lxrp_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 28, 2025

☐	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from [ ] to [ ]

Commission file number 000-39874

LEXARIA BIOSCIENCE CORP.

(Exact name of registrant as specified in its charter)

Nevada		20-2000871
(State or other jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

#100 – 740 McCurdy Road, Kelowna BC Canada		V1X 2P7
(Address of principal executive offices)		(Zip Code)

Registrant’s Telephone number, including area code: 1.250.765.6424

Securities registered pursuant to Section 12(b) of the Act:

Title of Class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, Par Value $0.001	LEXX	The NASDAQ Capital Market
Warrants	LEXXW	The NASDAQ Capital Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the last 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated Filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by a check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

17,559,179 common shares issued as of April 14, 2025

DOCUMENTS INCORPORATED BY REFERENCE

None.

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION		3

Item 1. Financial Statements		3

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		18

Item 3. Controls and Procedures.		26

PART II—OTHER INFORMATION		27

Item 1. Legal Proceedings		27

Item 1A. Risk Factors		27

Item 2. 10b5-1 Trading Plans.		27

Item 3. Exhibits, Financial Statement Schedules		27

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

LEXARIA BIOSCIENCE CORP.
CONSOLIDATED BALANCE SHEETS
(Expressed in US Dollars except share amounts)
(Unaudited)
	February 28,			August 31,
	2025			2024
ASSETS
Current
Cash	$	6,468,934		$	6,499,885
Marketable securities		73,915		$	55,807
Accounts receivable		331,166		$	154,477
Prepaid expenses and other current assets		850,387			1,187,817
Total Current Assets		7,724,402			7,897,986

Non-current assets, net
Long-term receivables		64,014			63,575
Right of use assets		121,084			134,843
Intellectual property, net		506,180			516,676
Property & equipment, net		261,890			254,709
Total Non-current Assets		953,168			969,803

TOTAL ASSETS	$	8,677,570		$	8,867,789

LIABILITIES and STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities	$	1,793,079		$	1,066,409
Deferred revenue		-			4,963
Lease liability, current		29,337			28,047
Total Current Liabilities		1,822,416			1,099,419

Lease liabilities - non-current		94,386			109,319

TOTAL LIABILITIES	$	1,916,802		$	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:
17,559,179 and 17,449,179, respectively, at February 28, 2025, and 15,810,205 at August 31, 2024	$	17,559		$	15,810
Additional paid-in capital		64,221,176			59,599,178
Accumulated Deficit		(56,975,683	)		(51,558,772	)
Accumulated other comprehensive loss		(118,246	)		(19,816	)
Equity attributable to shareholders of Lexaria		7,144,806			8,036,400
Non-controlling Interest		(384,038	)		(377,349	)
Total Stockholders' Equity		6,760,768			7,659,051
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	8,677,570		$	8,867,789

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

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LEXARIA BIOSCIENCE CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Expressed in US Dollars except share amounts)
(Unaudited)

	Three Months Ended						Six Months Ended
	February 28,			February 29,			February 28,			February 29,
	2025			2024			2025			2024

Revenue	$	174,000		$	145,000		$	357,923		$	296,278
Cost of goods sold		-			-			2,720			4,822
Gross profit		174,000			145,000			355,203			291,456

Operating expenses
Research and development		1,685,916			245,779			3,639,136			820,270
General and administrative		1,239,096			567,226			2,157,786			1,278,333
Total operating expenses		2,925,012			813,005			5,796,922			2,098,603

Loss from operations		(2,751,012	)		(668,005	)		(5,441,719	)		(1,807,147	)

Other income (loss)
Interest income (expense)		-			(1	)		11			7,318
Unrealized gain (loss) on marketable securities		34,040			15,273			18,108			(37,942	)
Total other income (loss)		34,040			15,272			18,119			(30,624	)

Net loss	$	(2,716,972	)	$	(652,733	)	$	(5,423,600	)	$	(1,837,771	)
Less: Net loss attributable to non-controlling interest		(3,760	)		(3,194	)		(6,689	)		(8,909	)
Net loss attributable to Lexaria shareholders	$	(2,713,212	)	$	(649,539	)	$	(5,416,911	)	$	(1,828,862	)

Other comprehensive income
Foreign currency translation adjustment		(95,255	)		(24,998	)		(98,430	)		(20,626	)
Total comprehensive loss	$	(2,808,467	)	$	(674,537	)	$	(5,515,341	)	$	(1,849,488	)
Basic and diluted loss per share	$	(0.15	)	$	(0.06	)	$	(0.32	)	$	(0.18	)

Weighted average number of common shares outstanding
- Basic and diluted		17,511,908			10,765,143			17,065,084			9,970,489
The accompanying notes are an integral part of these interim consolidated financial statements.

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LEXARIA BIOSCIENCE CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Six Months Ended February 28, 2025 and February 29, 2024
(Expressed in US Dollars)
(Unaudited)


					Additional								Non-
	Common Stock				Paid-in								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
Stock issued in equity offering		6,585		6		11,714		-			-			-			11,720
Foreign currency translation adjustment		-		-		-		-			(95,255	)		-			(95,255	)
Stock-based compensation		100,000		100		167,119		-			-			-			167,219
Net loss		-		-		-		(2,713,212	)		-			-			(2,713,212	)
Non-controlling interest		-		-		-		-			-			(3,760	)		(3,760	)
Balance February 28, 2025		17,559,179	$	17,559	$	64,221,176	$	(56,975,683	)	$	(118,246	)	$	(384,038	)	$	6,760,768

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
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 28, 2024		12,387,673	$	12,388	$	54,121,316	$	(47,592,289	)	$	(20,626	)	$	(372,949	)	$	6,147,840

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

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LEXARIA BIOSCIENCE CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended February 28, 2025 and February 29, 2024
(Expressed in US Dollars) (Unaudited)

	February 28,			February 29,
	2025			2024
Cash flows used in operating activities
Net loss	$	(5,423,600	)	$	(1,837,771	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock based compensation		266,634			53,953
Depreciation and amortization		35,472			44,709
Impairment loss		33,540			23,507
Noncash lease expense		13,759			17,449
Unrealized (gain) loss on marketable securities		(18,108	)		37,942
Lease accretion		4,778			2,840
Change in operating assets and liabilities
Accounts receivable		(176,688	)		(230,404	)
Prepaid expenses and deposits		337,431			279,987
Long-term receivables		(439	)		9,065
Accounts payable and accrued liabilities		726,669			(184,622	)
Operating lease liability		(18,421	)		(17,922	)
Deferred revenue		(4,963	)		-
Net cash used in operating activities	$	(4,223,936	)	$	(1,801,267	)

Cash flows used in investing activities
Additions to intellectual property	$	(41,052	)	$	(97,016	)
Purchase of equipment		(24,646	)		-
Net cash used in investing activities	$	(65,698	)	$	(97,016	)

Cash flows provided by (used in) financing activities
Proceeds from shares sold for cash	$	4,357,113		$	4,208,731
Proceeds from exercise of warrants					1,063,475
Net cash provided by (used in) financing activities	$	4,357,113		$	5,272,206

Effect of exchange rate changes on cash	$	(98,430	)	$	(20,626	)
Net change in cash for the period		(30,951	)		3,353,297
Cash at beginning of period		6,499,885			1,352,102
Cash at end of period	$	6,468,934		$	4,705,399


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

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LEXARIA BIOSCIENCE CORP.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2025

(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 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.

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 $5.4 million and $1.8 million for the six months ended February 28, 2025, and February 29, 2024, respectively. As of February 28, 2025, we had an accumulated deficit of $57.0 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. 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 six months ended February 28, 2025, we raised $4.4 million in net proceeds from the sale of securities pursuant to our Registered Direct Offering which closed in October, 2024 as well as At the Market (ATM) offerings.

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.

Given our current development plans and cash management efforts, we anticipate that our cash resources will be sufficient to fund operations through the fourth quarter of calendar year 2025. Our ability to continue operations after our current cash resources are exhausted is dependent on our ability to obtain additional debt or equity financing or a strategic partnership, which cannot be guaranteed. Cash requirements may vary materially from those now planned because of changes in our focus and direction of our research and development programs, competitive and technical advances, patent developments, regulatory changes or other developments. If adequate additional funds are not available when required, management may need to curtail its development efforts and planned operations to conserve cash.

As of February 28, 2025, the Company had cash and cash equivalents of approximately $6.5 million to settle $1.8 million in current liabilities. We have performed a review of our cash flow forecast and have concluded that our existing cash, combined with inflows expected from executed license agreements, will not be sufficient to meet the Company's financial obligations for the twelve-month period following the issuance of these consolidated financial statements. Accordingly, there is substantial doubt as to our ability to continue as a going concern within one year from the date of issuance of these financial statements. The accompanying financial statements do not include any adjustments that might be necessary if the Company is not able to continue as a going concern.

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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 83.333% owned subsidiary Lexaria Nicotine LLC with the remaining 16.667% 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 February 28, 2025, 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.

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.

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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

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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 six months ended February 28, 2025 and February 29, 2024.

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.

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.

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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 February 28, 2025.

	Carrying		Fair Value Measurement Using
	Value		Level 1		Level 2		Level 3		Total
Marketable Securities	$	73,915	$	73,915	$	-	$	-	$	73,915

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.

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In the six months ended February 28, 2025, two customers accounted for 100% of consolidated revenues. In the six months ended February 29, 2024, two customers accounted for 97% of consolidated revenues.

As of February 28, 2025, the Company had $157,166 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.

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.

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5. Accounts and Other Receivables

Accounts receivable as of February 28, 2025 and August 31, 2024 consist of the following:

	February 28, 2025		August 31, 2024
Territory license fees	$	174,000	$	84,000
Sales tax		157,166		70,477
Long term receivable		64,014		63,575
Total Receivables	$	395,180	$	218,052

6. Prepaid Expenses and Other Current Assets

Prepaid expenses consist of the following as of February 28, 2025 and August 31, 2024:

	February 28,		August 31,
	2025		2024
Advertising & Conferences	$	32,822	$	204,894
Research and Development		560,679		673,126
Legal & Accounting Fees		25,000		45,600
License, Filing Fees, Dues		64,312		22,925
Office & Insurance		73,574		122,245
Capital Financing		94,000		119,027
Total Prepaid Expenses and Other Current Assets	$	850,387	$	1,187,817

7. Intellectual Property, net

A continuity schedule for capitalized patents is presented below:

	February 28,			August 31,
	2025			2024
Balance – beginning	$	516,676		$	462,625
Additions		41,052			145,591
Impairment		(33,540	)		(57,836	)
Amortization		(18,008	)		(33,704	)
Balance – ending	$	506,180		$	516,676

The Company evaluated its patent portfolio to determine whether certain pending applications had been abandoned or will not be pursued. During the six months ended February 28, 2025, the Company recognized an impairment loss of $33,540 related to those abandoned applications. The Company recognized $18,008 of amortization expense related to patents and licenses in the six months ended February 28, 2025.

The following table summarizes expected future amortization of the Company’s patent portfolio as of February 28, 2025:

Fiscal Years Ending August 31,
2025	$	25,309
2026	$	25,309
2027	$	25,309
2028	$	25,309
2029	$	25,309
Thereafter	$	379,635
Total	$	506,180

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8. Property & Equipment, net

Consists of:

February 28, 2025	Cost		Period Amortization			Additions		Accumulated Amortization			Net Balance
Leasehold improvements	$	259,981	$			$	-	$	(259,981	)	$	-
Computers		70,781		(1,137	)		-		(70,213	)		568
Furniture fixtures equipment		31,126					-

SEC Form 10-Q filed by Lexaria Bioscience Corp.