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, 2026

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

For the transition period from [ ] to [ ]

Commission file number 001-39874

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

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.

24,787,446 common shares issued as of April 13, 2026

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		20

Item 4. Controls and Procedures.		30

PART II—OTHER INFORMATION		31

Item 1. Legal Proceedings		31

Item 1A. Risk Factors		31

Item 2. Recent Sales of Unregistered Equity Securities		32

Item 3. 10b5-1 Trading Plans		32

Item 4. Exhibits, Financial Statement Schedules		32

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

LEXARIA BIOSCIENCE CORP.

CONSOLIDATED BALANCE SHEETS

(Expressed in US Dollars)

(Unaudited)

	February 28,			August 31,
	2026			2025
ASSETS
Current
Cash	$	5,128,141		$	1,802,123
Short-term investments		141,266			143,267
Marketable securities		-			22,093
Accounts receivable		42,029			368,358
Prepaid expenses and other current assets		458,846			1,132,504
Total Current Assets		5,770,282			3,468,345

Non-current assets, net
Long-term receivables		64,014			64,013
Right of use assets		92,018			106,816
Intellectual property, net		318,058			307,818
Property & equipment, net		242,931			228,129
Total Non-current Assets		717,021			706,776

TOTAL ASSETS	$	6,487,303		$	4,175,121

LIABILITIES and STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities	$	182,611		$	1,463,046
Lease liability, current		32,060			30,417
Total Current Liabilities		214,671			1,493,463

Lease liabilities - non-current		62,326			78,903

TOTAL LIABILITIES	$	276,997		$	1,572,366

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:
24,887,446 and 19,559,179 at February 28, 2026 and August 31, 2025, respectively	$	24,888		$	19,559
Additional paid-in capital		73,138,652			66,501,086
Accumulated Deficit		(66,505,599	)		(63,460,613	)
Accumulated other comprehensive loss		(55,444	)		(70,335	)
Equity attributable to shareholders of Lexaria		6,602,497			2,989,697
Non-controlling Interest		(392,191	)		(386,942	)
Total Stockholders' Equity		6,210,306			2,602,755
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	6,487,303		$	4,175,121

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 28,			February 28,			February 28,
	2026			2025			2026			2025

Revenue	$	20,000		$	174,000		$	20,000		$	357,923
Cost of goods sold		-			-			-			2,720
Gross profit		20,000			174,000			20,000			355,203

Operating expenses
Research and development		475,388			1,685,916			1,146,728			3,639,136
General and administrative		996,515			1,239,096			1,898,806			2,157,786
Total operating expenses		1,471,903			2,925,012			3,045,534			5,796,922

Loss from operations		(1,451,903	)		(2,751,012	)		(3,025,534	)		(5,441,719	)

Other income (loss)
Interest income		1,769			-			1,781			11
Unrealized gain (loss) on marketable securities		-			34,040			(22,093	)		18,108
Total other income (loss)		1,769			34,040			(20,312	)		18,119

Net loss before income taxes	$	(1,450,134	)	$	(2,716,972	)	$	(3,045,846	)	$	(5,423,600	)
Income taxes		2,598			-			4,389			-
Net loss	$	(1,452,732	)	$	(2,716,972	)	$	(3,050,235	)	$	(5,423,600	)
Less: Net loss attributable to non-controlling interest		(2,753	)		(3,760	)		(5,249	)		(6,689	)
Net loss attributable to Lexaria shareholders	$	(1,449,979	)	$	(2,713,212	)	$	(3,044,986	)	$	(5,416,911	)

Other comprehensive income
Foreign currency translation adjustment		20,635			(95,255	)		14,891			(98,430	)
Total comprehensive loss	$	(1,429,344	)	$	(2,808,467	)	$	(3,030,095	)	$	(5,515,341	)
Basic and diluted loss per share	$	(0.06	)	$	(0.15	)	$	(0.13	)	$	(0.32	)

Weighted average number of common shares outstanding
Basic and diluted		24,443,846			17,511,908			22,901,491			17,065,084

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

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LEXARIA BIOSCIENCE CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

For the Six Months Ended February 28, 2026 and 2025

(Expressed in US Dollars)

(Unaudited)

					Additional								Non-
	Common Stock				Paid-in								controlling			Stockholders'
	Shares		Amount		Capital		Deficit			AOCI			Interest			Equity

Balance August 31, 2025		19,559,179	$	19,559	$	66,501,086	$	(63,460,613	)	$	(70,335	)	$	(386,942	)	$	2,602,755
Shares sold for cash		2,666,667		2,667		3,446,384		-			-			-			3,449,051
Stock-based compensation		-		-		74,895		-			-			-			74,895
Foreign currency translation adjustment		-		-		-		-			(5,744	)		-			(5,744	)
Net loss		-		-		-		(1,595,007	)		-			-			(1,595,007	)
Non-controlling interest		-		-		-		-			-			(2,496	)		(2,496	)
Balance November 30, 2025		22,225,846	$	22,226	$	70,022,365		(65,055,620	)	$	(76,079	)	$	(389,438	)	$	4,523,454
Shares sold for cash		2,661,600		2,662		3,041,392		-			-			-			3,044,054
Stock-based compensation		-		-		74,895		-			-			-			74,895
Foreign currency translation adjustment		-		-		-		-			20,635			-			20,635
Net loss		-		-		-		(1,449,979	)		-			-			(1,449,979	)
Non-controlling interest		-		-		-		-			-			(2,753	)		(2,753	)
Balance February 28, 2026		24,887,446	$	24,888		73,138,652		(66,505,599	)		(55,444	)		(392,191	)		6,210,306

Balance August 31, 2024		15,810,205	$	15,810	$	59,599,178	$	(51,558,772	)	$	(19,816	)	$	(377,349	)	$	7,659,051
Shares sold for cash		1,642,389		1,643		4,343,750		-			-			-			4,345,393
Stock-based compensation		-		-		99,415		-			-			-			99,415
Foreign currency translation adjustment		-		-		-		-			(3,175	)		-			(3,175	)
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
Shares sold for cash		6,585		6		11,714		-			-			-			11,720
Stock-based compensation		100,000		100		167,119		-			-			-			167,219
Foreign currency translation adjustment		-		-		-		-			(95,255	)		-			(95,255	)
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

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

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CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended February 28, 2026 and 2025

(Expressed in US Dollars)

(Unaudited)

	February 28,			February 28,
	2026			2025
Cash flows used in operating activities
Net loss	$	(3,050,235	)	$	(5,423,600	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock based compensation		149,790			266,634
Depreciation and amortization		35,967			35,472
Impairment loss		-			33,540
Noncash lease expense		14,798			13,759
Unrealized loss on marketable securities		22,093			(18,108	)
Lease accretion		3,739			4,778
Change in operating assets and liabilities
Accounts receivable		326,329			(176,688	)
Prepaid expenses and deposits		648,658			337,431
Long-term receivables		-			(439	)
Accounts payable and accrued liabilities		(1,280,437	)		726,669
Operating lease liability		(18,672	)		(18,421	)
Deferred revenue		-			(4,963	)
Net cash used in operating activities	$	(3,147,970	)	$	(4,223,936	)

Cash flows used in investing activities
Short-term investments	$	2,001			-
Additions to intellectual property		(20,193	)	$	(41,052	)
Purchase of equipment		(40,816	)		(24,646	)
Net cash used in investing activities	$	(59,008	)	$	(65,698	)

Cash flows from financing activities
Proceeds from shares sold for cash	$	6,518,105		$	4,357,113
Net cash from financing activities	$	6,518,105		$	4,357,113

Effect of exchange rate changes on cash	$	14,891		$	(98,430	)
Net change in cash for the period		3,326,018			(30,951	)
Cash at beginning of period		1,802,123			6,499,885
Cash at end of period	$	5,128,141		$	6,468,934

Supplemental cash flow disclosure:
Income taxes paid in cash	$	4,389		$	-
Non-cash investing/financing activities:
Amortization of deferred offering costs	$	25,000		$	-

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, 2026

(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 have historically been 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 revenue 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 have also performed contract services in R&D for customer specific formulations that are used in comparison testing to customers’ existing products.

Going Concern

The Company’s consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with accounting principles generally accepted in the United States (“US GAAP”) applicable to a going concern, which assumes the Company will have sufficient funds to meet its financial obligations for a period of at least 12 months from the date of this report.

Since inception, the Company has incurred significant operating and net losses. Net losses attributable to shareholders were $3.0 million and $5.4 million for the six months ended February 28, 2026, and February 28, 2025, respectively. As of February 28, 2026, we had an accumulated deficit of $66.5 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, 2026, we raised $6.5 million in net proceeds from the sale of securities pursuant to our Registered Direct Offerings which closed in September 2025 and December 2025.

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.

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.

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As of February 28, 2026, the Company had cash and cash equivalents of approximately $5.1 million to settle $0.2 million in current liabilities. We have performed a review of our cash flow forecast, and given our current development plans and cash management efforts, we anticipate that our cash resources will be sufficient to fund operations through the first quarter of fiscal year 2027. However, we have also 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.

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, 2025.

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, 2025.

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 six months when acquired and readily convertible to known cash amounts. The Company had no cash equivalents as of February 28, 2026, or August 31, 2025.

Short-term investments

Short-term investment balances consist of guaranteed investment certificates used to secure the Company’s credit cards. The certificates had an original term of one year.

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. There have been no purchases or sales of equity securities. The Company recognized an unrealized loss on its equity securities of $22,093 for the six months ended February 28, 2026 and an unrealized gain of $18,108 for the six months ended February 28, 2025.

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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 reported on the consolidated balance sheet as both a right-of-use asset and lease liability.

We determined the initial classification and measurement of our right-of-use assets and lease liabilities at the lease commencement date and thereafter if modified. The lease term includes any renewal options and termination options that we are reasonably certain to exercise. The present value of lease payments is determined by using the interest rate implicit in the lease, if that rate is readily determinable; otherwise, we use our incremental borrowing rate. The incremental borrowing rate is determined by using the rate of interest that we would pay to borrow on a collateralized basis an amount equal to the lease payments for a similar term and in a similar economic environment.

Operating lease expenses are recognized on a straight-line basis, unless the right-of-use asset has been impaired, over the reasonably certain lease term based on the total lease payments. They are included in operating expenses in the Consolidated Statements of Operations 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 and Comprehensive Loss. 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.

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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

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, 2026 and February 28, 2025.

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.

Australian Research and Development Tax Credit

The research and development incentive is one of the key elements of the Australian Government’s support for Australia’s innovation system and is supported by legislative law primarily in the form of the Australian Income Tax Assessment Act 1997, as long as eligibility criteria are met. Under the program, a percentage of eligible research and development expenses incurred by the Company through its Australian subsidiary are reimbursed. Management has assessed the Company’s research and development activities and expenditures to determine which activities and expenditures are likely to be eligible under the incentive regime. The Company recognizes such benefits when both of the following conditions have been met: 1) the Company is able to comply with the relevant conditions of the credit and; 2) the credit has been received. The tax credit related to fiscal year spending for 2024 in the amount of $39,134 has been received and is included in our fiscal year 2025 financial statements. The tax credit related to fiscal year spending for 2025 has yet to be received and thus remains unrecorded as of this time.

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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.

Segment reporting

The Company has one reportable segment: IP licensing. The IP licensing segment generates revenue from customers by licensing its proprietary DehydraTECH technology. The IP licensing segment’s accounting policies are the same as those described in this note. The chief operating decision maker, our Chief Executive Officer, assesses performance of the IP Licensing segment and makes resource allocation decisions based on cash flows that are also reported on the Consolidated Statements of Cash Flows. The measure of segment assets is reported on the consolidated balance sheet as consolidated total assets. The measure of segment profit or loss is net loss as per the Consolidated Statements of Operations and Comprehensive Loss.

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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For the six months ended February 28, 2026 and 2025, the following common stock equivalents were excluded from the computation of diluted loss per share as the result was anti-dilutive:

	February 28,
	2026		2025
Stock Options		1,476,035		1,070,269
Warrants		11,093,099		7,562,028
Totals		12,569,134		8,632,297

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 are located in Canada, and it also has operations in Australia, 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 USD/CAD and USD/AUD exchange rate changes 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, 2026.

Carrying

Fair Value Measurement Using

Value

Level 1

Level 2

Level 3

Total

Marketable Securities

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The following table provides a summary of financial instruments that are measured at fair value on a recurring basis as of August 31, 2025.

	Carrying		Fair Value Measurement Using
	Value		Level 1		Level 2		Level 3		Total
Marketable Securities	$	22,093	$	22,093	$	-	$	-	$	22,093

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 six months ended February 28, 2026, the Company recognized revenue of $20,000 on a consolidated basis. One customer accounted for 100% of that total. In the six months ended February 28, 2025, the Company recognized revenue of $357,923 on a consolidated basis. Two customers accounted for 100% of that total.

As of February 28, 2026, the Company had $42,029 in sales tax receivable, as compared to $194,358 as of August 31, 2025. 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

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.

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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 February 28, 2026 and August 31, 2025 consist of the following:

	Feb. 28, 2026		August 31, 2025
Territory license fees	$	-	$	174,000
Sales tax		42,029		194,358
Long term receivable		64,014		64,013
Total Receivables	$	106,043	$	432,371

6. Prepaid Expenses and Other Current Assets

Prepaid expenses consist of the following as of February 28, 2026 and August 31, 2025:

	Feb. 28,		August 31,
	2026		2025
Advertising & Conferences	$	182,031	$	1,572
Research & Development		58,416		669,791
Legal & Accounting Fees		26,487		37,340
License, Filing Fees, Dues		66,458		27,563
Office & Insurance		108,440		239,829
Consulting		17,014		37,409
Capital Financing		-		119,000
Total Prepaid Expenses and Other Current Assets	$	458,846	$	1,132,504

7. Intellectual Property, net

A continuity schedule for capitalized patents is presented below:

	Feb. 28,			August 31,
	2026			2025
Balance – beginning	$	307,818		$	516,676
Additions		20,193			75,106
Impairment		-			(247,364	)
Amortization		(9,953	)		(36,600	)
Balance – ending	$	318,058		$	307,818

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, 2026, the Company recognized an impairment loss of $0 related to those abandoned applications. The Company recognized $9,953 of amortization expense related to patents and licenses in the six months ended February 28, 2026.

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The following table summarizes expected future amortization of the Company’s patent portfolio as of February 28, 2026:

Fiscal Years Ending August 31,
2026 (six months remaining)	$	7,951
2027		15,902
2028		15,902
2029		15,902
2030		15,902
Thereafter		246,499
Total	$	318,058

8. Property & Equipment, net

Consists of:

February 28, 2026	Cost		Period Amortization			Additions		Accumulated Amortization			Net Balance
Leasehold improvements	$	259,981	$	-		$	-	$	(259,981	)	$	-
Computers		70,781		-			-		(70,781	)		-
Furniture fixtures equipment		31,126		-			-		(31,126	)		-
Lab equipment		435,084		(26,014	)		40,816		(232,969	)		242,931
Total	$	796,972	$	(26,014	)	$	40,816	$	(594,857	)	$	242,931

August 31, 2025	Cost		Period Amortization			Additions		Accumulated Amortization			Net Balance
Leasehold improvements	$	259,981	$	-		$	-	$	(259,981	)	$	-
Computers		70,781		(1,705	)		-		(70,781	)		-
Furniture fixtures equipment		31,126		-			-		(31,126	)		-
Lab equipment		410,438		(49,520	)		24,646		(206,955	)		228,129
Total	$	772,326	$	(51,225	)	$	24,646	$	(568,843	)	$	228,129

Depreciation and amortization for the six months ended February 28, 2026 and the year ended August 31, 2025 totaled $26,014 and $51,225, 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 February 28, 2026 and August 31, 2025 consist of the following:

	February 28,		August 31,
	2026		2025
Accounts Payable
Vendors payable	$	36,195	$	569,754
Sales tax payable		28,629		21,506
Accrued Liabilities
Vendors payable		7,707		795,290
Vacation payable		110,080		76,496
Balance Ending	$	182,611	$	1,463,046

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10. Revenues

A breakdown of our revenues by type for the six months ended February 28, 2026, and February 28, 2025, are as follows:

	Six months Ended February 28
	2026		2025

IP Licensing	$	20,000	$	348,000
B2B

SEC Form 10-Q filed by Lexaria Bioscience Corp.