Lexaria Bioscience Corp. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview This discussion and analysis contain forward-looking statements that involve not only risks and uncertainties but also changes in condition, significance, value and other factors as described in “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Our actual results of operations, performance, financial position and business prospects and opportunities for this fiscal year and the periods that follow could differ materially from those expressed in or implied by forward-looking statements. This discussion and analysis should be read in conjunction with our consolidated financial statements and the accompanying notes related thereto that appear in this Report. 25 Table of Contents The following management’s discussion and analysis of financial condition and results of operations (“MD&A”) is provided to enhance the readers understanding of our results of operations and financial condition for the year ended August 31, 2025, and in comparison, to the year ended August 31, 2024. Executive Summary Lexaria’s DehydraTECH patented technology improves the delivery of bioactive compounds while promoting healthy ingestion methods, lowers overall dosing, and is highly effective in active molecule delivery available in a range of formats from oral ingestible to oral buccal/sublingual products. DehydraTECH substantially improves the rapidity and quantity of API transport to the blood plasma using the body’s natural process for distributing fatty acids via the oral route. This technology extends across many categories beyond the primary pharmaceutical focus of the Company from foods and beverages to cosmetic products and nutraceuticals. Lexaria is advancing several R&D activities in both preclinical and planned future clinical programs. Our primary focus during the fiscal year was on our continued investigations of DehydraTECH-enhanced GLP-1 and GIP drugs. These investigations included the completion of an extensive 12 arm animal study to investigate DehydraTECH enhanced semaglutide (both pure API and formulated Rybelsus®), DehydraTECH enhanced liraglutide, and DehydraTECH enhanced CBD for weight loss and two human pilot studies, with one testing DehydraTECH-tirzepatide and the other testing DehydraTECH-liraglutide. In addition, Lexaria completed its last patient visit for its 12-week chronic human clinical trial study of diabetic patients comparing DehydraTECH-cannabidiol (“CBD”), DehydraTECH-semaglutide, DehydraTECH-CBD combined with DehydraTECH-semaglutide and DehydraTECH-tirzepatide against a Rybelsus® control. The study data for the preparation of the report for this 12-week chronic human clinical trial is currently being analyzed. In addition, we have continued to progress forward with addressing comments provided by the FDA on our IND application for the conduct of our Phase 1(b) clinical study investigation of DehydraTECH-CBD for the reduction of hypertension. We will need to raise sufficient funding or enter into a collaboration to be in a position to proceed with this study. The Company continues to engage in small R&D projects and B2B formulation for third parties who are evaluating our technology for use in their product. We were granted a total of six new patents during fiscal 2025 including our first Australian patent in our Family #24 for treatment of epilepsy, our first Japanese patent in our Family #20 for sublingual delivery of nicotine and our first patent granted in our Family #27 for Compositions and Methods for Treating Diabetes, making it another successful year for the acquisition of new intellectual property. Financial condition and operating performance The data generated from our past and ongoing R&D programs continues to support confirmatory results and is contributing greatly to our understanding of the workings of DehydraTECH. These findings encourage the pursuit of lucrative commercial applications in the pharmaceutical sector. We continue to devote an increasing proportion of our resources toward pharmaceutical applications with the continuation of our programs directed at the enhancement of GLP-1 and GIP drugs. During the year ended August 31, 2025, we completed two human pilot studies and our Australian clinical trial investigating DehydraTECH infused GLP-1, GIP and CBD formulations. These programs, having been funded by the proceeds of Lexaria’s combined 2024 and 2025 financing activities of approximately $16 million, supported our significant advancements in the fields of diabetes, weight loss, heart disease and hypertension. 26 Table of Contents We consider the advancement of our applied R&D studies to be a vital step towards our goal of establishing commercial relationships with industry partners who can utilize DehydraTECH within existing or new product lines. Conducting additional in vitro and in vivo studies which test the absorption of some, or all of the molecules named within our patents and patent applications further substantiates the effectiveness of DehydraTECH. Successful tests are expected to increase awareness and acceptance of DehydraTECH as a meaningful method used to deliver some or all of the named molecules more effectively than delivery methods currently available. Absorption tests are an important element leading to higher rates of acceptance and the implementation of our technology licensing initiatives. Our R&D results serve to de-risk the potential API products that could conceivably develop into clinical trials and ultimately new drugs. Our pursuit of opportunities within the GLP-1/GIP drug, cannabinoid, nicotine and other bioactive molecular markets in the US and internationally continue unabated. We believe there are meaningful competitive advantages in manufacturers adopting DehydraTECH in their products, including its demonstrated higher absorption levels, its ability to infuse smaller quantities of active molecules in their products and the benefit of its predictable drug delivery times. Implementing our technology could lead to smaller dosing and decreased manufacturing costs while masking unwanted flavor and smell of the active molecules. We are anticipating these efforts will lead to increased licensing revenue through licensing partnerships. We are pursuing technology licensing opportunities as a method of generating profitable revenue streams over long periods of time. We have not yet, however, been able to secure a large client utilizing our technology in large quantities of products. With 56 patents granted to date of which 22 are granted in the US, Lexaria believes that it has a robust patent portfolio but continues to seek additional protection for its intellectual property globally. The successful granting of additional patents could lead to material increases in shareholder value through the ability to generate meaningful license revenues from our increased intellectual property portfolio. Lexaria has concluded that our existing cash, combined with inflows expected from executed license agreements, will not be sufficient to meet our operational requirements for the twelve months following the release of these audited financial statements. Accordingly, there is substantial doubt as to our ability to continue as a going concern for at least one year following the date of the consolidated financial statements included in this report. The Company continues to explore equity financing arrangements and strategic corporate business partnerships for many of its specific drug investigations after sufficient data has been generated. These efforts, if successful, could generate any combination of up-front milestone and/or royalty payments to the Company. Results of Operations for our Year Ended August 31, 2025 Our net loss from operations increased by $6,102,780 to $11,911,434 for the year ended August 31, 2025 from $5,808,654 for the year ended August 31, 2024. The changes between these periods for the respective items are summarized as follows: August 31, 2025 August 31, 2024 Change Revenue $ 705,923 $ 464,278 $ 241,645 Cost of goods sold $ (2,720 ) (4,822 ) 2,102 Research and development $ (8,238,757 ) (2,360,565 ) (5,878,192 ) Consulting fees & salaries $ (2,271,028 ) (1,820,972 ) (450,056 ) Legal and professional $ (632,849 ) (812,066 ) 179,217 Other general and administrative $ (1,441,306 ) (1,218,983 ) (222,323 ) Other income (loss) $ (30,697 ) (55,524 ) 24,827 Net Loss $ (11,911,434 ) $ (5,808,654 ) $ (6,102,780 ) 27 Table of Contents Lexaria’s business operations include technology licensing agreements where corporate licensees implement DehydraTECH under license within our contracted facilities under royalty agreements. This includes specific B2B pre-processed DehydraTECH CBD-powders manufactured at a Lexaria contracted GMP-certified food facility for clients to integrate into their final product formats. Fees are derived from a combination of manufacturing charges, royalties and trademark fees. Year Ended August 31, 2025 2024 Change IP Licensing $ 696,000 $ 457,990 $ 238,010 B2B 9,923 5,388 4,535 Other - 900 (900 ) Total Revenue $ 705,923 $ 464,278 $ 241,645 Total Revenue for fiscal year 2025 increased by $241,645, or 52%, to $705,923 from $464,278 in fiscal year 2024. The primary source of revenue for the Company relates to the licensing of our technology to others. Licensing revenue grew by $238,010, or 52%, to $696,000 in fiscal year 2025 as compared to $457,990 in fiscal year 2024. This increase was attributable to minimum fees from our license agreement with Premier which expired on August 31, 2025. Revenue from our B2B processing of intermediary CBD products increased by $4,535 during fiscal year 2025, while other revenues decreased by $900 during the same period. These year-over-year changes reflect the Company’s emphasis during the year on licensing DehydraTECH to new and existing industry participants to enable enhanced performance of their developmental and commercial stage products. Due to the expiration of our license agreement with Premier and assuming we do not enter into any additional licensing agreements, the Company expects to see a decrease in its revenue from technology licensing of DehydraTECH processed hemp-based CBD and other consumer products in fiscal 2026. The anticipated expansion of our intellectual property portfolio and conducting supportive R&D may jointly contribute to strengthening revenue prospects as we continue to explore new applications for our technology. Research and Development Research and development (“R&D”) costs are expensed as incurred and account for a significant portion of our operational expenses. During the fiscal year ended August 31, 2025, funding constraints limited our ability to direct resources to studies other than those pertaining to weight loss and diabetes. R&D expenditures for fiscal year 2025 increased by $5,878,192, or 249%, to $8,238,757 from $2,360,565 for fiscal year 2024. The increase in year-over-year R&D expenditures was driven by the commencement and completion of the last patient last visit for our Australian Phase 1b, 12-week chronic study investigating DehydraTECH-semaglutide, DehydraTECH-CBD, a combination thereof and DehydraTECH-tirzepatide against a Rybelsus® control. Lexaria released interim 8-week results from its Australian study evidencing that the DehydraTECH-semaglutide and DehydraTECH-tirzepatide arms produced fewer adverse events (“AEs”) and, in particular, fewer gastrointestinal (“GI”) AEs than the Rybelsus® control arm. As the manufacturers of GLP-1 and GIP drugs have consistently noted, GI AEs as an area of major concern. Lexaria is extremely pleased with these initial results. We will continue to invest in our R&D programs for the foreseeable future, although we expect these expenses to decrease in 2026 compared to 2025, unless we are successful in completing corporate financing activities. Currently, our primary clinical research areas of interests are focused on the investigation of DehydraTECH-powered GLP-1/GIP drugs for the treatment of diabetes and weight loss as well as CBD for the reduction of hypertension. Of significant note, Lexaria submitted our preliminary pre-meeting application for an Investigational New Drug (“IND”) to the FDA with plans to develop a cannabidiol-based drug formulation, DehydraTECH-CBD for hypertension. We received a written response following our pre-IND meeting in August 2022 where the agency has agreed with the Company’s plans to pursue a faster 505(b)(2) new drug application regulatory pathway for the program. The 505(b)(2) pathway permits a faster commercial approval than the traditional 505(b)(1) NDA pathway. The FDA has agreed with the Company’s proposed clinical protocol for DehydraTECH-CBD, which, as currently designed, would target 120 patients with hypertension. The regulator has also decided that there is no need to conduct additional non-clinical studies before the start of the IND program. Lexaria has been working with its third-party regulatory affairs consultant to respond to certain requests of the FDA and submitted its amended protocol during the first calendar quarter of 2025. 28 Table of Contents Preclinical and clinical development is inherently unpredictable as is regulatory approval and commercialization, therefore we are unable to estimate with certainty the ultimate costs we will incur for multi-year programs, and the timelines required in our continued development and commercialization efforts. We will require significant additional funding to complete any IND planned studies. Any successful development and completion of clinical trials as well as regulatory approval and commercialization are uncertain and may not result in approved products. Completion dates and completion costs can vary significantly for each future product candidate and are difficult to predict. Lexaria and our commercial partners will continue to explore multiple R&D programs directed toward further evaluation, development, and commercialization of our DehydraTECH technology. General and Administrative General and administrative expenses consist primarily of consulting fees, executive and employee salaries and stock-based compensation expense (non-cash). Also included are costs for advertising and marketing, investor relations, corporate facilities, insurance premiums, legal fees related to corporate matters, fees for auditing, and tax filings. General and administrative expenses for fiscal year 2025 increased by $493,162, or 13%, to $4,345,183 from $3,852,021 for fiscal year 2024. The increase during fiscal 2025 relates primarily to higher wages and salaries, foreign exchange losses, patent-related impairment losses, and insurance premiums ($914,579, $192,518, $189,528, and $127,254, respectively) partially offset by lower consulting fees, advertising and promotion expenses, legal and professional fees, and investor relations expense ($464,524, $224,230, $159,721, and $79,900, respectively). The increase in wages and salaries relates primarily to stock-based compensation expense (non-cash), which increased to $859,494 during the year ended August 31, 2025 from $492,236 for the year ended August 31, 2024 due to increased stock options vesting during the year. The decrease in consulting fees for the year ended August 31, 2025 relates primarily to reduced payments to our former Chief Executive Officer, who resigned effective August 31, 2024, but is maintaining his position as Chairman of the Board and as a Strategic Executive Consultant. The Company evaluated its patent portfolio and determined that certain pending applications had been abandoned or would not be pursued. As such, during the year ended August 31, 2025, the Company recognized an impairment loss of $247,364 related to those abandoned applications, as compared to $57,836 for the year ended August 31, 2024. Other Income/(Loss) Other Income/(Loss) for fiscal year 2025 decreased by $24,827, or 45%, to a loss of $30,697 from a loss of $55,524 for fiscal year 2024. The decrease relates primarily to lower unrealized losses on marketable securities ($33,714 for the year ended August 31, 2025, compared to $69,835 during fiscal year 2024). This is attributable to continuing decreases in the fair value of the Company’s investment in Hill Inc. common shares. We remain confident that the loss may be temporary in nature as Hill Inc. continues to make inroads into the US hemp markets with DehydraTECH enabled products produced and sold by their licensees. Liquidity and Capital Resources Since Lexaria’s entrance into the bioscience sector, it has accumulated net losses of $63.5 million, of which approximately $11.9 million and $5.8 million were incurred, respectively, in the past two fiscal years. We expect to continue to incur significant operational expenses and net losses in the upcoming 12 months and beyond. Our net losses may fluctuate significantly from quarter to quarter and year to year, depending on the stage and complexity of our R&D studies and related expenditures, the receipt of additional payments related to the out-licensing of our technology, if any, and the receipt of payments under any current or future collaborations we may enter. 29 Table of Contents As the Company continues with our IND application process and progresses into the clinical development of our initial product candidate, the need for substantial capital resources increases. The Company intends to form industry partnerships for later stage clinical development, which in any event is expected to be a multi-year process. Our existing cash is not sufficient to complete the full development, testing and commercialization of an FDA-approved product candidate. Accordingly, we will be required to obtain significant further funding or reach industry partnerships to achieve this business objective and/or delay or modify the program in accordance with the financial resources available. Sources of Liquidity During the year ended August 31, 2025, the Company has completed the following: · Entered into a Securities Purchase Agreement whereby on April 28, 2025, the Company issued 2,000,000 shares of common stock at $1.00 each in a registered direct offering. The Company also agreed to partially compensate the placement agent through the issuance of warrants to purchase up to 70,000 shares of common stock. The warrants will expire five years from the issuance date and have an exercise price of $1.25 per share. The net proceeds to the Company from the registered direct offering was $1.7 million, after deducting placement agent fees and other offering expenses paid by the Company. · In February 2025, the Company sold 6,585 shares of common stock through an amendment to its At the Market (ATM) offering. Net proceeds from these sales totaled $11,720. · In October 2024, the Company sold 8,402 shares of common stock through an 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. · Entered into a Securities Purchase Agreement whereby on October 16, 2024, the Company issued 1,633,987 shares of common stock at a purchase price of $3.06 per share in a registered direct offering. The Company also sold to the sole investor, warrants to purchase up to 4,551,019 shares of common stock (subject to the cancellation of 2,917,032 warrants of the Company held by the investor). The issued warrants will expire five years from January 14, 2025, the date of shareholder approval for such warrant issuance and have an exercise price of $3.06 per share. The Company also agreed to partially compensate the placement agent through the issuance of warrants to purchase up to 57,190 shares of common stock. The warrants will expire five years from the issuance date and have an exercise price of $3.825 per share. The net proceeds to the Company from the registered direct offering was $4.5 million, after deducting placement agent fees and other offering expenses paid by the Company. On September 26, 2025, we entered into a securities purchase agreement with certain institutional investors, pursuant to which we agreed to sell in a registered direct offering 2,666,667 shares of common stock at a purchase price of $1.50 per share for gross and net proceeds of $4.0 million and $3.5 million, respectively. Concurrently, the Company issued 2,666,667 share purchase warrants, entitling the holder thereof to purchase up to 2,666,667 shares of common stock at a price of $1.37 per share for a period of five years from the effective date of the registration statement registering the shares of common stock issuable upon exercise of the warrants. We may also 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. The Company has evaluated whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern. As of August 31, 2025, the Company had cash on hand of approximately $1.8 million to settle $1.5 million in current liabilities. The Company does not believe this is sufficient to fund our expected R&D and operating expenditures for the twelve-month period following the filing date of this report. We do not anticipate making any material capital expenditures in fiscal 2026, other than those currently budgeted for our R&D programs, as we believe our current facilities and equipment are sufficient for the forthcoming twelve months following the filing date of this report. Our ability to continue as a going concern will depend on our ability to obtain additional equity, effect a collaborative or strategic partnership, reduce or contain expenditures, and, ultimately, to generate revenue. Based on these factors, management determined that there is substantial doubt as to our ability to continue as a going concern. 30 Table of Contents Working Capital August 31, August 31, 2025 2024 Current assets $ 3,468,345 $ 7,897,986 Current liabilities (1,493,463 ) (1,099,419 ) Net Working Capital $ 1,974,882 $ 6,798,567 The Company’s working capital balance decreased by approximately $4.8 million due primarily to the net impact of cash used in operating activities and cash generated from financing activities during the year ended August 31, 2025. Cash Flows August 31, August 31, 2025 2024 Cash flows used in operating activities $ (10,450,388 ) $ (4,959,003 ) Cash flows used in investing activities (243,019 ) (188,605 ) Cash flows provided by financing activities 6,046,163 10,315,207 Effect of exchange rate changes on cash (50,518 ) (19,816 ) Increase/(Decrease) in cash $ (4,697,762 ) $ 5,147,783 Operating Activities Net cash used in operating activities was approximately $10.5 million for the year ended August 31, 2025, compared with $5.0 million during the same period in 2024. The increase in net cash used in operating activities during the year ended August 31, 2025 relates primarily to an increase in our net loss ($6.1 million). Investing Activities Net cash used in investing activities is attributable to purchases of short-term investments, combined with acquisitions of intellectual property and equipment. During the fiscal year, six additional patents were granted. Financing Activities Net cash provided by financing activities reflects net proceeds from the sale of common shares for cash. Net proceeds from the October 16, 2024 and April 28, 2025 financing transactions and At the Market offerings totaled approximately $6.0 million. Critical Accounting Policies and Estimates Our consolidated financial statements and accompanying notes are prepared in accordance with US GAAP. These accounting principles require management to make certain estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses during the periods reported. Based on information available to management at the time, these estimates, judgments and assumptions are considered reasonable. We believe that understanding the basis and nature of the estimates, judgments and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financials. A critical accounting estimate is an accounting estimate for which a) the nature of the estimate is material due to the related level of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and b) the impact of the estimate on the Company’s financial position or operating performance is material. We did not identify any such estimates in our Annual Report on Form 10-K for the year ended August 31, 2025. 31 Table of Contents Off-Balance Sheet Arrangements We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Item 7A. Quantitative and Qualitative Disclosures About Market Risk As a “Smaller Reporting Company”, this Item and the related disclosure is not required.