.6 67% owned by Altria Ventures Inc. an indirect wholly owned subsidiary of Altria Group, Inc. All significant intercompany balances and transactions have been eliminated upon consolidation. 8 Table of Contents Basis of Presentation The Company’s unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with United States generally accepted accounting principles (US GAAP) have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of results for a full year or for any subsequent period. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated annual financial statements and notes thereto included in our annual report filed on Form 10-K for the year ended August 31, 2023. Cash and Cash Equivalents Cash and cash equivalents include cash-on-hand and demand deposits with financial institutions and other short-term investments with maturities of less than three months when acquired and readily convertible to known cash amounts. The Company had no cash equivalents as of May 31, 2024, or May 31, 2023. Marketable Securities The Company’s marketable securities consist of investments in common stock. Investments in equity securities are reported at fair value with changes in unrecognized gains or losses included in other income (loss) on the consolidated statements of operations. Leases The Company accounts for its leases under ASC 842, Leases (“ASC 842”). Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the consolidated balance sheet as both a right-of-use asset and lease liability. We determined the initial classification and measurement of our right-of-use assets and lease liabilities at the lease commencement date and thereafter if modified. The lease term includes any renewal options and termination options that we are reasonably certain to exercise. The present value of lease payments is determined by using the interest rate implicit in the lease, if that rate is readily determinable; otherwise, we use our incremental borrowing rate. The incremental borrowing rate is determined by using the rate of interest that we would pay to borrow on a collateralized basis an amount equal to the lease payments for a similar term and in a similar economic environment. Operating lease expenses are recognized on a straight-line basis, unless the right-of-use asset has been impaired, over the reasonably certain lease term based on the total lease payments. They are included in operating expenses in the consolidated statements of operations. For operating leases that reflect impairment, we will recognize the amortization of the right-of-use asset on a straight-line basis over the remaining lease term with rent expense still included in operating expenses in the consolidated statements of operations. For all leases, rent payments that are based on a fixed index or rate at the lease commencement date are included in the measurement of lease assets and lease liabilities at the lease commencement date. We have elected the practical expedient to not separate lease and non-lease components. Our non-lease components are primarily related to property taxes and maintenance, which vary based on future outcomes, and thus differences to original estimates are recognized in rent expense when incurred. Intellectual Property Capitalized intellectual property costs include those incurred with respect to both pending and granted patents filed in the United States. When patent applications are filed, the directly related capitalized costs are amortized on a straight-line basis over an estimated economic life of 20 years. 9 Table of Contents Property and Equipment Property and equipment is stated at cost less accumulated depreciation and impairment and depreciated using the straight-line method over the useful lives of the various asset classes. Laboratory and computer equipment and office furniture are depreciated over 3 - 10 years. Certain production equipment is depreciated by units of production method. Leasehold improvements are amortized over the term of the related leases, or the economic life of the improvements, whichever is shorter. Impairment of Long-Lived Assets Long-lived assets, including equipment and intangible assets, namely the Company’s patents, are assessed for potential impairment when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized when the carrying amount of the long-lived asset is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Any required impairment loss is measured as the amount by which the carrying amount of the long-lived asset exceeds its fair value and is recorded as a reduction in the carrying value of the related asset and a charge to the profit or loss. Intangible assets with indefinite lives are tested for impairment annually and in interim periods if certain events occur indicating that the carrying value of the intangible assets may be impaired. Revenue Recognition Licensing revenue from intellectual property Our revenues from licenses that grant the right to access our intellectual property, which we consider symbolic licenses of IP, are recognized over time following the transfer and use of our patented infusion technology DehydraTECH. Royalty revenues are recognized in the period in which our licensees sell the related products and recognize the related revenue. Usage fees from intellectual property We recognize usage fees from B2B clients in the period in which the counterparty completes the manufacturing which incorporates DehydraTECH enabled APIs into the related product. We generally recognize revenue when we have satisfied all contractual obligations and are reasonably assured of collecting the resulting receivable. Non-refundable minimum fees are recognized as revenue over the period to which they apply. Product revenue We generally recognize revenue when we have satisfied all contractual obligations and are reasonably assured of collecting the resulting receivable. We are often entitled to bill our customers and receive payment from our customers in advance of recognizing the revenue. Cost of Sales Cost of sales includes all expenditures incurred in bringing the goods to the point of sale This includes third-party manufacturing and handling costs, direct costs of the raw material, inbound freight charges, warehousing costs, and applicable overhead expenses. Research and Development Research and development costs are expensed as incurred. These expenditures are comprised of both in-house research programs and through third-party contracts including clinical research organizations, consultants, academic and non-profit institutions, contract manufacturing, and other expenses. 10 Table of Contents Intellectual Property Expenses Non-capitalizable costs associated with intellectual property-related matters are expensed as incurred and included in general and administrative expenses within the consolidated statements of operations and comprehensive loss. Stock-Based Compensation The Company accounts for its stock-based compensation awards whereby all stock-based grants are recognized as expenses in the consolidated statements of operations based on the fair value at grant date subject to vesting dates and amortized over the related vesting period. The grant date fair value of each option award is estimated using the Black-Scholes option-pricing model. The use of the Black-Scholes option-pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the common stock. Foreign Currency Translation The Company’s reporting currency is the U.S. dollar. The Company has foreign operations whose functional currency is the local currency. Assets and liabilities are translated into U.S. dollars, the reporting currency, at the exchange rate on the balance sheet date. Revenues and expenses are translated into U.S. dollars at the average rates of exchange prevailing during the reporting period. Foreign currency translation adjustments resulting from this process are reported as an element of other comprehensive income (loss) on the consolidated statements of operations and comprehensive loss. Transactions executed in different currencies are translated at spot rates and resulting foreign exchange transaction gains and losses are charged to income. Loss Per Share The calculation of loss per share uses the weighted average number of shares outstanding during the year. Diluted net income per share includes the effect, if any, from the potential exercise or conversion of securities, such as restricted stock and stock options, which would result in the issuance of incremental shares of common stock. Diluted loss per share is equivalent to basic loss per share if the potential exercise of the equity-based financial instruments is anti-dilutive. Income Taxes The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns using the liability method. Under this method, deferred tax liabilities and assets are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the year in which the differences are expected to reverse. A valuation allowance is established to reduce deferred tax assets to an amount whose realization is more likely than not. Fair Value Measurements When measuring fair value, the Company seeks to maximize the use of observable inputs and minimize the use of unobservable inputs. This establishes a fair value hierarchy based on the level of independent objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Inputs are prioritized into three levels used to measure fair value: · Level 1 - Quoted prices in active markets for identical assets or liabilities; · Level 2 - Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and · Level 3 - Unobservable inputs that are supported by little or no market activity, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing. 11 Table of Contents The Company’s financial instruments consist primarily of cash, marketable securities, accounts receivable and payable as well as accrued liabilities. The carrying amounts of instruments approximate their fair values due to their short maturities or quoted market prices. The Company’s headquarters and operations are located in Canada which results in exposure to market risks from fluctuations in foreign currency rates. The foreign currency exchange risk is the financial risk to the Company’s operations that arise from fluctuations in foreign exchange rates and the degree of volatility of these rates. Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk as the impact of rate changes for USD or CAD dollars is not expected to be material. The following table provides a summary of financial instruments that are measured at fair value on a recurring basis as of May 31, 2024. Carrying Fair Value Measurement Using Value Level 1 Level 2 Level 3 Total Marketable Securities $ 46,307 $ 46,307 $ - $ - $ 46,307 The following table provides a summary of financial instruments that are measured at fair value on a recurring basis as of August 31, 2023. Carrying Fair Value Measurement Using Value Level 1 Level 2 Level 3 Total Marketable Securities $ 125,642 $ 125,642 $ - $ - $ 125,642 Credit Risk and Customer Concentration The Company places its cash with a high credit quality financial institution. Periodically, the Company may carry cash balances at such financial institution in excess of the federally insured limit of $ 250,000 . The Company has not experienced losses on these accounts and management believes, based upon the quality of the financial institution, that the credit risk with regard to these deposits is not significant. In the nine-months ended May 31, 2024, two customers accounted for 98 % of consolidated revenues. In the nine-months ended May 31, 2023, four customers accounted for 88 % of consolidated revenues. Commitments and Contingencies The Company’s policy is to record accruals for any such loss contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. In the event that estimates or assumptions prove to differ from actual results, adjustments are made in subsequent periods to reflect more current information. The Company, from time to time, may be subject to legal claims and proceedings related to matters arising in the ordinary course of business. Management has no knowledge of any such material claim against the Company with, at minimum, a reasonable possibility that a material loss may be incurred. Reclassifications Certain amounts in the prior period have been reclassified to conform with current period presentation. Estimates and Judgments The preparation of financial statements in conformity with US GAAP requires us to make certain estimates, judgments and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements and the reported amount of revenue and expenses during the fiscal period. Some of the Company’s accounting policies require us to make subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. These accounting policies involve critical accounting estimates because they are particularly dependent on estimates and assumptions made by management about matters that are highly uncertain at the time the accounting estimates are made. Although we have used our best estimates based on facts and circumstances available to us at the time, different estimates reasonably could have been used. Changes in the accounting estimates used by the Company are reasonably likely to occur from time to time, which may have a material effect on the presentation of financial condition and results of operations. Management reviews our estimates, judgments, and assumptions periodically and reflects the effects of any revisions in the period in which they are deemed to be necessary. We believe that these estimates are reasonable. However, actual results could differ from these estimates. 12 Table of Contents 3. Recent Accounting Guidance Recently Adopted Pronouncements In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . This Accounting Standards Update represents a significant change in the accounting for credit losses model by requiring immediate recognition of management’s estimates of current expected credit losses (CECL). Under the prior model, losses were recognized only as they were incurred. The Company has determined that it has met the criteria of a smaller reporting company ("SRC") as of November 15, 2019. As such, ASU 2019-10, Financial Instruments-Credit Losses, Derivatives and Hedging, and Leases: Effective Dates amended the effective date for the Company to be for reporting periods beginning after December 15, 2022. The Company adopted ASU 2016-13 effective September 1, 2023, and determined that its impact on the accompanying consolidated financial statements is immaterial. Accounting Pronouncements Not Yet Adopted In March 2024, the FASB issued ASU 2024-02-Codification Improvements-Amendments to Remove References to the Concepts Statements, that contains amendments to the Codification that remove references to various FASB Concepts Statements. This effort facilitates Codification updates for technical corrections such as conforming amendments, clarifications to guidance, simplifications to wording or the structure of guidance, and other minor improvements. The amendments are effective for public business entities for fiscal years beginning after December 15, 2024, with early adoption permitted. Early application of the amendments in this ASU is permitted for all entities, for any fiscal year or interim period for which financial statements have not yet been issued (or made available for issuance). If an entity adopts the amendments in an interim period, it must adopt them as of the beginning of the fiscal year that includes that interim period. The Company is currently assessing the effect of this ASU on its consolidated financial statements and related disclosures. 4. Accounts and Other Receivables Accounts receivable at May 31, 2024 and August 31, 2023 consist of the following: Amounts Receivable May 31, 2024 August 31, 2023 Sales tax $ 116,685 $ 102,051 Territory license fees 91,760 24,635 Long term receivable 63,575 48,559 $ 272,020 $ 175,245 13 Table of Contents 5. Prepaid Expenses and Other Current Assets Prepaid expenses consist of the following at May 31, 2024 and August 31, 2023: May 31, August 31, 2024 2023 Consulting $ 196,976 $ 331,811 Licence, filing fees, dues 40,119 15,668 Advertising and conferences 82,487 40,342 Legal and accounting fees 30,665 36,795 Office and insurance 29,299 97,167 Capital financing - 25,000 $ 379,546 $ 546,783 6. Intellectual Property, net A continuity schedule for capitalized patents is presented below: May 31, August 31, 2024 2023 Balance – beginning $ 462,625 $ 488,462 Addition 119,018 135,862 Impairment ( 57,836 ) ( 106,761 ) Amortization ( 24,929 ) ( 54,938 ) Balance – ending $ 498,878 $ 462,625 The Company evaluated its patent portfolio and determined that certain pending applications had been abandoned or will not be pursued. As such, during the nine-months ended May 31, 2024, the Company recognized an impairment loss of $ 57,836 related to those abandoned applications. The Company recognized $ 24,929 of amortization expense related to patents and licenses in the nine-months ended May 31, 2024. 14 Table of Contents 7. Property & Equipment, net Consists of: May 31, 2024 Cost Period Amortization Additions Accumulated Amortization Net Balance Leasehold improvements $ 259,981 $ ( 11,258 ) $ - $ ( 259,981 ) $ - Computers 70,781 ( 2,352 ) - ( 68,508 ) 2,273 Furniture fixtures equipment 31,126 ( 1,869 ) - ( 31,126 ) - Lab equipment 367,424 ( 19,375 ) - ( 150,408 ) 217,016 $ 729,312 $ ( 34,854 ) $ - $ ( 510,023 ) $ 219,289 August 31, 2023 Cost Period Amortization Additions Accumulated Amortization Net Balance Leasehold improvements $ 259,981 $ ( 54,037 ) $ - $ ( 248,723 ) $ 11,258 Computers 70,781 ( 4,732 ) - ( 66,156 ) 4,625 Furniture fixtures equipment 31,126 ( 6,417 ) - ( 29,257 ) 1,869 Lab equipment 333,675 ( 29,986 ) 33,748 ( 131,032 ) 236,391 $ 695,563 $ ( 95,172 ) $ 33,748 $ ( 475,168 ) $ 254,143 8. Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities at May 31, 2024 and August 31, 2023 consist of the following: May 31, August 31, 2024 2023 Accounts Payable Trade payable $ 121,307 $ 225,038 Sales tax payable 7,481 1 4,903 $ 128,788 $ 239,941 9. Revenues A breakdown of our revenues by type for the nine-months ended May 31, 2024, and May 31, 2023, are as follows: Nine-Months Ended May 31 2024 2023 IP Licensing $ 373,990 $ 104,935 B2B 5,388 44,167 Other 900 46,365 $ 380,278 $ 195,467 During the nine-month period ended May 31, 2024, and 2023, the Company recognized B2B product revenues of $ 5,388 and $ 44,167 , respectively, that relate to sales of our intermediate products for use by B2B customers in their products. Licensing revenue consists of IP licensing fees for transfer of the DehydraTECH technology in line with definitive agreements and includes royalty fees. The Company recognized $ 373,990 and $ 104,935 in licensing revenue in the nine-months ended May 31, 2024, and 2023, respectively. 15 Table of Contents 10. Income Taxes For the nine-months ended May 31, 2024, the Company did not recognize a provision or benefit for income taxes as it has incurred net losses. In addition, the net deferred tax assets are fully offset by a valuation allowance as the Company believes it is more likely than not that the benefit will not be realized. 11. Issuances of Common Shares and Warrants During the nine-months ended May 31, 2024, the Company entered into Securities Purchase Agreements whereby on February 16, 2024, the Company issued 1,444,741 shares of common stock and 113,702 pre-funded warrants in a registered direct offering. The Company also sold to investors, warrants to purchase up to 1,558,443 shares of common stock. The combined effective offering price for each share of common stock and accompanying warrant was $ 2.31 . The warrants will expire five years from the issuance date, and have an exercise price of $ 2.185 per share. The Company also agreed to partially compensate the placement agent through the issuance of warrants to purchase up to 54,546 shares of common stock. Such warrants will expire five years from the issuance date, and have an exercise price of $ 2.8875 per share. The net proceeds to the Company from the registered direct offering was $ 3 .0 million, after deducting placement agent fees and other offering expenses paid by the Company. During the nine-months ended May 31, 2024, the Company also entered into a securities purchase agreement with a single healthcare-focused institutional investor to purchase 889,272 shares of common stock and 729,058 pre-funded warrants in a registered direct offering. In a concurrent private placement, the Company also sold to the investor, warrants to purchase up to 1,618,330 shares of common stock. The combined effective offering price for each share of common stock (or pre-funded warrant in lieu thereof) and accompanying warrant was $ 0.97 (to note the pre-funded warrants were issued at a price of $0.9699 and have an exercise price of $0.0001). The warrants will become exercisable six months from issuance, expire five and a half years from the issuance date, and have an exercise price of $ 0.97 per share. The net proceeds to the Company from the registered direct offering and concurrent private placement were $ 1.25 million, after deducting placement agent fees and other offering expenses payable by the Company. To date all of the pre-funded warrants have been exercised, resulting in the issuance by the Company of an aggregate 729,058 common shares for gross proceeds of $ 73 . On April 30 2024, the Company entered into a Warrant Exercise Agreement with an existing accredited investor (the “Investor”) to exercise in full outstanding Common Stock Purchase Warrants (the “Exercise”) to purchase up to an aggregate of 2,917,032 shares of the Company’s common stock (the “Existing Warrant”) for gross proceeds of $ 4,407,444 . Immediately upon full exercise of the Existing Warrant, the Investor received a new unregistered Common Stock Purchase Warrant to purchase up to an aggregate of 2,917,032 shares of the Company’s common stock (the “New Warrant”). The New Warrant was issued to the Investor for consideration of $ 0.125 per share for additional gross proceeds of $ 364,629 . In addition, 102,097 warrants with an exercise price of $ 5.9375 were issued as part of a tail commission. Placement agent fees and other offering expenses in the amount of $ 209,796 were netted against the proceeds. During the nine-months ended May 31, 2024, the Company had warrant exercises resulting in the following share issuances: · 1,622,250 common shares pursuant to the exercise of warrants that were issued under our May 11, 2023, financing, at an exercise price of $ 0.95 per share for gross proceeds of $ 1,541,137 ; · 1,618,330 common shares pursuant to the exercise of warrants that were issued under our October 3, 2023, financing, at an exercise price of $ 0.97 per share for gross proceeds of $ 1,569,780 ; · 729,058 common shares pursuant to the exercise of pre-funded warrants that were issued under our October 3, 2023, financing, at an exercise price of $ 0.0001 per share for gross proceeds of $ 73 dollars; · 1,298,702 common shares pursuant to the exercise of warrants that were issued under our February 16, 2024, financing, at an exercise price of $ 2.185 per share for gross proceeds of $ 2,837,664 ; and · 113,702 common shares pursuant to the exercise of pre-funded warrants that were issued under our February 16, 2024, financing, at an exercise price of $ 0.0001 per share for gross proceeds of $ 11 dollars. 16 Table of Contents A continuity schedule for warrants for the nine-months ended May 31, 2024, is presented below: Number of Warrants Weighted Average Exercise Price $ Balance, August 31, 2023 4,520,483 4.71 Issued 7,093,208 3.62 Expired ( 300,000 ) 7.67 Exercised ( 5,382,042 ) 1.11 Balance, May 31, 2024 5,931,649 5.49 A summary of warrants outstanding as of May 31, 2024, is presented below: Number of Warrants Weighted Average Exercise Price Weighted Average Remaining Contractual Life ~in years~ 60,798 $ 36.00 .45-.50 317,190 10.50 .93-.95 16,667 9.00 0.79 1,719,828 6.58 1.63 483,750 0.95 3.95 314,287 2.19 4.72 2,917,032 4.75 4.72 102,097 5.94 4.72 5,931,649 $ 5.49 1.10 Stock Options The Company has established an Equity Incentive Plan which was most recently amended by the Company’s shareholders on May 9, 2023. Pursuant to the amendments which were affected on January 18, 2024 when the Company filed a Form S-8 Registration Statement, the Equity Incentive Plan now has an evergreen formula, whereby on January 1 each year commencing January 1, 2024, the number of shares issuable pursuant to the Equity Incentive Plan may be increased to a number equal to up to 10% of the issued share capital on December 31 of the previous year . The Company has registered an additional 527,111 common shares issuable pursuant to the Equity Incentive Plan, for an aggregate 1,037,544 common shares issuable under the Equity Incentive Plan. Stock options currently granted must be exercised within five years from the date of grant or such lesser period as determined by the Company’s board of directors. The vesting terms of each grant are also set by the board of directors. The exercise price of an option is equal to or greater than the closing market price of the Company’s common shares on the day preceding the date of grant. Other than the issuance of options as an incentive for engagement, the Company has historically issued options to all of the independent directors, as a group and to its employees and consultants, as a group. As a result, option issuances are typically no more than two to three times per year. While the Company does not have a formal policy regulating option issuances, the Company attempts to ensure that such option issuances do not occur when material information has not been disclosed to the public and no less than two weeks prior to any quarterly or annual financial statement filing. 17 Table of Contents A continuity schedule for stock options is presented below: Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value Balance August 31, 2022 424,836 $ 6.45 3.69 Cancelled/expired ( 47,500 ) 2.98 4.39 Granted 69,600 1.75 2.98 Balance August 31, 2023 446,936 3.32 3.25 Cancelled/expired ( 46,000 ) 2.98 2.98 Exercised ( 2,500 ) 1.15 0.06 Granted 436,500 1.24 4.66 Balance May 31, 2024 (outstanding) 834,936 1.73 1.79 977,561 Balance May 31, 2024 (exercisable) 684,936 2.11 2.18 833,561 On October 26, 2023, the Company granted 85,000 options to its officers and employees with an exercise price of $ 1.15 and a term of 5 years. On March 2, 2024, the Company granted 200,000 options to its new Chief Financial Officer with an exercise price of $ 2.93 and a term of 5 years, subject to the following vesting provisions: 50,000 vested on March 15, 2024, 50,000 will vest on March 15, 2025, 4,166 will vest monthly until March 15, 2027 at which time the balance of 4,182 options will vest. On April 26, 2024, the Company granted 151,500 options to its officers, employees and directors with an exercise price of $ 2.36 and a term of 5 years. The fair value of stock options granted in the nine-months ended May 31, 2024, were estimated as of the date of the grant by using the Black-Scholes option pricing model with the following assumptions: May 31, 2024 Expected volatility 92 % - 96 % Risk-free interest rate 4.24 % - 5.03 % Expected life 2.5 – 4 .0 Dividend yield 0.00 % Estimated fair value per option $ 1.11 – 1.57 Stock-based compensation expense for the nine-month period ended May 31, 2024, and 2023, was $ 395,726 and $ 160,748 , respectively. As of May 31, 2024, the total unrecognized non-cash compensation costs are $ 302,474 related to 150,000 non-vested stock options with a $ 2.93 weighted average price. These costs are expected to be recognized over a weighted average period of 1.45 years. 18 Table of Contents 12. Commitments, Significant Contracts and Contingencies Right-of-Use Assets - Operating Lease The corporate office and R&D laboratory are located in Kelowna, British Columbia, Canada. The related lease was renewed until November 15, 2028. In addition to minimum lease payments, the lease requires us to pay property taxes and other operating costs which are subject to annual adjustments. May 31, 2024 August 31, 2023 $ $ Right of use assets - operating leases 167,446 52,444 Remeasurement related to lease extension - 156,566 Amortization ( 24,130 ) ( 41,564 ) Total lease assets 143,316 167,446 Liabilities: 163,967 49,988 Remeasurement related to lease extension - 156,566 Lease payments ( 26,881 ) ( 44,814 ) Interest accretion 5,501 2,227 Total lease liabilities 142,587 163,967 Operating lease cost 156,565 167,446 Operating cash flows for lease ( 26,881 ) 44,814 Remaining lease term 4.42 Years 5.17 Years Discount rate 7.25 % 7.25 % Pursuant to the terms of the Company’s lease agreements in effect, the following table summarizes the Company’s maturities of operating lease liabilities as of May 31, 2024: 2024 8,959 2025 37,094 2026 37,345 2027 38,642 2028 38,901 2029 6,483 Thereafter - Total lease payments 167,424 Less: imputed interest ( 24,837 ) Present value of operating lease liabilities 142,587 Less: current obligations under leases ( 27,260 ) Total 115,327 13. Segment Information The Company’s operations involve the development and usage, including licensing, of DehydraTECH. Lexaria is centrally managed and its chief operating decision makers, being the President and the CEO, use the consolidated and other financial information, supplemented by revenue information by category of business-to-business product production and technology licensing to make operational decisions and to assess the performance of the Company. The Company has identified four reportable segments: Intellectual Property, B2B Production, Research and Development and Corporate. Licensing revenues are significantly concentrated on three licensees. 19 Table of Contents Nine Months Ended May 31, 2024 IP Licensing B2B Product R&D Corporate Consolidated Total Revenue $ 373,990 $ 5,388 $ 900 $ - $ 380,278 Cost of goods sold - ( 4,822 ) - - ( 4,822 ) Operating expenses ( 130 ) ( 288 ) ( 1,393,359 ) ( 2,531,745 ) ( 3,925,522 ) Other Income(Expense) - - ( 72,017 ) ( 72,017 ) Segment Income (Loss) $ 373,860 $ 278 $ ( 1,392,459 ) $ ( 2,603,762 ) $ ( 3,622,083 ) Total assets $ 124,968 $ 63,573 $ 475,194 $ 9,354,702 $ 10,018,437 Nine Months Ended May 31, 2023 IP Licensing B2B Product R&D Corporate Consolidated Total Revenue $ 104,935 $ 44,167 $ 46,365 $ - $ 195,467 Cost of goods sold - ( 31,500 ) - - ( 31,500 ) Operating expenses ( 58,845 ) ( 235,379 ) ( 3,166,315 ) ( 2,123,337 ) ( 5,583,876 ) Other Income (Expense) - - ( 43,601 ) ( 43,601 ) Segment Income (Loss) $ 46,090 $ ( 222,712 ) $ ( 3,119,950 ) $ ( 2,166,938 ) $ ( 5,463,510 ) Total assets $ 110,997 $ 67,705 $ 538,571 $ 4,522,364 $ 5,239,637 20 Table of Contents