Lexaria Bioscience Corp. 10-Q

Item 1. Financial Statements LEXARIA BIOSCIENCE CORP. CONSOLIDATED BALANCE SHEETS (Expressed in US Dollars except share amounts) (Unaudited) November 30, August 31, 2024 2024 ASSETS Current Cash $ 8,078,254 $ 6,499,885 Marketable securities $ 39,875 $ 55,807 Accounts receivable $ 263,491 $ 154,477 Prepaid expenses and other current assets $ 444,121 1,187,817 Total Current Assets 8,825,741 7,897,986 Non-current assets, net Long-term receivables 64,014 63,575 Right of use assets 128,025 134,843 Intellectual property, net 505,373 516,676 Property & equipment, net 270,621 254,709 Total Non-current Assets 968,033 969,803 TOTAL ASSETS $ 9,793,774 $ 8,867,789 LIABILITIES and STOCKHOLDERS' EQUITY Current Liabilities Accounts payable and accrued liabilities $ 268,986 $ 1,066,409 Deferred revenue $ - 4,963 Lease liability, current 28,812 28,047 Total Current Liabilities 297,798 1,099,419 Lease liabilities non - current 101,920 109,319 TOTAL LIABILITIES $ 399,718 $ 1,208,738 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: 17,452,594 and 15,810,205 at November 30, 2024, and August 31, 2024, respectively $ 17,453 $ 15,810 Additional paid-in capital 64,042,343 59,599,178 Accumulated Deficit ( 54,262,471 ) ( 51,558,772 ) Accumulated other comprehensive loss ( 22,991 ) ( 19,816 ) Equity attributable to shareholders of Lexaria 9,774,334 8,036,400 Non-controlling Interest ( 380,278 ) ( 377,349 ) Total Stockholders' Equity 9,394,056 7,659,051 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,793,774 $ 8,867,789 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 November 30, 2024 2023 Revenue $ 183,923 $ 151,278 Cost of goods sold 2,720 4,822 Gross profit 181,203 146,456 Operating expenses Research and development 1,953,220 574,491 General and administrative 918,690 711,107 Total operating expenses 2,871,910 1,285,598 Loss from operations ( 2,690,707 ) ( 1,139,142 ) Other income (loss) Interest income 11 7,319 Unrealized loss on marketable securities ( 15,932 ) ( 53,215 ) Total other income (loss) ( 15,921 ) ( 45,896 ) Net loss $ ( 2,706,628 ) $ ( 1,185,038 ) Less: Net loss attributable to non-controlling interest ( 2,929 ) ( 5,715 ) Net loss attributable to Lexaria shareholders $ ( 2,703,699 ) $ ( 1,179,323 ) Other comprehensive income Foreign currency translation adjustment $ ( 3,175 ) $ 4,372 Total comprehensive loss $ ( 2,706,874 ) $ ( 1,174,951 ) Basic and diluted loss per share $ ( 0.16 ) $ ( 0.13 ) Weighted average number of common shares outstanding - Basic and diluted 16,668,513 9,051,531 The accompanying notes are an integral part of these unaudited interim consolidated financial statements. 4 Table of Contents LEXARIA BIOSCIENCE CORP. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the Three Months Ended November 30, 2024 and 2023 (Expressed in US Dollars) (Unaudited) Common Stock Additional Paid-in Non-controlling Stockholders Shares Amount Capital Deficit AOCI Interest Equity Balance August 31, 2024 15,810,205 $ 15,810 $ 59,599,178 $ ( 51,558,772 ) $ ( 19,816 ) $ ( 377,349 ) $ 7,659,051 Stock issued in equity offering 1,642,389 1,643 4,343,750 - - - 4,345,393 Foreign currency translation adjustment - - - - ( 3,175 ) - ( 3,175 ) Stock-based compensation - - 99,415 - - - 99,415 Net loss - - - ( 2,703,699 ) - - ( 2,703,699 ) Non-controlling interest - - - - - ( 2,929 ) ( 2,929 ) Balance November 30, 2024 17,452,594 $ 17,453 $ 64,042,343 $ ( 54,262,471 ) $ ( 22,991 ) $ ( 380,278 ) $ 9,394,056 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 in 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 The accompanying notes are an integral part of these unaudited interim consolidated financial statements. 5 Table of Contents LEXARIA BIOSCIENCE CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in US Dollars) (Unaudited) Three Months Ended November 30, 2024 2023 Cash flows used in operating activities Net loss $ ( 2,706,628 ) $ ( 1,185,038 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock based compensation 99,415 53,953 Depreciation and amortization 33,195 28,778 Noncash lease expense 6,818 10,881 Unrealized loss on marketable securities 15,932 53,215 Lease accretion 2,451 67 Change in operating assets and liabilities Accounts receivable ( 109,014 ) ( 408,045 ) Prepaid expenses and deposits 743,696 414,472 Long-term receivables ( 439 ) - Accounts payable and accrued liabilities ( 797,423 ) ( 140,973 ) Lease payments ( 9,085 ) ( 8,963 ) Deferred revenue ( 4,963 ) - Net cash used in operating activities $ ( 2,726,045 ) $ ( 1,181,653 ) Cash flows used in investing activities Additions to intellectual property $ ( 13,159 ) $ ( 40,026 ) Purchase of equipment ( 24,645 ) - Net cash used in investing activities $ ( 37,804 ) $ ( 40,026 ) Cash flows from/(used in) financing activities Proceeds from shares sold for cash $ 4,345,393 $ 1,247,719 Proceeds from exercise of warrants - 571,651 Net cash from financing activities $ 4,345,393 $ 1,819,370 Effect of exchange rate changes on cash $ ( 3,175 ) $ 4,372 Net change in cash for the period 1,578,369 602,063 Cash at beginning of period 6,499,885 1,352,102 Cash at end of period $ 8,078,254 $ 1,954,165 Supplemental information of cash flows: Income taxes paid in cash $ - $ 3,662 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 November 30, 2024 (Expressed in U.S. Dollars) (Unaudited) 1. Nature of Business Lexaria Bioscience Corp. (“Lexaria”, “we”, “our” or “the Company”) is a biotechnology company pursuing the enhancement of the bioavailability of a diverse and broad range of active pharmaceutical ingredients (“API”) using our proprietary DehydraTECH drug delivery technology. Our current focus is the investigation of the incorporation of our DehydraTECH drug delivery technology with GLP-1 and GIP drugs to enhance absorption and reduce adverse side effects. 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. Liquidity 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 $ 2.7 million and $ 1.2 million for the three-months ended November 30, 2024, and 2023, respectively. As of November 30, 2024, we had an accumulated deficit of $ 54.3 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 into which we may enter. During the three months ended November 30, 2024, we raised $ 4.3 million in net proceeds from the sale of securities pursuant to our registered direct and At the Market offerings which closed in October, 2024. 7 Table of Contents 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. 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, 2024. 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., Lexaria (AU) Pty Ltd., and Lexaria Pharmaceutical Corp., and our 83.33 3% owned subsidiary Lexaria Nicotine LLC with the remaining 16.66 7% 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. 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, 2024. Cash and Cash Equivalents Cash and cash equivalents include cash-on-hand and demand deposits with financial institutions and other short-term investments with maturities of less than three months when acquired and readily convertible to known cash amounts. The Company had no cash equivalents as of November 30, 2024, or August 31, 2024. 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 and Comprehensive Loss. 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. 8 Table of Contents 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 and Comprehensive Loss. 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. 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. 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 The Company recognizes revenue in accordance with ASC 606’s core principle by applying the following five steps: 1. Identify contracts with customers 2. Identify the performance obligations in the contracts 3. Determine the contract price 4. Allocate the contract price 5. Recognize revenue when/as performance obligations are satisfied 9 Table of Contents Licensing revenue from intellectual property Our revenues from licenses that grant exclusive rights to use our intellectual property, which we consider functional IP, are recognized at a point in time following the transfer and use of our patented infusion technology DehydraTECH. Our licensees are also required to pay quarterly fixed non-refundable minimum performance fees which are recognized as revenue over the period to which they apply. Usage fees from intellectual property The Company may also earn sales-based or usage-based royalties from its licensing contracts. The Company recognizes usage fees in the period when our licensees recognize sales of end-products that incorporate our licensed technology. No sales-based usage fees were recognized for the three months ended November 30, 2024 and 2023. Third Party Contracted Manufacturing The Company recognizes revenue with respect to contract manufacturing arrangements when the related performance obligations have been satisfied (i.e., when it has completed the related manufacturing work) and in accordance with the five steps described in ASC 606. Contract Research and Development The Company recognizes revenue from contract research and development arrangements when the related performance obligations have been satisfied and in accordance with the five steps described in ASC 606. The related performance obligation typically entails preparation of customer-specific formulations (i.e., DehydraTECH paired with the customer’s active ingredient) that the customer then uses in comparison testing relative to its existing product(s). Revenue is recognized upon shipment of the formulation to the customer. 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 raw material, inbound freight charges, warehousing costs, and applicable overhead expenses. Research and development Research and development costs are expensed as incurred. These expenditures are comprised of both in-house research programs and through third-party contracts including consultants, academic and non-profit institutions, contract manufacturing, and other expenses. 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 and Comprehensive Loss 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 term of the option, risk-free interest rates and expected dividend yields of the common stock. 10 Table of Contents 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, stock options, and warrants, 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. 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/CAD dollars is not expected to be material. The following table provides a summary of financial instruments that are measured at fair value on a recurring basis as of November 30, 2024. Carrying Fair Value Measurement Using Value Level 1 Level 2 Level 3 Total Marketable Securities $ 39,875 $ 39,875 $ - $ - $ 39,875 11 Table of Contents The following table provides a summary of financial instruments that are measured at fair value on a recurring basis as of August 31, 2024. Carrying Fair Value Measurement Using Value Level 1 Level 2 Level 3 Total Marketable Securities $ 55,807 $ 55,807 $ - $ - $ 55,807 Credit risk and customer concentration The Company places its cash with a high credit quality financial institution. Periodically, the Company may carry cash balances at such financial institution in excess of the federally insured limit of $ 250,000 . The Company has not experienced losses on these accounts and management believes, based upon the quality of the financial institution, that the credit risk with regard to these deposits is not significant. In the three-months ended November 30, 2024, two customers accounted for 100 % of consolidated revenues. In the three-months ended November 30, 2023, two customers accounted for 96 % of consolidated revenues. As of November 30, 2024, the Company had $ 89,491 in sales tax receivable, as compared to $ 70,477 as of August 31, 2024. The Company considers its credit risk to be low for such receivables. 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 claim against the Company with, at minimum, a reasonable possibility that a material loss may be incurred. 3. Recent Accounting Guidance Recently Adopted Pronouncements None. Accounting Pronouncements Not Yet Adopted In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280)) – Improvements to Reportable Segment Disclosures, which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This ASU also expands disclosure requirements to enable users of financial statements to better understand the entity’s measurement and assessment of segment performance and resource allocation. This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently assessing the effect of this ASU on its consolidated financial statements and related disclosures. 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. 12 Table of Contents 4. 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. 5. Accounts and Other Receivables Accounts receivable as of November 30, 2024 and August 31, 2024 consist of the following: November 30, 2024 August 31, 2024 Territory license fees $ 174,000 $ 84,000 Sales tax 89,491 70,477 Long term receivable 64,014 63,575 Total Receivables $ 327,505 $ 218,052 6. Prepaid Expenses and Other Current Assets Prepaid expenses consist of the following as of November 30, 2024 and August 31, 2024: November 30, August 31, 2024 2024 Advertising & Conferences $ 133,250 $ 204,894 Research and Development 176,631 673,126 Legal & Accounting Fees 25,000 45,600 License, Filing Fees, Dues 5,731 22,925 Office & Insurance 103,509 122,245 Capital Financing - 119,027 Total Prepaid Expenses and Other Current Assets $ 444,121 $ 1,187,817 7. Intellectual Property, net A continuity schedule for capitalized patents is presented below: November 30, August 31, 2024 2024 Balance – beginning $ 516,676 $ 462,625 Addition 13,159 145,591 Impairment - ( 57,836 ) Amortization ( 24,462 ) ( 33,704 ) Balance – ending $ 505,373 $ 516,676 13 Table of Contents The Company evaluated its patent portfolio to determine whether certain pending applications had been abandoned or will not be pursued. During the three-months ended November 30, 2024, the Company did not recognize an impairment loss related to those applications. The Company recognized $ 24,462 of amortization expense related to patents and licenses in the three months ended November 30, 2024 as compared to $ 8,274 for the three months ended November 30, 2023. The following table summarizes expected future amortization of the Company’s patent portfolio as of November 30, 2024: Years Ending December 31, 2025 $ 25,269 2026 $ 25,269 2027 $ 25,269 2028 $ 25,269 2029 $ 25,269 Thereafter $ 379,028 Total $ 505,373 8. Property & Equipment, net Property and equipment, net consists of: November 30, 2024 Cost Period Amortization Additions Accumulated Amortization Net Balance Leasehold improvements $ 259,981 $ - $ - $ ( 259,981 ) $ - Computers 70,781 ( 569 ) - ( 69,645 ) 1,136 Furniture fixtures equipment 31,126 - - ( 31,126 ) - Lab equipment 410,438 ( 8,165 ) 24,646 ( 165,599 ) 269,485 Total $ 772,326 $ ( 8,734 ) $ 24,646 $ ( 526,351 ) $ 270,621 August 31, 2024 Cost Period Amortization Additions Accumulated Amortization Net Balance Leasehold improvements $ 259,981 $ ( 11,258 ) $ - $ ( 259,981 ) $ - Computers 70,781 ( 2,920 ) - ( 69,076 ) 1,705 Furniture fixtures equipment 31,126 ( 1,870 ) - ( 31,126 ) - Lab equipment 367,423 ( 26,400 ) 43,014 ( 157,433 ) 253,004 Total $ 729,311 $ ( 42,448 ) $ 43,014 $ ( 517,616 ) $ 254,709 Depreciation and amortization for the three months ended November 30, 2024 and the year ended August 31, 2024 totaled $ 8,734 and $ 42,448 , respectively, of which $ 0 and $ 0 was included in cost of goods sold, respectively. 9. Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities as of November 30, 2024 and August 31, 2024 consist of the following: November 30, August 31, 2024 2024 Accounts Payable Vendors payable $ 262,094 $ 379,882 Sales tax payable $ 6,892 $ 8,528 Accrued Liabilities Vendors payable $ - $ 677,999 Balance Ending $ 268,986 $ 1,066,409 14 Table of Contents 10. Revenues A breakdown of our revenues by type for the three-months ended November 30, 2024, and November 30, 2023, are as follows: Three-Months Ended November 30 2024 2023 IP Licensing $ 174,000 $ 144,990 B2B 9,923 5,388 Other - 900 $ 183,923 $ 151,278 During the three-month period ended November 30, 2024, and 2023, the Company recognized B2B product revenues of $ 9,923 and $ 5,388 , 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 non-refundable minimum performance fees. The Company recognized $ 174,000 and $ 144,990 in licensing revenue in the three-months ended November 30, 2024, and 2023, respectively. 11. Income Taxes For the three-months ended November 30, 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. 12. Issuances of Common Shares and Warrants During the three-months ended November 30, 2024, the Company completed the following issuances of common shares and warrants: 1. On October 16, 2024, the Company entered into a Securities Purchase Agreement whereby we issued 1,633,987 shares of common stock at a purchase price of $ 3.06 per share for gross and net proceeds of $ 5.0 million and $ 4.5 million, respectively. Concurrently, the Company issued, by way of a private placement transaction, 4,551,019 share purchase warrants, entitling the holder thereof to purchase up to 4,551,019 shares of common stock at a price of $3.06 per share for a period of five years from the date of shareholder approval for such warrant issuance. The shares registered pursuant to a take down of the Company’s Form S-3 registration statement and the warrants and related warrant shares were registered pursuant to a Form S-3 registration statement As part of the terms and conditions of the warrant issuance, the sole investor agreed to cancel the 2,917,032 share purchase warrants bearing an exercise price of $ 4.75 that were issued to them in the April 30, 2024 financing. We also issued the placement agent warrants to purchase up to 57,190 shares at an exercise price of $3.825 per share . 2. In October 2024, the Company sold 8,402 shares of common stock through an At the Market (ATM) offering for gross proceeds of $ 26,146 . Share issuance costs related to the ATM offering of $ 144,812 were charged to additional paid in capital. A continuity schedule for warrants for the three-months ended November 30, 2024, is presented below: Number of Warrants Weighted Average Exercise Price $ Balance, August 31, 2024 5,931,649 5.50 Cancelled/Expired ( 2,977,830 ) 5.39 Balance, November 31, 2024 2,953,819 5.62 15 Table of Contents A summary of warrants outstanding as of November 30, 2024, is presented below: Number of Warrants Weighted Average Exercise Price Weighted Average Remaining Contractual Life ~in years~ 317,190 10.50 .68-.69 16,667 9.00 0.54 1,719,828 6.58 1.13 483,750 0.95 3.45 314,287 2.31 4.22 102,097 5.94 4.22 2,953,819 $ 5.62 1.86 The share purchase and placement agent warrants issued on October 16, 2024 are exercisable on or after the related stockholder approval date. Because they were not exercisable as of November 30, 2024, they are excluded from the continuity table and summary of warrants outstanding above. Stock Options The Company established an Equity Incentive Plan whereby our Board, pursuant to shareholder approved amendments, may grant up to 1,745,259 stock options to directors, officers, employees, and consultants with such number being increased to up to 10% of the issued share capital at the end of each calendar year, at the discretion of the board, pursuant to an evergreen formula . 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 date of grant. A continuity schedule for stock options is presented below: Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value Balance August 31, 2023 446,936 3.32 3.25 $ 3,600 Cancelled/expired ( 196,000 ) 2.94 4.27 Exercised ( 2,500 ) 1.15 4.16 Granted 696,500 2.91 4.63 Balance August 31, 2024 944,936 3.11 3.64 $ 971,959 Cancelled/expired ( 16,667 ) 16.50 - Granted 82,000 2.91 4.88 Balance November 30, 2024 (outstanding) 1,010,269 2.87 3.47 $ 105,869 Balance November 30, 2024 (exercisable) 745,269 2.56 3.18 $ 105,869 On October 1, 2024, the Company granted 62,000 options to its employees with an exercise price of $ 3.17 and a term of 5 years. The options granted vest as follows: 4,000 at grant date, 20,000 on February 28, 2025, and 38,000 over a period of two years . On November 27, 2024, the Company granted 20,000 fully vested options to its Scientific Advisory Board members with an exercise price of $ 2.10 and a term of 5 years. 16 Table of Contents The fair value of stock options granted in the three-months ended November 30, 2024, were estimated as of the date of the grant by using the Black-Scholes option pricing model with the following assumptions: November 30, 2024 Expected volatility 94 - 96 % Risk-free interest rate 3.57 - 4.18 % Expected life 2.50 years Dividend yield 0.00 % Estimated fair value per option $ 1.21 - 1.72 Stock-based compensation expense for the three-month periods ended November 30, 2024, and 2023, was $ 99,415 and $ 53,953 , respectively. As of November 30, 2024, the total unrecognized non-cash compensation costs are $ 627,783 related to 265,000 non-vested stock options with a $ 3.74 weighted average exercise price. These costs are expected to be recognized over a weighted average period of 1.97 years. 13. Commitments, Significant Contracts and Contingencies Right-of-Use Assets - Operating Lease The corporate office and R&D laboratory are located in Kelowna, British Columbia, Canada. The related lease was renewed until November 15, 2028. In addition to minimum lease payments, the lease requires us to pay property taxes and other operating costs which are subject to annual adjustments. November 30, 2024 August 31, 2024 $ $ Right of use assets - operating leases 156,748 167,446 Amortization ( 28,723 ) ( 32,603 ) Total lease assets 128,025 134,843 Liabilities: 156,748 163,967 Lease payments ( 37,456 ) ( 33,273 ) Interest accretion 11,440 6,672 Total lease liabilities 130,732 137,366 Operating lease cost 128,026 134,843 Operating cash flows for lease ( 37,456 ) ( 33,273 ) Remaining lease term 3.96 Years 4.21 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 November 30, 2024: 2024 $ - 2025 28,009 2026 37,345 2027 38,641 2028 38,901 2029 8,104 Thereafter - Total lease payments 151,000 Less: imputed interest ( 20,268 ) Present value of operating lease liabilities 130,732 Less: current obligations under leases ( 28,812 ) Total $ 101,920 17 Table of Contents 14. 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, the President and the CEO, use the consolidated and other financial information, supplemented by revenue information by category of business-to-business product production and technology licensing to make operational decisions and to assess the performance of the Company. The Company has identified four reportable segments: Intellectual Property, B2B Production, Research and Development and Corporate. Licensing revenues are significantly concentrated on three licensees. Three Months Ended November 30, 2024 IP Licensing B2B Product R&D Corporate Consolidated Total Revenue $ 174,000 $ 9,923 $ - $ - $ 183,923 Cost of goods sold - ( 2,720 ) - - ( 2,720 ) Operating expenses ( 382 ) ( 637 ) ( 1,953,220 ) ( 917,671 ) ( 2,871,910 ) Other Income(Expense) - - - ( 15,921 ) ( 15,921 ) Segment Income (Loss) $ 173,618 $ 6,566 $ ( 1,953,220 ) $ ( 933,592 ) $ ( 2,706,628 ) Total assets $ 185,450 $ 61,783 $ 528,761 $ 9,017,780 $ 9,793,774 Three Months Ended November 30, 2023 IP Licensing B2B Product R&D Corporate Consolidated Total Revenue $ 144,990 $ 5,388 $ 900 $ - $ 151,278 Cost of goods sold - ( 4,822 ) - - ( 4,822 ) Operating expenses ( 41,478 ) ( 54,169 ) ( 586,605 ) ( 603,345 ) ( 1,285,597 ) Other Income(Expense) - - - ( 45,897 ) ( 45,897 ) Segment Income (Loss) $ 103,512 $ ( 53,603 ) $ ( 585,705 ) $ ( 649,242 ) $ ( 1,185,038 ) Total assets $ 132,627 $ 63,573 $ 76,245 $ 3,354,329 $ 3,626,774 15. Subsequent Events Effective December 9, 2024, the Company issued 10,000 fully vested options with an exercise price of $ 2.42 to a Scientific Advisory Board member. Effective January 7, 2025, the Company issued 100,000 fully vested Restricted Stock Awards (“RSAs”) with a fair value of $224,000 and having a six (6) month Restricted Period, as that term is defined in the Company’s incentive equity plan, to Christopher Bunka . 18 Table of Contents