UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
Or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission
File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of Principal Executive Offices) (Zip Code) | (Registrant’s Telephone Number, Including Area Code) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on which Registered | ||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 past 90 days.
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 such files.)
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 | ☐ | ☒ | 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate
by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date was: shares of $ par value common stock outstanding as of September 29, 2025.
EXPLANATORY NOTE
On April 24, 2025, SRx Health Solutions, Inc., a corporation existing under the laws of the Province of Ontario (“SRx Canada” or the “Accounting Acquirer”), consummated a business combination (the “Merger”) with Better Choice Company, Inc., a Delaware corporation (“Better Choice” or the “Legal Acquirer”). In the Merger, 1000994476 Ontario Inc. (“AcquireCo”), an indirect wholly-owned subsidiary of Better Choice, amalgamated with and into SRx Canada, with SRx Canada surviving the amalgamation and continuing its operations under the new legal name SRx Health Solutions (Canada) Inc. (“SRx Canada”), an indirect wholly-owned subsidiary of Better Choice.
In connection with the Business Combination, Better Choice changed its corporate name to “SRx Health Solutions, Inc.” by filing a Certificate of Amendment with the Secretary of State of Delaware. As a result of the transaction, SRx Canada is the Accounting Acquirer and, for accounting purposes, the continuing reporting entity. These condensed consolidated financial statements reflect SRx Canada’s results and financial position from the beginning of the period, with the equity structure reflecting Better Choice as the Legal Acquirer.
Unless otherwise noted, all references to the “Company,” “we,” or “our” in this report refer to SRx Health Solutions, Inc. as the continuing entity after the Business Combination.
For more information regarding the Merger, see SRx Health Solutions, Inc.’s Form 8-K/A filed on July 11, 2025.
SRx Health Solutions Inc. (formerly Better Choice Company, Inc.)
TABLE OF CONTENTS
| 2 |
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this report are forward-looking statements. Forward-looking statements discuss our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “aim,” “anticipate,” “believe,” “can,” “could,” “estimate,” “expect,” “forecast,” “intend,” “likely,” “may,” “outlook,” “plan,” “potential,” “project,” “projection,” “seek,” “should,” “will,” “would,” the negatives thereof and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. They appear in a number of places throughout this report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including, but not limited to, those summarized below:
| ● | our ability to continue as a going concern; |
| ● | the impact of damage to or interruption of our information technology systems due to cyber-attacks or other circumstances beyond our control; |
| ● | business interruptions resulting from geopolitical actions, including war and terrorism; |
| ● | our ability to successfully implement our growth strategy; |
| ● | failure to achieve growth or manage anticipated growth; |
| ● | our ability to achieve or maintain profitability; |
| ● | the loss of key members of our senior management team; |
| ● | our ability to generate sufficient cash flow or raise capital on acceptable terms to run our operations, service our debt and make necessary capital expenditures; |
| ● | our dependence on our subsidiaries for payments, advances and transfers of funds due to our holding company status; |
| ● | our ability to successfully develop additional products and services or successfully market and commercialize such products and services; |
| ● | competition in our market; |
| ● | our ability to attract new and retain existing customers, suppliers, distributors or retail partners; |
| 3 |
| ● | allegations that our products cause injury or illness or fail to comply with government regulations; |
| ● | our ability to manage our supply chain effectively; |
| ● | our or our co-manufacturers’ and suppliers’ ability to comply with legal and regulatory requirements; |
| ● | the effect of potential price increases and shortages on the inputs, commodities and ingredients that we require, whether as a result of the continued actual or perceived effects of broader geopolitical and macroeconomic conditions, including the military conflict between Russia and Ukraine; |
| ● | our ability to develop and maintain our brand and brand reputation; |
| ● | compliance with data privacy rules; |
| ● | inflationary pressures; |
| ● | our compliance with applicable regulations issued by the U.S. Food and Drug Administration (“FDA”), the U.S. Federal Trade Commission (“FTC”), the U.S. Department of Agriculture (“USDA”), and other federal, state and local regulatory authorities, including those regarding marketing pet food, products and supplements; |
| ● | risk of our products being recalled for a variety of reasons, including product defects, packaging safety and inadequate or inaccurate labeling disclosure; |
| ● | risk of shifting customer demand in relation to raw pet foods, premium kibble and canned pet food products, and failure to respond to such changes in customer taste quickly and effectively; and |
| ● | the other risks identified in this Quarterly Report including, without limitation, Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Part II, Item 1A “Risk Factors” as such factors may updated from time to time in our other public filings. |
NOTE REGARDING TRADEMARKS
We own or have rights to use the trademarks and trade names that we use in conjunction with the operation of our business. Each trademark or trade name of any other company appearing in this Quarterly Report on Form 10-Q is, to our knowledge, owned by such other company. Solely for convenience, our trademarks and trade names referred to in this Quarterly Report on Form 10-Q may appear without the ® or ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks and trade names.
| 4 |
PART I
| ITEM 1. | FINANCIAL STATEMENTS |
SRx Health Solutions Inc. (formerly Better Choice Company, Inc.)
Unaudited Condensed Consolidated Statements of Operations
(U.S. dollars in thousands, except share and per share amounts)
| Three months ended June 30, | Nine months ended June 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross margin | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Impairment expense | ||||||||||||||||
| Total Expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (expense) | ( | ) | ||||||||||||||
| Interest income (expense), net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Bargain purchase gain | ||||||||||||||||
| Net loss before taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax (expense) income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Deferred tax income (expense) | ( | ) | ||||||||||||||
| Net loss after taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive income (expense) | ||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ||||||||||||||
| Loss and comprehensive loss | ( | ) | ( | ) | ( | ) | ||||||||||
| Weighted average number of shares outstanding, basic | ||||||||||||||||
| Weighted average number of shares outstanding, diluted | ||||||||||||||||
| Net loss per share, basic | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss per share, diluted | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 5 |
SRx Health Solutions Inc. (formerly Better Choice Company, Inc.)
Unaudited Condensed Consolidated Balance Sheets
(U.S. dollars in thousands, except share and per share amounts)
| June 30, 2025 | September 30, 2024 (Revised) | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories, net | ||||||||
| Due from related parties | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Current portion of lease receivable | ||||||||
| Total current assets | ||||||||
| Non-current assets | ||||||||
| Fixed assets, net | ||||||||
| Right-of-use assets, operating leases | ||||||||
| Lease receivable, long-term | ||||||||
| Intangible assets | ||||||||
| Deferred tax assets | ||||||||
| Other LT assets | ||||||||
| Total non-current assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Current portion of long-term borrowings | ||||||||
| Convertible debt | ||||||||
| Current portion of operating lease liability | ||||||||
| Income tax payable | ||||||||
| Due to related parties | ||||||||
| Deferred revenue | ||||||||
| Short-term borrowings | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities | ||||||||
| Long-term borrowings | ||||||||
| Operating lease liability, long-term | ||||||||
| Deferred tax liability | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Shareholders’ Equity | ||||||||
| Common Stock, $ par value, shares authorized, & shares issued and outstanding as of June 30, 2025 and September 30, 2024, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ||||||||
| Total Shareholders’ Deficit | ( | ) | ( | ) | ||||
| Total liabilities and Shareholders’ Deficit | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 6 |
SRx Health Solutions Inc. (formerly Better Choice Company, Inc)
Unaudited Condensed Consolidated Statements of Shareholders’ Equity (Deficit)
(U.S. dollars in thousands, except shares)
Number of Shares: # | Common
Stock Amount $ | Accumulated other comprehensive income (loss) $ | Additional paid-in capital $ | Accumulated Deficit $ | Total Shareholders’ Deficit $ | |||||||||||||||||||
| Balance as at September 30, 2023 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Share-based compensation | - | |||||||||||||||||||||||
| Settlement of RSUs | ( | ) | ||||||||||||||||||||||
| Share redemption | ( | ) | ( | ) | ||||||||||||||||||||
| Equity issued in business combinations | ||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||
| Balance as at June 30, 2024 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
Number of Shares # | Common Stock Amount $ | Accumulated other comprehensive income (loss) $ | Additional paid-in capital $ | Accumulated Deficit $ | Total Shareholders’ Deficit $ | |||||||||||||||||||
| Balance as at September 30, 2024 | ( | ) | ( | ) | ||||||||||||||||||||
| Capital contribution for settlement of historical related party loans | - | |||||||||||||||||||||||
| Share-based compensation, pre-merger | ||||||||||||||||||||||||
| Conversion of convertible debt, pre-merger | ||||||||||||||||||||||||
| Shares issued for settlement of accounts payable | ||||||||||||||||||||||||
| Shares issued for private placement, pre-merger | ||||||||||||||||||||||||
| Warrant exercises, pre-merger | ( | ) | ( | ) | ||||||||||||||||||||
| Shares redeemed in connection with business combinations* | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Share-based compensation, post-merger | ||||||||||||||||||||||||
| Shares issued for private placement, post-merger | ||||||||||||||||||||||||
| Shares issued for acquisition costs | ||||||||||||||||||||||||
| Fair value of shares issued to acquire Better Choice | ||||||||||||||||||||||||
| Shares repurchased | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Exercise of pre-funded warrants | ||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||
| Balance as at June 30, 2025 | ( | ) | ( | ) | ||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| * |
| 7 |
SRx Health Solutions Inc. (formerly Better Choice Company, Inc.)
Unaudited Condensed Consolidated Statements of Cash Flows
(U.S. dollars in thousands)
| Nine Months Ended June 30, | ||||||||
| 2025 | 2024 | |||||||
| Operating activities | ||||||||
| Net loss | $ | ( | ) | ( | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Impairment expense | ||||||||
| Interest expense on lease liability | ||||||||
| Bargain purchase gain | ( | ) | ||||||
| Acquisition costs | ||||||||
| Gain on disposal of assets, net | ( | ) | ||||||
| Share-based compensation | ||||||||
| Shares issued for settlement of accounts payable | ||||||||
| Income tax benefit, net | ( | ) | ( | ) | ||||
| Loss on sale of cryptocurrency assets | ||||||||
| Working capital changes | ||||||||
| Accounts receivable, net | ( | ) | ||||||
| Inventories, net | ||||||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Accounts payable | ||||||||
| Accrued liabilities | ||||||||
| Operating leases, net | ( | ) | ||||||
| Deferred revenue | ||||||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| Investing activities | ||||||||
| Capital expenditures | ( | ) | ||||||
| Cash acquired in business combination | ||||||||
| Proceeds from sale of cryptocurrency assets | ||||||||
| Purchase of cryptocurrency assets | ( | ) | ||||||
| Proceeds from sale of assets | ||||||||
| Payments to acquire assets | ( | ) | ||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Financing activities | ||||||||
| Payment of lease liability | ( | ) | ||||||
| Proceeds from short term borrowings | ||||||||
| Repayment of short-term borrowings | ( | ) | ||||||
| Proceeds from long-term borrowings | ||||||||
| Repayment of long-term borrowings | ( | ) | ( | ) | ||||
| Proceeds from private placements | ||||||||
| Payments for share repurchases | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Effect of foreign currency translation adjustments | ( | ) | ||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | |||||||
| Supplemental schedule of cash flow information: | ||||||||
| Cash paid for interest | ( | ) | ( | ) | ||||
| Disclosure of non-cash financing activities: | ||||||||
| Conversion of convertible debt | ( | ) | ||||||
| Capital contribution for settlement of historical related-party loans | ||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 8 |
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Note 1 – Nature of business and summary of significant accounting policies
Nature of the business
SRx Health Solutions, Inc. and its subsidiaries are together referred to in these condensed consolidated financial statements as the “Company”.
On April 24, 2025, SRx Health Solutions, Inc., a corporation incorporated under the laws of the Province of Ontario on April 26, 2022 (“SRx Canada” or the “Accounting Acquirer”), consummated a business combination (the “Merger”) with Better Choice Company, Inc., a Delaware corporation (“Better Choice” or the “Legal Acquirer”). In the Merger, 1000994476 Ontario Inc. (“AcquireCo”), an indirect wholly-owned subsidiary of Better Choice, amalgamated with and into SRx Canada, with SRx Canada surviving the amalgamation and continuing its operations under the new legal name SRx Health Solutions (Canada) Inc. (“SRx Canada”), an indirect wholly-owned subsidiary of Better Choice.
In connection with the Merger, Better Choice changed its corporate name to “SRx Health Solutions, Inc.”, and adopted the operations of the Accounting Acquirer as its primary business. As such, SRx Canada is the continuing reporting entity for accounting purposes. Refer to Note 4 – Business Combinations for more information.
SRx Canada’s registered head office was originally located at 65 Queen Street West, Suite 800, Toronto, Ontario, M5H 2M5. Post the Merger, the Company’s registered head office remained at 12400 Race Track Road, Tampa, Florida 33626.
The Company operates as a vertically integrated healthcare organization and branded pet wellness company. The Company consolidated the operations of two business segments: (i) Canadian pharmacy and healthcare services through SRx Canada, and (ii) premium pet health and nutrition products sold through its subsidiary Halo, Purely for Pets, Inc., a Delaware corporation (“Halo”).
Halo Spin-Out Distribution
On
April 25, 2025, the Company distributed (the “Spin-Out Distribution”) to the Better Choice stockholders of record as of April
23, 2025 (the “Record Stockholders”) one share of Class A Common Stock, par value $, of Halo Spin-Out SPV Inc., a Delaware
corporation (“Halo SPV”), for every one share of Better Choice common stock held by the Record Stockholders. Halo SPV holds
The ownership of Halo SPV following the Spin-Out Distribution mirrored the ownership of Better Choice immediately prior to the Merger and the Spin-Out Distribution. As such, the Record Stockholders, who received the Halo SPV shares, are the same ultimate owners who indirectly held Halo prior to the Spin-Out Distribution. Accordingly, the Spin-Out Distribution did not result in a substantive change in ownership of Halo from the perspective of the Company’s condensed consolidated financial statements.
In accordance with ASC 810, Consolidation, the Spin-Out Distribution represented a reorganization of ownership interests under common control, and is therefore treated as a common control equity reorganization, with those transfers of interests accounted for as equity transactions. As such, the transaction does not give rise to the presentation of a noncontrolling interest in the Company’s condensed consolidated financial statements. Halo continues to be fully consolidated, with no change in the Company’s accounting treatment.
On August 12, 2025, SRx Canada filed for protection under the Companies’ Creditors Arrangement Act (Canada) (“CCAA”). Refer to Note 23 – Subsequent Events for additional details.
Note 2 – Basis of Preparation
Statement of Compliance
The Company’s condensed consolidated financial statements are prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial reports and accounting principles generally accepted in the U.S.(“GAAP”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended June 30, 2025 are not necessarily indicative of the results that may be expected for any other reporting period.
| 9 |
These consolidated financial statements have been prepared on a historical cost basis, unless otherwise stated in the significant accounting policies. These consolidated financial statements are presented in U.S. dollars and all values are rounded to the nearest thousand ($000), except when otherwise indicated.
These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes in the Company’s Annual Report for the year ended September 30, 2024, filed with the SEC on July 9, 2025.
Revision of Prior Period Financial Information
In connection with the preparation of the condensed consolidated financial statements for the nine months ended June 30, 2025, the Company identified an immaterial error in revenue recognized in the fiscal year ended September 30, 2024, related to prescriptions that had been billed but not dispensed and therefore did not meet the criteria for revenue recognition under ASC 606. These prescriptions were a group of high-cost Hepatitis-C prescriptions, primarily related to an isolated patient population within a legacy government-funded care program, that remained in pharmacy workflow and had not been reversed due to deficient controls at the time of original billing.
To
correct this error, the Company recorded a reduction to accumulated deficit of approximately $
Management assessed the materiality of this matter under SEC Staff Accounting Bulletins No. 99 and No. 108 and concluded that, based on currently available information, the matter is not material to previously issued financial statements, either individually or in the aggregate. Management is continuing its assessment, and the amount of the adjustment to accumulated deficit could change as the assessment is finalized.
Management has submitted the matter to relevant regulatory authorities in accordance with applicable reporting obligations. In addition, the Company implemented enhanced procedures across its operations to improve the estimation and review of unfulfilled prescription billings and continues to evaluate further enhancements to its internal control environment.
Consolidation
The condensed consolidated financial statements comprise the financial statements of the Company and its wholly owned subsidiaries. When the Company does not own all of the equity in a subsidiary, the non-controlling interest is disclosed as a separate line item in the condensed consolidated statements of financial position and the earnings accruing to non-controlling interest holders are disclosed as a separate line item in the condensed consolidated statements of operations. The financial results of subsidiaries are included in the condensed consolidated financial statements from the date on which control commences, until the date on which control ceases. Intercompany balances and transactions are eliminated upon consolidation. Control is achieved when the Company is exposed to, or has the right to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
Going concern
These condensed consolidated financial statements have been prepared on a going concern basis, which assumes the realization of assets and the settlement of liabilities in the ordinary course of business.
As
of June 30, 2025 and September 30, 2024, the Company had an accumulated deficit of $
The Company is also subject to certain financial covenants under its senior secured term facilities with Canadian Western Bank (“CWB”). As of June 30, 2025 and September 30, 2024, the Company was not in compliance with these covenants. As a result, the debt has been classified as current and the Company is in active discussions with the lender regarding an amendment. Refer to Note 11 – Debt for more information.
| 10 |
These conditions—recurring operating losses, negative operating cash flows, working capital deficiency, and covenant violations—represent the principal conditions that raise substantial doubt about the Company’s ability to continue as a going concern within one year from the date these financial statements are issued.
Management has evaluated these conditions and concluded that, absent additional sources of liquidity or material improvement in the Company’s operating performance, the Company may not be able to meet its obligations as they become due.
To address these uncertainties, management has developed and is actively pursuing the following plans:
| ● | Subsequent to June 30, 2025, the Company sought creditor protection through formal proceedings under the Companies’ Creditors Arrangement Act (Canada) (“CCAA”). Refer to Note 23 – Subsequent events for more information; |
| ● | Seeking to raise additional capital through equity and/or debt offerings; |
| ● | Continuing discussions with existing and potential lenders to restructure or refinance outstanding debt and obtain covenant waivers, if necessary; |
| ● | Implementing cost control measures and operational efficiencies to reduce cash burn; |
| ● | Scaling higher-margin service lines and expanding the Company’s commercial footprint to increase revenue; |
| ● | Evaluating the monetization or divestiture of non-core assets to improve liquidity. |
While management believes these actions may provide short-term liquidity and operational improvements, there is no assurance that these plans will be successful or that the Company will be able to obtain the necessary financing or amendments to current financing with covenant violations on acceptable terms. As such, there is a material uncertainty that casts significant doubt on the Company’s ability to continue as a going concern.
In August 2025, the Company initiated proceedings under the Companies’ Creditors Arrangement Act (CCAA) in Canada to facilitate a court-supervised restructuring of its business and financial affairs. The CCAA process provides the Company with protection from creditor claims while it seeks to implement a restructuring plan. As a result of the CCAA filing, the Company has undertaken material changes in operations, including the divestiture of certain non-core assets and store locations, workforce reductions, and efforts to streamline its cost structure. These actions are intended to stabilize operations and improve liquidity. However, the outcome of the CCAA process remains uncertain, and there can be no assurance that the Company will be successful in implementing a viable restructuring plan. Accordingly, the CCAA proceedings further contribute to the material uncertainty that casts significant doubt on the Company’s ability to continue as a going concern.
In addition, the Company’s U.S. pet food business, acquired through the legacy Better Choice operations, continues to experience significant liquidity constraints and operating losses. This segment has not achieved profitability and remains reliant on external financing to fund its operations. Management is actively evaluating strategic alternatives for the pet food business, including potential restructuring, divestiture, or wind-down. These conditions also contribute to the overall uncertainty regarding the Company’s ability to continue as a going concern.
These condensed consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty, including adjustments to the carrying values and classifications of assets and liabilities, which could be material should the Company be unable to continue its operations.
Fiscal, Regulation and Other Federal Policies
Significant changes in, and uncertainty with respect to, legislation, regulation, government policy and economic conditions could adversely affect the Company’s business. Specific legislative and regulatory proposals that could have a material impact on the Company include, but are not limited to, modifications to international trade policy (such as tariffs); public company reporting requirements; and environmental regulation.
The Company cannot predict what actions may ultimately be taken with respect to tariffs or trade relations between the U.S. and other countries, what products may be subject to such actions, or what actions may be taken by the other countries in retaliation. Accordingly, it is difficult to predict how such actions may impact the Company’s business, or the business or habits of its customers. The Company’s business operations, as well as the businesses of its customers on which it is substantially dependent, are located in countries at risk for escalating trade disputes, including the U.S. Any resulting trade wars could have a significant adverse effect on world trade and could adversely impact the Company’s consolidated financial condition, results of operations and cash flows.
| 11 |
Note 3 – Summary of significant accounting policies
Cash and cash equivalents
Cash and cash equivalents include demand deposits held with banks and highly liquid investments with original maturities of ninety days or less at acquisition date. Cash and cash equivalents are stated at cost, which approximates fair value because of the short-term nature of these instruments.
Segment information
Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the Company’s Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources and assess performance. The Company has determined that its Board of Directors functions as the CODM.
Following the reverse merger completed on April 24, 2025, the Company began reporting two reportable segments: Health Solutions and Consumer Products. The Health Solutions segment consists of the Company’s pharmacy operations across Canada, which represent the Company’s core business. The Consumer Products segment includes the legacy Halo pet food business, which operates primarily in the United States and includes dry food, wet food, treats, and other premium pet products.
These segments reflect the Company’s internal management structure and are evaluated separately by the CODM based on differences in their operational models, customer bases, and economic characteristics. The accounting policies of the segments are consistent with those described in the accompanying condensed consolidated financial statements. See Note 14 – Segment Information.
Business combinations and goodwill
Business combinations are accounted for using the acquisition method in accordance with ASC 805. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at fair value at the acquisition date, and the amount of any noncontrolling interest in the acquiree. For each business combination, the Company elects to measure the noncontrolling interest either at fair value or at the noncontrolling interest’s proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses.
At the acquisition date, the Company assesses the classification and designation of the financial assets and liabilities assumed based on the contractual terms, economic conditions, and other relevant factors, including embedded derivatives in host contracts.
Goodwill is initially measured as the excess of the aggregate consideration transferred, the amount of any noncontrolling interest, and the fair value of any previously held equity interest in the acquiree over the fair value of the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired exceeds the total consideration transferred, the Company reassesses the measurement of the net assets and consideration. If the reassessment confirms the excess, a gain is recognized in the condensed consolidated statement of operations.
After initial recognition, goodwill is carried at cost less any accumulated impairment losses. Goodwill is allocated to the Company’s reporting units, which are generally consistent with its operating segments, for the purpose of annual impairment testing or more frequently if impairment indicators exist.
If a portion of a reporting unit is disposed of, goodwill associated with the disposed reporting unit is included in the carrying amount of the operation when determining the gain or loss on disposal. The goodwill allocated to the disposed operation is measured based on the relative fair values of the portion disposed and the portion retained.
| 12 |
In connection with the reverse merger between SRx and Better Choice, the Company recorded a bargain purchase gain, which arises when the fair value of the net identifiable assets acquired exceeds the total consideration transferred. This typically occurs in a business combination where the acquirer purchases the acquiree at a discount, often due to financial distress or other market factors. In accordance with ASC 805 – Business Combinations, the excess was recognized as a gain in the condensed consolidated statement of operations in the period the transaction closed, after confirming that all assets acquired and liabilities assumed were appropriately measured and no measurement errors existed.
Accounts receivable
Accounts receivable consist of unpaid buyer invoices from the Company’s customers and credit card payments receivable from third-party credit card processing companies. Accounts receivable is stated at the amount billed to customers, net of point of sale and cash discounts. The Company assesses the collectability of all receivables on an ongoing basis by considering its historical credit loss experience, current economic conditions, and other relevant factors. Based on this analysis, an allowance for credit losses is recorded, and the provision is included within SG&A expense.
Fair value measurement
Fair value is defined under GAAP as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are based on the assumption that the transaction to sell the asset or transfer the liability takes place either:
| ● | In the principal market for the asset or liability, or |
| ● | In the absence of a principal market, in the most advantageous market to which the Company has access. |
The principal or most advantageous market must be accessible by the Company at the measurement date. Fair value measurements reflect the assumptions that market participants would use when pricing the asset or liability, including assumptions about risk, acting in their economic best interest.
The Company utilizes valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value. These techniques maximize the use of relevant observable inputs and minimize the use of unobservable inputs.
The Company classifies fair value measurements using a three-level hierarchy, which prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable inputs:
| ● | Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. |
| ● | Level 2 – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. |
| ● | Level 3 – Unobservable inputs for the asset or liability that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability. |
Assets and liabilities measured at fair value on a recurring or nonrecurring basis are categorized within this hierarchy based on the lowest level input that is significant to the fair value measurement in its entirety.
In
April 2024, the Company’s board of directors authorized and approved a stock repurchase plan (the “Repurchase Plan”)
for up to $
| 13 |
Revenue recognition
The Company provides specialty healthcare and medical treatment services, including pharmacy services, patient support programs, diagnostic services, and clinical trials. Revenue is recognized in accordance with ASC 606, Revenue from Contracts with Customers, when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
The Company has concluded that it is the principal in its revenue arrangements, as it controls the specified goods before they are transferred to the customer. The Company does not have significant financing components or material variable consideration in its contracts with customers.
SRx’s main revenue streams include the following:
| ● | Services provided by pharmacies: |
| - | retail pharmacies sell and distributes specialty and traditional prescription medications; and | |
| - | infusion services. |
| ● | Wholesale/distribution – Distribution of drugs and other medications for affiliated pharmacies and external clients. |
| ● | Clinical trial services – provision of clinical trial services. |
| ● | Testing services – provide testing services to patients. |
| ● | Patient support programs - SRx has multiple agreements with pharmaceutical companies for co-payment support and bridge medication to provide initial medication to patients free of charge while waiting for coverage decision and in the expectation that the patient will be approved for coverage at a later date, or to bridge a gap during renewal or patient insurance coverage changes, and compassionate products for patients with no public or private coverage and have been denied private or public insurance coverage within programs specified by pharmaceutical companies. The Company receives consideration for administering patient support programs from pharmaceutical companies. |
The Company recognizes revenue related to services provided by pharmacies at the time the customer takes possession of the product or service. For retail pharmacy sales, each prescription claim has its own arrangement with the customer and is a performance obligation, separate and distinct from other prescription claims. The Company recognizes revenue related to products provided by wholesale and distribution at the time the pharmacy customer takes possession of the product. Revenue recognition for infusion services provided by the Company’s medical clinics occurs as services are provided to patients for each infusion service. Customer returns are not material to the Company’s operating results or financial condition. Sales taxes are not included in revenues.
For retail pharmacy and infusion services, a significant portion of revenue is reimbursed by third-party payors, including pharmacy benefit managers (“PBMs”), private insurers, and government programs. The Company recognizes revenue when control of the product or service has transferred to the customer (generally upon delivery or service completion), and collection is probable. Estimates of variable consideration, including contractual allowances, co-payments, and reimbursement adjustments, are considered based on historical experience and current contract terms. Receivables related to insurance claims are recorded as accounts receivable and are monitored for collection and valuation based on the Company’s experience with each payor class.
For services provided through clinical studies, revenue is recognized based on attaining pre-defined procedures that are outlined in the agreements with the Company’s customers. At the commencement of a clinical trial study, an agreement is signed that clearly outlines the procedures that the Company must complete over the life of a study. An ongoing, internal assessment is performed to determine the point at which the Company completes a contractual procedure. Revenue is recognized at that time, as each procedure is an individual performance obligation within the agreement and is not dependent on subsequent procedures in order to collect revenues.
Patient support program revenue is recognized upon invoicing the client (i.e., pharmaceutical companies) on a monthly basis for services provided in the month. The Company provides a detailed breakdown of all services completed and pre-approved reimbursable expenses.
During the three and nine months ended June 30, 2025 and 2024, revenues attributed to infusion services, consulting services, testing services, clinical trial services, or patient support programs were not material.
| 14 |
As it relates to the Halo pet food business, the Company’s customer contracts have a single performance obligation, and revenue is recognized when the product is shipped as this is when it has been determined that control has been transferred. Amounts billed and due from customers are classified as receivables and require payment on a short-term basis and therefore do not have any significant financing components. Revenue is measured as the amount of consideration the Company expects in exchange for transferring goods, which varies with changes in trade incentives the Company offers to its customers. Trade incentives consist primarily of customer pricing allowances and merchandising funds, and point of sale discounts. Estimates of trade promotion expense and coupon redemption costs are based upon programs offered, timing of those offers, estimated redemption/usage rates from historical performance, management’s experience and current economic trends.
Government grants
The Company’s government grants reflect compensation received from various provincial and national bodies related to COVID-19 support. Government grants are recognized where there is reasonable assurance that the grant will be received, and all attached conditions will be complied with. When the grant relates to an expense item, it is recognized as other income on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed.
Taxes
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets (DTAs) and deferred tax liabilities (DTLs) for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine DTAs and DTLs on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on DTAs and DTLs is recognized in income in the period that includes the enactment date.
We recognize DTAs to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carry back potential if permitted under the tax law, and results of recent operations. If we determine that we would be able to realize our DTAs in the future in excess of their net recorded amount, we would make an adjustment to the DTA valuation allowance, which would reduce the provision for income taxes.
We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
Property and equipment
Property and equipment are recorded at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset, including costs incurred to prepare the asset for its intended use.
The Company estimates the depreciation of property and equipment to be calculated based on the straight-line method using the estimated useful life of the assets, unless otherwise specified:
| Computer equipment | |
| Furniture and fixtures | |
| Medical equipment | |
| Building | |
| Automobiles | |
| Signs | |
| Leasehold improvements | Lesser
of |
| 15 |
Subsequent costs are included in the asset’s carrying amount or are recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost can be measured reliably. Repairs and maintenance costs are charged to the condensed consolidated statement of operations during the period in which they are incurred.
An item of property and equipment and any significant part initially recognized is derecognized upon disposal (i.e., at the date the recipient obtains control) or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the condensed consolidated statements of operations when the asset is derecognized.
Depreciation methods, useful lives and residual values are reviewed annually and are adjusted for prospectively, if appropriate. The change was made to better align the pattern of amortization expense with the expected economic benefit of the assets. This change in estimate was applied prospectively in accordance with ASC 250, Accounting Changes and Error Corrections. The impact of this change was immaterial to the condensed consolidated financial statements.
Intangible assets
Intangible assets acquired are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses, if any. The estimated useful lives, residual values, and amortization methods for intangible assets are reviewed annually, or more frequently if indicators of impairment exist, and are adjusted prospectively if appropriate.
The Company estimates amortization to be calculated based on the straight-line method using the estimated useful life of the assets as follows:
| Computer software | |
| Domain (website) | |
| Charter license | |
| Customer lists |
Leases
The Company assesses at contract inception whether a contract is, or contains, a lease in accordance with ASC 842, Leases. A contract is considered a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
Company as a lessee
The
Company recognizes a right-of-use (ROU) asset and a corresponding lease liability at the lease commencement date for all leases, except
for short-term leases (i.e., leases with a term of
Right-of-use assets
ROU assets are initially measured at the amount of the lease liability, adjusted for lease payments made at or before the commencement date, initial direct costs incurred, and any lease incentives received. ROU assets are subsequently measured at cost less accumulated amortization and accumulated impairment losses, if any, and are adjusted for certain remeasurements of the related lease liability.
ROU assets are amortized on a straight-line basis over the shorter of the lease term or the estimated useful life of the asset, unless the lease transfers ownership of the underlying asset to the Company or contains a purchase option that is reasonably certain to be exercised. In such cases, amortization is based on the estimated useful life of the underlying asset. Typical estimated useful lives are as follows:
| Buildings | |
| Medical equipment |
| 16 |
If ownership of the leased asset transfers to the Company at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.
ROU assets are reviewed for impairment in accordance with the Company’s policy for non-financial assets.
Lease liabilities
At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include the value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable.
In calculating the present value of lease payments, the Company uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable.
After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. Lease liabilities are remeasured when there is a modification to the lease agreement, a change in the lease term, a change in lease payments resulting from a change in an index or rate, or a reassessment of the likelihood of exercising a purchase, renewal, or termination option.
For operating leases, the Company recognizes lease expense on a straight-line basis over the lease term, which is included in general and administrative expenses in the condensed consolidated statements of operations. For finance leases, amortization of the ROU asset and interest expense on the lease liability are presented separately in the condensed consolidated statements of operations.
Impairment of non-financial assets
Long-lived assets
Property and equipment, intangible assets subject to amortization, right-of-use assets, and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. The impairment evaluation is performed at the asset group level, which is the lowest level for which identifiable cash flows are largely independent.
Impairment testing of long-lived assets is performed in accordance with ASC 360 and involves a two-step process:
| ● | Step 1: Recoverability is assessed by comparing the carrying amount of the asset (or asset group) to the estimated undiscounted future cash flows expected from its use and eventual disposition. |
| ● | Step 2: If the carrying amount exceeds the undiscounted cash flows, the asset (or asset group) is considered not recoverable, and the Company then estimates its fair value, typically using discounted cash flow (DCF) techniques. An impairment loss is recognized for the amount by which the carrying amount exceeds the estimated fair value. |
Goodwill
Goodwill is tested for impairment at least annually, or more frequently if events or changes in circumstances indicate that it may be impaired, in accordance with ASC 350. The impairment test is performed at the reporting unit level.
The Company may first perform a qualitative assessment (“Step 0” test) to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. This qualitative assessment considers factors such as macroeconomic conditions, industry trends, operating performance, and other relevant events.
If the Company determines that it is more likely than not that the fair value is less than the carrying amount, or if the Company bypasses the qualitative assessment, a quantitative impairment test is performed. This involves comparing the fair value of the reporting unit to its carrying amount, including goodwill. If the carrying amount exceeds the fair value, a non-reversible impairment loss is recognized, limited to the amount of goodwill allocated to that reporting unit.
| 17 |
Financial Instruments
Recognition and derecognition
Financial instruments are recognized in the condensed consolidated statements of financial position when the Company becomes a party to the contractual obligations of the instrument. On initial recognition, financial instruments are recognized at their fair value, and in the case of financial liabilities not at fair value through profit or loss (“FVTPL”), net of transaction costs that are directly attributable to the issue of such financial liabilities.
Financial assets are subsequently derecognized when payment is received in cash or other financial assets or if the debtor is discharged of its liability. A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When the terms of the liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the condensed consolidated statements of operations.
Classification
Subsequent to initial recognition, financial instruments are measured according to the category to which they are classified. All of the Company’s financial instruments are classified and measured at amortized cost or fair value.
The classification of financial asset and liabilities is driven by the Company’s business model for managing the assets or liabilities and their contractual cash flow characteristics. Financial assets that are held to collect contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortized cost. All of the Company’s financial assets and financial liabilities are measured at amortized cost, as the Company does not have any financial assets or liabilities held for trading.
Impairment
The Company does not have purchased credit-deteriorated financial assets. The Company recognizes an allowance for credit losses on financial assets measured at amortized cost, including trade and other receivables.
For trade and other receivables, the Company applies the current expected credit loss (CECL) model, which requires recognition of lifetime expected credit losses at the time the asset is recognized. The Company estimates expected credit losses using a combination of historical loss experience, current conditions, and reasonable and supportable forecasts, including relevant macroeconomic factors.
The allowance for credit losses is presented as a contra asset, and the carrying amounts of financial assets are presented net of the related allowance in the condensed consolidated balance sheets.
Inventory
Inventory is valued at the lower of cost and net realizable value. Cost is determined on a weighted average basis. Cost includes all direct expenditures and other appropriate costs incurred in bringing inventory to its present location and condition, net of consideration received from vendors. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated selling expenses. Inventories are written down to net realizable value when the cost of inventories is estimated to be unrecoverable due to obsolescence, damage, shrinkage, or declining selling prices. Write downs to inventory are non-reversible even when circumstances that previously caused inventories to be written down below cost no longer exist. The Company records consideration received from suppliers as a reduction to the cost of inventory. These amounts are recognized in cost of sales when the associated inventory is sold.
Convertible Debt
The Company accounts for convertible debt instruments in accordance with ASC 470, Debt, and ASU 2020-06, which eliminated the requirement to separately account for embedded conversion features as equity when certain criteria are met. As such, convertible debt instruments that do not require separate derivative accounting under ASC 815 are accounted for entirely as liabilities and recorded at amortized cost. Debt issuance costs are capitalized and amortized to interest expense over the term of the instrument using the effective interest method. Upon conversion, the carrying amount of the debt is reclassified to equity with no gain or loss recognized. If a convertible instrument contains an embedded feature that does not qualify for the equity scope exception, it is accounted for separately as a derivative liability at fair value with changes recognized in earnings.
| 18 |
Prior to the Merger, the Company maintained a Long-Term Omnibus Compensation Plan (the “Omnibus Plan”) under which it may grant stock options and restricted stock units (“RSUs”) or stock options to directors, officers, employees, and consultants. The Board of Directors administers the Omnibus Plan and is responsible for determining the eligibility of participants and the specific terms of each award, including vesting conditions, exercise prices, and expiration dates.
Under the terms of the Omnibus Plan, the aggregate number of common shares issuable pursuant to outstanding and future awards was limited to % of the Company’s issued and outstanding common shares at any given time. Awards that expire, were canceled, or were otherwise forfeited are returned to the plan pool and may be reissued under future grants. Each RSU entitles the holder to receive one common share upon vesting. Stock options, when granted, entitled the holder to purchase one common share per option at a fixed exercise price and may be exercised following vesting until their expiry. Awards under the plan did not carry voting or dividend rights prior to settlement.
In connection with the Merger completed on April 24, 2025, the Company adopted the Legal Acquirer’s Amended and Restated 2019 Incentive Award Plan (the “Amended 2019 Plan”).
The Amended 2019 Plan provides for the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock units, other stock or cash-based awards, and dividend equivalent awards (the “Awards”). The Amended 2019 Plan authorizes the issuance of Awards covering an aggregate number of shares of common stock equal to the sum of:
| i) | a base reserve of shares; | |
| ii) | an increase of shares upon the closing of the Halo acquisition; | |
| iii) | annual increases on the first day of each calendar year beginning January 1, 2021 and ending January 1, 2029, in accordance with the plan’s evergreen provisions. Under the evergreen provisions, the number of shares available for issuance under the Plan increases automatically on the first day of each year by the lesser of % of the shares outstanding (on an as-converted basis) on the last day of the immediately preceding fiscal year or such smaller number as determined by the Board. Pursuant to this formula, the number of shares eligible for issuance under the Amended 2019 Plan increased by: on January 1, 2022; on January 1, 2023; on January 1, 2024; and on January 1, 2025. | |
| iv) | In addition, an increase of upon the Merger, an additional increase authorized to be issued under the Amended 2019 Plan as approved at a special meeting of the Stockholders’ on February 19, 2025, calculated by % of the common shares outstanding as of the Merger closing. |
As of June 30, 2025, the maximum number of shares authorized for issuance under the Amended 2019 Plan was . Not more than shares may be issued pursuant to Incentive Stock Options under the Amended 2019 Plan, which is included within the total authorized shares described above.
On July 16, 2021, Better Choice registered shares of its common stock issuable under the Amended 2019 Plan in a registration statement on Form S-8. On January 25, 2022, an additional shares were registered in a registration statement on Form s-8. On January 18, 2024, an additional shares were registered in a registration statement on Form S-8.
In accordance with Accounting Standards Codification (“ASC”) 718 – Compensation—Stock Compensation, the Company measures share-based compensation cost at the fair value of the award on the grant date. For RSUs, fair value is based on the market price of the Company’s common shares on the date of grant. Compensation expense is recognized on a grade vesting basis over the requisite service period of the award, which can range from to . The Company accounts for forfeitures as they occur.
Share-based compensation expense is included in general and administrative expenses in the condensed consolidated statement of operations. No stock options were granted during either period.
Significant accounting judgments, estimates and assumptions
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Information about critical judgments in applying accounting policies that have the most significant effects on the amounts recognized in the condensed consolidated financial statements is as follows:
| ● | Inventory |
Inventories are carried at the lower of cost and net realizable value, which requires the Company to utilize estimates related to fluctuations in shrinkage, retail prices and shelf life. At each reporting date, the Company reviews its inventory and determines if a reserve is required for inventory.
| ● | Determination of asset groups for the purpose of impairment tests |
The determination of asset groups for the purposes of impairment testing requires judgement when determining the lowest level for which identifiable cash flows are largely independent of other assets and liabilities. The Company evaluates how assets are used in operations and how cash flows are generated and monitored by management to determine appropriate asset groupings. These judgments can affect the timing and amount of impairment charges recognized in the condensed consolidated financial statements. Management has determined that the Company’s asset groups consist of the combined pharmacy locations that make up the pharmacy and sale of drugs operations, and the entities engaged in clinical trial services.
| 19 |
| ● | Impairment of non-financial assets |
The Company evaluates non-financial assets, including goodwill, intangible assets, property and equipment, and right-of-use assets, for impairment in accordance with GAAP.
Goodwill and indefinite-lived intangible assets are tested for impairment at least annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired, in accordance with ASC 350, Intangibles—Goodwill and Other. The Company performs its annual impairment test for goodwill at the reporting unit level, which management determines based on judgment, considering how the business is managed and where discrete financial information is available.
Long-lived assets, including finite-lived intangible assets, property and equipment, and right-of-use assets, are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable, in accordance with ASC 360, Property, Plant, and Equipment. Recoverability is assessed by comparing the carrying amount of the asset (or asset group) to the estimated undiscounted future cash flows expected to result from the use and eventual disposition of the asset. If the carrying amount exceeds the estimated future undiscounted cash flows, an impairment loss is recognized for the amount by which the carrying amount exceeds the asset’s fair value.
Estimating future cash flows requires significant judgment by management, particularly regarding assumptions related to future operating performance, market conditions, and the selection of appropriate discount rates. Actual results may differ from those estimates, potentially resulting in material changes to the carrying amount of these assets in future periods.
| ● | Intangible assets, goodwill and business combinations |
The Company accounts for business combinations using the acquisition method. This involves the allocation of the costs of an acquisition to the underlying net assets acquired based on their estimated fair values. As part of this allocation process, management identifies and attributes values to the acquired intangible assets and any resulting goodwill. These determinations involve significant estimates and assumptions regarding cash flow projections, economic risk and discount rates. Management also exercises judgement in determining the estimated useful lives of intangible assets.
| ● | Business combination versus asset acquisition |
Judgment is used in determining whether an acquisition is a business combination or an asset acquisition. The assessment required management to assess the inputs, processes and outputs of the Company acquired at the time of acquisition. Pursuant to the assessment, the transaction was considered to be a business combination and estimate of fair value of the consideration paid was allocated to the identifiable assets acquired with the remaining value allocated to goodwill (Note 4).
| ● | Reportable segments |
The Company determines its reportable segments in accordance with ASC 280, Segment Reporting, based on how the Chief Operating Decision Maker (“CODM”) evaluates performance and allocates resources. Significant judgment is required in identifying operating segments, assessing their economic characteristics, and determining the appropriate level of aggregation.
Following
the reverse merger completed on April 24, 2025, the Company has
The segments differ in economic characteristics, customer bases, and operational focus, and are evaluated separately by the CODM using key financial metrics such as revenue, gross margin, and Adjusted EBITDA. Prior to the merger, only the Health Solutions business was reflected in the Company’s operations.
| 20 |
Foreign currency translation
The Company operates in both the United States and Canada. The U.S. parent company conducts its operations in the United States, where the U.S. Dollar (USD) serves as the functional and reporting currency. SRx Canada conducts its operations in Canada, where the Canadian dollar (CAD) serves as the functional currency.
In accordance with ASC 830, Foreign Currency Matters, the financial statements of SRx Canada are translated into U.S. dollars for consolidation. Assets and liabilities are translated using exchange rates in effect at the balance sheet date, while revenues and expenses are translated using average exchange rates during the reporting period. Translation adjustments arising from this process are recorded in Accumulated Other Comprehensive Income (Loss) (“AOCI”), a component of shareholders’ equity, and excluded from net income until realized through sale or liquidation of the foreign operation.
New accounting standards
Recently adopted
There were no new standards that would have an impact on the condensed consolidated financial statements for the nine months ended June 30, 2025.
Note 4 – Business Combinations
Reverse Merger
On April 24, 2025, SRx Canada entered into an arrangement agreement (the “Arrangement Agreement”, or the “Reverse Merger”) with Better Choice Company, Inc. (“Better Choice”), a publicly listed company on the NYSE American, along with 1000994476 Ontario Inc. (“AcquireCo”), an indirect wholly-owned subsidiary of Better Choice, and 1000994085 Ontario Inc. (“CallCo”), a direct wholly-owned subsidiary of Better Choice, both existing under the laws of the Province of Ontario. Pursuant to the Arrangement Agreement, AcquireCo amalgamated with SRx Canada, with SRx Canada continuing as the surviving entity. As part of the reverse merger, Better Choice changed its name to SRx Health Solutions, Inc., and adopted the operations of SRx Canada as its primary business.
As
consideration, Better Choice issued shares of its common stock at $ per share, and AcquireCo issued exchangeable
shares (convertible into Better Choice common stock on a 1:1 basis). Better Choice shareholders prior to the transaction retained
shares. Upon closing, former shareholders of SRx Canada held approximately
The
total consideration transferred was less than the fair value of the net assets acquired, resulting in a preliminary bargain purchase
gain of $
The Company has not finalized the purchase price allocation pending completion of the valuation of assets acquired and liabilities assumed, including any intangible assets. Accordingly, the amounts recognized for the major classes of assets and liabilities acquired have not yet been determined.
In
connection with the closing of the Reverse Merger, the Company issued
shares of common stock for advisory and professional services rendered to facilitate the completion of the close the transaction.
These shares were issued in lieu of cash payment and were recorded as acquisition-related costs totaling $
In
connection with the Reverse Merger, the Company also completed a private placement on April 24, 2025, issuing shares of common
stock and pre-funded warrants for aggregate gross proceeds of $
| 21 |
On
April 25, 2025, the Company entered into a consulting agreement with Terra Nova Business Holdings Inc., an arm’s length party,
under which Terra Nova will provide international logistics and business development services in support of the Company’s Health
Solutions segment. The agreement carries a term of 36 months with monthly consulting fees of $
As
of June 30, 2025, the Company had recorded $
| June 30, 2025 | ||||
| Common stock | $ | |||
| Total consideration | $ | |||
| Cash and cash equivalents | $ | |||
| Accounts receivable, net | ||||
| Inventories, net | ||||
| Prepaid expenses and other current assets | ||||
| Fixed assets, net | ||||
| Right-of-use assets, operating leases | ||||
| Other LT assets | ||||
| Total assets acquired | $ | |||
| Accounts payable | $ | |||
| Accrued liabilities | ||||
| Line of credit, short-term | ||||
| Operating lease liability, short-term | ||||
| Operating lease liability, long-term | ||||
| Total liabilities acquired | $ | |||
| Net assets acquired | $ | |||
| Bargain purchase gain | $ | |||
The following unaudited pro forma financial information presents the combined results of operations of the Company as if the reverse merger with Better Choice had occurred on October 1, 2023, the beginning of the earliest period presented. The pro forma results include adjustments to reflect the acquisition date fair value of assets acquired and liabilities assumed, transaction costs, and the alignment of accounting policies.
| (in thousands) | Three months ended June 30, | Nine months ended June 30, | ||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
This supplemental pro forma information is not necessarily indicative of what the Company’s actual results of operations would have been had the acquisition occurred at the beginning of the periods presented, nor does it purport to project future operating results of the combined entity.
| 22 |
Acquisition of pharmacies
The following table summarizes the preliminary fair value of the assets and liabilities acquired in business combinations for the three- and nine-month period ended June 30, 2024 (in thousands):
| Elora Apothecary Ltd. | Trailside Pharmacy Ltd. | 0864009 B.C. Ltd. | Vaughan Endoscopy Clinic Inc. | Total - $ | ||||||||||||||||
| Total consideration transferred: | ||||||||||||||||||||
| Cash consideration | ||||||||||||||||||||
| Share consideration | ||||||||||||||||||||
| Liabilities assumed | ||||||||||||||||||||
| Total consideration | ||||||||||||||||||||
| Assets | ||||||||||||||||||||
| Cash | ||||||||||||||||||||
| Accounts receivable | ||||||||||||||||||||
| Inventories | ||||||||||||||||||||
| Prepaid and other assets | ||||||||||||||||||||
| Property and equipment | ||||||||||||||||||||
| Right-of-use assets | ||||||||||||||||||||
| Intangible assets (1) | ||||||||||||||||||||
| Liabilities | ||||||||||||||||||||
| Trade and other payables | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Deferred tax liability | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Lease liabilities | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net assets assumed | ||||||||||||||||||||
| Goodwill | ||||||||||||||||||||
| (1) |
Acquisition of Elora Apothecary Ltd.
On October 6, 2023, the Company acquired the shares of Elora Apothecary Ltd. (“Elora”) as a business combination.
Elora is a retail pharmacy, located in Elora, ON, that provides customers with adequate prescription medications and other health related products and services.
The
total purchase price consisted of cash consideration of $
The
excess of the purchase price over the net identifiable assets acquired and the liabilities assumed resulted in goodwill of $
From
the date of acquisition, Elora contributed $
Acquisition of Trailside Pharmacy Ltd.
On October 6, 2023, the Company acquired the shares of Trailside Pharmacy Ltd. (“Trailside”) as a business combination.
Trailside is a retail pharmacy located in Fergus, ON, that provides customers with adequate prescription medications and other health related products and services.
The
total purchase price consisted of cash consideration of $
| 23 |
The
excess of the purchase price over the net identifiable assets acquired and the liabilities assumed resulted in goodwill of $
From
the date of acquisition, Trailside contributed $
The
assets of Elora and Trailside were subsequently sold on August 31, 2024 for a total sale price of $
Acquisition of 0864009 B.C. Ltd.
On October 16, 2023 the Company acquired the shares 0864009 B.C. Ltd. (“Mediglen”) as a business combination.
Mediglen is a retail pharmacy, located in Coquitlam, BC, that provides customers with adequate prescription medications and other health related products and services. The acquisition of Mediglen compliments and is in line with the Company’s growth strategy.
The
total purchase price consisted of cash consideration of $
The
excess of the purchase price over the net identifiable assets acquired and the liabilities assumed resulted in goodwill of $
From
the date of acquisition, Mediglen contributed $
Acquisition of Vaughan Endoscopy Clinic Inc.
On February 29, 2024, the Company acquired the shares Vaughan Endoscopy Clinic Inc. (“VEC”) as a business combination.
VEC is a medical clinic, located in Vaughan, ON, that offers patients endoscopy and other health related services. The acquisition of VEC compliments and is in line with the Company’s growth strategy.
The
total purchase price consisted of total consideration of $
The
excess of the purchase price over the net identifiable assets acquired and the liabilities assumed resulted in goodwill of $
From
the date of acquisition, VEC contributed $
Note 5 – Trade and other receivables
| June 30, 2025 | September 30, 2024 | |||||||
| Receivables from third-party customers | $ | $ | ||||||
| Other receivables | ||||||||
| Sales and income tax receivables | ||||||||
| Less: Allowance for current expected credit losses (“CECL”) | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Trade receivables are non-interest bearing and are generally on terms of 30 to 60 days. There are no receivables due from third party customers that are past due and not impaired at each reporting date. Set out below are the changes in the CECL during each year.
| June 30, 2025 | September 30, 2024 | |||||||
| Opening balance | $ | $ | ||||||
| Less: Removal of accounts receivables | ( | ) | ( | ) | ||||
| Plus: Provision for CECL | ||||||||
| $ | $ | |||||||
| 24 |
Note 6 – Inventory
Inventories are summarized as follows:
| June 30, 2025 | September 30, 2024 | |||||||
| Finished goods | $ | $ | ||||||
| Inventory packaging and supplies | ||||||||
| $ | $ | |||||||
Note 7 – Fixed assets
Fixed assets consist of the following:
| June 30, 2025 | September 30, 2024 | |||||||
| Computer equipment | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Medical equipment | ||||||||
| Automobiles | ||||||||
| Buildings | ||||||||
| Leasehold improvements | ||||||||
| Signs | ||||||||
| Total fixed assets | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Fixed assets, net | $ | $ | ||||||
Depreciation
expense was $
Note 8 – Intangible assets
Nine
months ended, | ||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Impairment Loss | Net Carrying Amount | |||||||||||||
| Computer software | $ | $ | ( | ) | $ | $ | ||||||||||
| Domain/website | ( | ) | ||||||||||||||
| Customer lists | ( | ) | ( | ) | ||||||||||||
| Charter license | ( | ) | ||||||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
Twelve
months ended, | ||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Impairment Loss | Net Carrying Amount | |||||||||||||
| Computer software | $ | $ | ( | ) | $ | $ | ||||||||||
| Domain/website | ( | ) | ||||||||||||||
| Customer lists | ( | ) | ( | ) | ||||||||||||
| Charter license | ( | ) | ||||||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
| 25 |
Amortization
expense was $
The estimated future amortization of intangible assets is as follows:
| July 1, 2025 – September 30, 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Thereafter | ||||
| Total | $ |
The
Company recognized an impairment loss of $
Note 9 – Goodwill
The change in the carrying amount of goodwill is summarized as follows:
| June 30, 2025 | September 30, 2024 | |||||||
| Beginning balance | $ | $ | ||||||
| Disposals | ( | ) | ||||||
| Acquisitions | ||||||||
| Impairment expense | ( | ) | ||||||
| Ending balance | ||||||||
The Company allocates goodwill to its Pharmacy and Prescription Drug Sales reporting unit, which includes multiple operating segments primarily consisting of retail and specialty pharmacies, wholesale distribution of pharmaceuticals, patient support programs, and a diagnostic laboratory.
The impairment was primarily driven by significant adverse changes in expected future cash flows resulting from the Company’s loss of a key contract during the fourth quarter of fiscal 2024, which materially reduced projected revenue for the Pharmacy and Prescription Drug Sales reporting unit. The contract, which accounted for a substantial portion of the reporting unit’s revenue base, was not renewed due to changes in customer procurement strategy. In addition, challenging industry dynamics, including increased pricing pressure from payors and reduced reimbursement rates, contributed to lower long-term growth expectations and operating margin forecasts. These factors, combined with a higher discount rate reflecting increased market volatility and risk specific to the Company’s sector, resulted in a decrease in the estimated fair value of the reporting unit below its carrying amount, triggering goodwill impairment.
As
September 30, 2024, the Company performed a quantitative goodwill impairment test for this reporting unit in accordance with ASC 350,
Intangibles—Goodwill and Other. The fair value of the reporting unit was estimated using a discounted cash flow (DCF) analysis
under the income approach. Based on the results of this analysis, the carrying amount of the reporting unit exceeded its fair value,
resulting in a goodwill impairment charge of $
| 26 |
Note 10 – Leases
The
Company has lease contracts for various buildings used in its operations. Leases of buildings generally have lease terms between
ROU assets and lease liabilities consist of the following:
| June 30, 2025 | September 30, 2024 | |||||||
| Operating lease assets | $ | $ | ||||||
| Current operating lease liabilities | $ | $ | ||||||
| Non-current operating lease liabilities | ||||||||
| Total Operating lease liabilities | $ | $ | ||||||
Total lease costs for the three and nine months ended June 30, 2024 and 2025 were:
| Three Months ended June 30, | Nine Months ended June 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Operating lease cost | $ | $ | $ | $ | ||||||||||||
| Variable lease cost | ||||||||||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||
Approximate aggregate annual lease payments as of June 30, 2025:
| Year | Operating Leases | |||
| July 1 – September 30, 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Thereafter | ||||
| Total | $ | |||
| Less: Imputed interest | ( | ) | ||
| Present value of net lease payments | $ | |||
The following table includes supplemental lease information as at June 30, 2025:
| Cash paid for amounts included in the measurement of lease liabilities | ||||
| Operating cash flows from operating leases | $ | |||
| Weighted average remaining lease term (in years) | ||||
| Operating leases | ||||
| Weighted average discount rate | ||||
| Operating leases | % |
| 27 |
Note 11 – Debt
Short-term borrowings
As
at | As
at | |||||||
| Revolving line of credit | $ | $ | ||||||
| Short-term loan | ||||||||
| Bank indebtedness | ||||||||
| Total | $ | $ | ||||||
Revolving line of credit
Separately,
in September 2023, the Company entered into a revolving line of credit agreement with Canadian Western Bank (“CWB”) that
permits borrowings up to $
Revolving Loan – Better Choice
On
September 20, 2024, the Company entered into a revolving credit facility (the “Promissory Note”) with Better Choice Company
Inc. (“BTTR”), under which the Company could borrow, repay, and reborrow up to $
In January 2025, the Promissory Note was further amended to include a provision whereby the outstanding balance would be converted into common shares of the Company upon the closing of a business combination between the Company and BTTR. The Promissory Note was personally guaranteed by Adesh Vora, former CEO of the Company. The agreement contained no financial or non-financial covenants.
On April 24, 2025, in connection with the reverse merger between the Company and BTTR, the full outstanding balance of the Promissory Note, including accrued interest, was converted into common shares of the Company in accordance with the amended terms. As a result, the Promissory Note has been settled in full and derecognized from the financial statements as of June 30, 2025.
No gain or loss was recognized upon conversion. All prior-period balances related to this facility have been removed, and no amounts are outstanding under this facility as of June 30, 2025.
Term Facilities
Prior to September 18, 2023, the Company entered into senior secured term facilities with CWB Financial Limited (“CWB”) for a select number of its pharmacy locations. Under the terms of the facility with CWB the Company must maintain a minimum Debt Service Coverage ratio of at least 1.30x. The Debt Service Coverage ratio is based on the combined results for 1093507 B.C. Ltd., Alberta Specialty Rx Inc., ConnectRX Inc., Trillium Pharmaceuticals, Nepean Medical Pharmacy Inc., and two other associated corporations of the Company. On September 18, 2023, the Company refinanced its existing senior secured term debt with CWB under SRx Health Solutions Inc. Under the terms of the facility with CWB the Company must maintain a Senior Funded Debt to Adjusted EBITDA of less than 4.0x and a Fixed Charge Coverage Ratio of greater than 1.0x. As at June 30, 2025 and September 30, 2024, the Company is not in compliance with the covenants and as a result the entire CWB loan is classified as a current liability. The terms of these facilities have been summarized below.
| Interest rate | Maturity | As at June 30, 2025 | As at September 30, 2024 | |||||||||||
| % | $ | $ | ||||||||||||
| CWB Financial Limited | % | |||||||||||||
| CWB Financial Limited | % | |||||||||||||
| CWB Financial Limited | % | |||||||||||||
| Total | ||||||||||||||
| 28 |
Other borrowings
| Interest rate | Maturity | As at June 30, 2025 | As at September 30, 2024 | |||||||||||
| % | $ | $ | ||||||||||||
| CEBA loans | % | | ||||||||||||
| Macdonald DND Site Development LP | % | |||||||||||||
| Meridian OneCap | % | |||||||||||||
| Nu-quest Distribution Inc. | % | |||||||||||||
| Arbinder Sohi | % | |||||||||||||
| Total other borrowings | ||||||||||||||
| Long-term portion of other borrowings | ||||||||||||||
The
Company applied to CEBA (Canadian Emergency Business Account) program which is a government assistance program in the form of interest-free
loans provided to small businesses during a period of revenue reduction due to COVID-19. The Company did not repay the loans by the original
maturity date of
The following outlines the current and long-term portion of the term facilities during the year:
As
at | As
at | |||||||
| Current portion of long-term borrowings | $ | $ | ||||||
| Long-term portion | ||||||||
| Total | ||||||||
Note 12 – Convertible debentures
The amount of convertible debentures recorded during the year is composed of the following:
| Interest rate | Maturity | As at June 30, 2025 | As at September 30, 2024 | |||||||||||
| % | $ | $ | ||||||||||||
| Convertible debentures | % | |||||||||||||
| Better Choice Company Inc. convertible promissory note | % | |||||||||||||
| Convertible debentures | % | |||||||||||||
| Convertible debentures | % | |||||||||||||
| Total | ||||||||||||||
The
convertible debentures are automatically converted to equity at a
On
December 31, 2023, the maturity date of the convertible debentures was extended to
| 29 |
During
the nine-months ended June 30, 2025, the Company issued an additional $
Better Choice Convertible Note
On
August 15, 2024, Better Choice Company Inc. (“BTTR”) entered into a convertible promissory note agreement with the Company
in the principal amount of $
In connection with the reverse merger transaction that closed on April 24, 2025, the convertible promissory note was converted into common shares of the Company pursuant to its contractual terms and is no longer outstanding as of June 30, 2025. No gain or loss was recognized upon settlement.
Accordingly, the convertible promissory note has been derecognized from the financial statements and is not included in the June 30, 2025 condensed consolidated balance sheet. Prior-period fair value assessments and derivative accounting considerations are no longer applicable.
Accordingly, the convertible debentures and the convertible promissory note are accounted for as single financial liabilities. Upon initial recognition, the instruments are recorded at their transaction price, which approximates fair value.
Note 13 – Revenue
The Company’s disaggregated revenue is as follows:
| Three months ended June 30, | Nine months ended June 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Revenue recorded at point in time | ||||||||||||||||
| Services provided by pharmacy | ||||||||||||||||
| Retail pharmacy | $ | $ | $ | $ | ||||||||||||
| Infusion services | ||||||||||||||||
| Specialty clinics | ||||||||||||||||
| Wholesale distribution of drugs and other medications | ||||||||||||||||
| Patient support program | ||||||||||||||||
| Clinical trial | ||||||||||||||||
| Consumer packaged goods | ||||||||||||||||
| Other service revenue | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
Note 14 – Segment information
The
Company evaluated its operating segments in accordance with ASC 280, “Segment Reporting,” and determined that it operates
with
| 30 |
The Company’s Board of Directors, designated as the Chief Operating Decision Maker (“CODM”), evaluates performance and makes decisions based on financial information presented for the Company’s two reportable segments: Health Solutions and Consumer Products. The CODM reviews financial results separately for each segment, including revenues, gross margin, and Adjusted EBITDA, to assess performance and allocate resources accordingly. Resources are allocated based on the distinct operational needs and strategic priorities of each segment, reflecting their differing business models, customer bases, and economic characteristics.
The Board of Directors, as the CODM for the Company, does not review total assets when evaluating the performance of the Company’s operating segments. The Consumer Products segment operates an asset-light business model, utilizing third-party logistics (3PL) providers and outsourced manufacturing, resulting in minimal asset ownership. While the Health Solutions segment includes pharmacy operations that may have more significant asset balances, asset-related information is generally not a key factor in the CODM’s performance assessments and is therefore not presented.
Sales, gross margin, and net loss are presented separately for the Health Solutions and Consumer Products segments in the table below and collectively reconcile to the Company’s consolidated results as reflected in the condensed consolidated statement of operations. The Board of Directors, acting as the CODM, evaluates the performance of each segment individually, including significant segment-level expenses. These expenses, which are reviewed to assess operating performance and support resource allocation decisions, consist of the following (in thousands):
| Three Months Ended June 30, 2025 | Nine Months Ended June 30, 2025 | |||||||||||||||
Health Solutions | Consumer Products | Health Solutions | Consumer Products | |||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Segment expenses: | ||||||||||||||||
| Salaries and wages | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Share-based compensation | ||||||||||||||||
| Rent | ||||||||||||||||
| Impairment expense | ||||||||||||||||
| Other segment expenses (a) | ||||||||||||||||
| Total segment expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | ( | ) | ||||||||||||||
| Other income | ( | ) | ( | ) | ||||||||||||
| Bargain purchase gain | ||||||||||||||||
| Total other income (expense) | ( | ) | ||||||||||||||
| Net loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Deferred tax income (expense) | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| (a) |
| 31 |
The
Company began reporting
| Three months Ended June 30, 2024 | Nine Months Ended June 30, 2024 | |||||||
| Health Solutions | Health Solutions | |||||||
| Net sales | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross profit | ||||||||
| Segment expenses: | ||||||||
| Salaries and wages | ||||||||
| Depreciation and amortization | ||||||||
| Share-based compensation | ||||||||
| Rent | ||||||||
| Other segment expenses (a) | ||||||||
| Total segment expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Other income | ( | ) | ||||||
| Total other income (expense) | ( | ) | ( | ) | ||||
| Net loss before income taxes | ( | ) | ( | ) | ||||
| Income tax expense | ( | ) | ( | ) | ||||
| Deferred tax income (expense) | ( | ) | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| (a) |
Geographic Information
Revenue by geography is determined based on the customer’s location. For the three- and nine-month periods ended June 30, 2025, U.S. revenue reflects only legacy Halo activity, representing revenue from the Consumer Products segment, and includes results only from the date of the merger (April 24, 2025) onward. Revenue from the Health Solutions segment during the same period reflects activity exclusively in Canada. Segment information for Health Solutions for the three- and nine-month periods ended June 30, 2024, is presented in the following table. Summary financial data by geographic region for the periods indicated is as follows (in USD):
| Three months ended June 30, | Nine months ended June 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| United States | $ | $ | ||||||||||||||
| Canada | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| 32 |
Long-lived assets for the periods indicated are as follows (in USD):
| As at June 30, 2025 | As at September 30, 2024 | |||||||
| United Sates | $ | $ | ||||||
| Canada | ||||||||
| Total | $ | $ | ||||||
The accounting policies of the segment are consistent with those described in Note 1 - Summary of Significant Accounting Policies.
Note 15 – Income taxes
For
the three and nine months ended June 30, 2025, the Company recorded an income tax provision of $
For
the three and nine months ended June 30, 2025, the Company recorded deferred tax income of $
For
the three and nine months ended June 30, 2025 and 2024, the Federal and Provincial tax rates were
The
Company’s U.S. operations are subject to a federal statutory tax rate of
Note 16 – Related party transactions
Related Party Loans and Balances
During the fiscal year ended September 30, 2024, and the nine month period ended June 30, 2025 prior to the Merger, SRx Canada, while privately held, engaged in non-interest-bearing working capital advances with its largest shareholder and entities under common control, intended to provide short-term liquidity. These advances were non-interest-bearing, not governed by formal written agreements, and SRx Canada did not incur or recognize interest expense in connection with these transactions.
As previously disclosed, for the fiscal year ended September 30, 2024, and the interim periods ended March 31, 2025, all material related party loans were forgiven and the Company recorded a capital contribution. No amounts remained outstanding prior to the merger.
During
the pre-merger period in the three months ended June 30, 2025, as a result of historical clean-ups, the net related party balances transitioned
into a payable position. This included a $
As of June 30, 2025 and September 30, 2024 there were no other related party loans or receivables outstanding for any shareholder with greater than 10% ownership, and the Company does not intend to enter into similar related party lending arrangements in the future.
Related party balances are summarized as follows:
| June 30, 2025 | September 30, 2024 | |||||||
| Due from former affiliates | $ | $ | ||||||
| Due from shareholders related to acquisitions | ||||||||
| Total Due from related parties | ||||||||
| Due to former affiliates | ( | ) | ( | ) | ||||
| Due to shareholders related to acquisitions | ( | ) | ( | ) | ||||
| Ending (Due to) Due from related parties, net | $ | ( | ) | $ | ||||
| 33 |
Governance and Controls
The Company has adopted a formal Related Party Transaction Policy to ensure appropriate oversight of any future transactions with related parties. All related party transactions are subject to review and approval by the Audit Committee of the Board of Directors, in accordance with SEC Regulation S-K Item 404 and the Company’s internal policies.
Note 17 – Share issuances and warrants
The fair value of warrants issued is based on the market price of the Company’s common shares on the issue date. All unexercised warrants outstanding at SRx Canada expired prior to the Merger.
The following table summarizes the continuity of the Company’s warrants. Note all pre-merger warrants listed below have been presented to reflect the legal acquirer’s capital structure:
Warrants # | Weighted average price $ | |||||||
| Warrants Outstanding on September 30, 2023 | ||||||||
| Issued | ||||||||
| Exercised | ||||||||
| Expired | ||||||||
| Warrants Outstanding on September 30, 2024 | $ | |||||||
| Issued | ||||||||
| Exercised | ( | ) | ||||||
| Expired | ( | ) | ||||||
| Assumed in Merger | ||||||||
| Warrants Outstanding on June 30, 2025 | $ | |||||||
On
April 24, 2025, the Company issued to a single investor a combination of
Additionally,
during the nine months ended June 30, 2025, the Company issued
shares to for the settlement of inventory-related accounts payable of $
Proceeds are intended to be used for general corporate purposes, including working capital and operational expenses. Issuance costs were not material and were expensed as incurred.
| 34 |
| For the three months ended June 30: | 2025 | 2024 | ||||||
| Numerator: | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Denominator: | ||||||||
| Weighted average number of common shares outstanding (basic and diluted) | ||||||||
| Net loss per share attributable to common stockholder, basic | $ | ( | ) | $ | ( | ) | ||
| Net loss per share attributable to common stockholder, diluted | $ | ( | ) | $ | ( | ) | ||
| For the nine months ended June 30: | 2025 | 2024 | ||||||
| Numerator: | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Denominator: | ||||||||
| Weighted average number of common shares outstanding (basic and diluted) | ||||||||
| Net loss per share attributable to common stockholder, basic | $ | ( | ) | $ | ( | ) | ||
| Net loss per share attributable to common stockholder, diluted | $ | ( | ) | $ | ( | ) | ||
Basic and diluted net loss per share are the same for all periods presented, as the inclusion of potentially dilutive securities would have been anti-dilutive due to the net loss. The Company excluded the following potentially dilutive securities from the calculation of diluted net loss per share as at June 30, 2025: convertible debt instruments. The Company excluded the following potentially dilutive securities from the calculation of diluted net loss per share as at June 30, 2024: convertible debt instruments and of restricted stock units.
These securities could potentially dilute earnings per share in the future but were not included in the computation of diluted net loss per share for the periods presented because their effect would have been anti-dilutive.
In connection with the Merger completed on April 24, 2025, the Company has adopted the Legal Acquirer’s Amended and Restated 2019 Incentive Award Plan (the “Amended 2019 Plan”). As of June 30, 2025, the maximum number of shares authorized for issuance under the Amended 2019 Plan was . Not more than shares may be issued pursuant to Incentive Stock Options under the Amended 2019 Plan, which is included within the total authorized shares described above. Refer to Management’s Discussion and Analysis for more information.
Awards are measured at grant date fair value in accordance with ASC 718, and compensation expense is recognized over the vesting period on a grade vesting basis.
During the three months ended June 30, 2025 and 2024, the Company recognized $ million and $ million, respectively, of share-based compensation expense. During the nine months ended June 30, 2025 and 2024, the Company recognized $ million and $ million, respectively, of share-based compensation expense.
During the pre-merger period in the nine months ended June 30, 2025, the Company issued an aggregate of restricted stock units (“RSUs”) to certain directors, officers, and employees, which auto vested upon the Merger closing, and as such, the Company recorded share-based compensation expense of $ million upon issuance. The weighted average grant-date fair value of these RSUs was $ per share.
In April 2025, the Company granted shares of restricted common stock to certain directors, officers, and employees as performance bonus compensation. These restricted stock awards were immediately vested and, as such, the Company recorded share-based compensation expense of $ million upon issuance. The weighted average grant-date fair value of these restricted stock grants was $ per share.
Additionally, the Company recognized an additional $ million of share-based compensation expense related to the auto-vesting and settlement of RSUs prior to the recapitalization.
| 35 |
In April 2025, the Company effectuated a Reverse Merger, pursuant to which all outstanding RSUs were converted, at the RSU holder’s election, into a share of common stock or an exchangeable share of common stock of the post-merger entity in accordance with the applicable conversion ratio.
RSUs # | Weighted average price $ | |||||||
| RSUs Outstanding on September 30, 2023 | $ | |||||||
| Issued | ||||||||
| Vested | ( | ) | ||||||
| Forfeited and cancelled | ( | ) | ||||||
| RSUs Outstanding on September 30, 2024 | $ | |||||||
| Issued | ||||||||
| Vested | ( | ) | ||||||
| Forfeited and cancelled | ( | ) | ||||||
| RSUs Outstanding on June 30, 2025 | $ | |||||||
Note 20 – Financial instruments
| (a) | Fair value of financial instruments |
Fair value hierarchy Levels 1 to 3 are based on the degree to which the fair value is observable:
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and
Level 3 fair value measurement are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The Company has assessed that the fair value of cash, trade and other receivables, and related party receivables, trade and other payables and related party payables approximate their carrying amounts largely due to the short-term maturities of these instruments.
The carrying amount of the Company’s borrowings are considered to be the same as their fair values, as the terms of the Company’s borrowings are considered to be consistent with the commercial terms prevalent for similar loans. The Company has classified its convertible debt as a Level 3 financial instrument due to the use of unobservable inputs in its valuation.
The Company has no financial instruments classified as Level 2.
| (b) | Financial risk management |
The Company’s activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk (primarily interest rate risk). Risk management is carried out by the Company by identifying and evaluating the financial risks inherent within its operations. The Company’s overall risk management activities seek to minimize potential adverse effects on the Company’s financial performance.
| (i) | Liquidity risk |
The Company is exposed to liquidity risk related to its financial liabilities, including trade payables, long-term borrowings, and promissory notes. Management monitors liquidity through cash flow forecasts and maintains access to credit facilities.
| 36 |
The following table summarizes the contractual maturities of the Company’s financial liabilities (including principal and interest) on an undiscounted basis:
June 30, 2025
| (in thousands) | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 and over | Total | ||||||||||||||||||
| Long-term borrowings | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Convertible debentures | ||||||||||||||||||||||||
| Due to related parties | ||||||||||||||||||||||||
| Short-term borrowings | ||||||||||||||||||||||||
| Trade and other payables | ||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||
September 30, 2024
| (in thousands) | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 and over | Total | ||||||||||||||||||
| Long-term borrowings | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Convertible debentures | ||||||||||||||||||||||||
| Due to related parties | ||||||||||||||||||||||||
| Short-term borrowings | ||||||||||||||||||||||||
| Trade and other payables | ||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||
Note 21 – Disposal of assets
On
October 18, 2024, the Company sold the assets of Niagara Community Pharmacy Ltd. for a total net proceeds of $
On
December 20, 2024, the Company sold the assets of P.A. Pharmacy Limited for a total sale price of $
On February 20, 2025, the Company sold the warehouse building and entered into a sale leaseback agreement with the purchasers. The total
sale price was $
On
April 30, 2025, the Company sold the assets of Clearbrook Pharmacy (1987) for a total sale price of $
On
June 16, 2025, the Company sold the assets of Greg’s Drug Ltd. for a total sale price of $
Additionally, the Company incurred $
Note 22 – Commitments and contingencies
The Company may be involved in legal proceedings, claims, and regulatory, tax, or government inquiries and investigations that arise in the ordinary course of business resulting in loss contingencies. The Company accrues for loss contingencies when losses become probable and are reasonably estimable. If the reasonable estimate of the loss is a range and no amount within the range is a better estimate, the minimum amount of the range is recorded as a liability. Legal costs such as outside counsel fees and expenses are charged to expense in the period incurred and are recorded in selling, general, and administrative (“SG&A”) expenses. The Company does not accrue for contingent losses that are considered to be reasonably possible, but not probable; however, the Company discloses the range of such reasonably possible losses if estimable. Loss contingencies considered remote are generally not disclosed. No assets are pledged as security for these loans.
| 37 |
Litigation is subject to numerous uncertainties and the outcome of individual claims and contingencies is not predictable. It is possible that some legal matters for which reserves have or have not been established could result in an unfavorable outcome for the Company and any such unfavorable outcome could be of a material nature or have a material adverse effect on the Company’s condensed consolidated financial condition, results of operations and cash flows. Management is not aware of any claims or lawsuits that may have a material adverse effect on the condensed consolidated financial position or results of operations of the Company.
Note 23 – Subsequent events
The Company has evaluated subsequent events and transactions that occurred after the condensed consolidated statement of financial position date up to the date that the financial statements were issued for potential recognition or disclosure. Other than the following, the Company did not identify any subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements.
On
July 11, 2025, the Company sold the assets of 3788602 Manitoba Ltd. for a total sale price of $
Equity Line of Credit (ELOC)
On July 7, 2025, the Company entered into a Common Share Purchase Agreement with a Lead Investor, granting the Company the right to sell up to $ million of common shares, capped at % of outstanding shares unless stockholder approval is obtained or issuance meets “at market” exceptions under NYSE American rules. As commitment consideration, the Company issued $ million in Commitment Shares (valued at the VWAP price) and agreed to reimburse up to $ of investor expenses. A related Registration Rights Agreement obligates the Company to file a resale registration statement. The ELOC remains unutilized as of the date of this report.
Convertible Note and Warrant Financing
Also
on July 7, 2025, the Company entered into a Securities Purchase Agreement with investors, issuing $
Share Cancellation Settlement Agreement
On August 1, 2025, the Company entered into a Settlement, Share Forfeiture and Mutual Release Agreement with certain of the original founders and officers of SRx Canada, including Adesh Vora, a former director and executive officer. Pursuant to the Agreement, an aggregate of shares were forfeited and cancelled. Of the total cancelled, were common shares of the Company and remaining were exchangeable into shares of the Company’s common stock on a one-for-one basis. These shares were originally issued in connection with the merger between SRx Canada and Better Choice in April 2025. The cancellation represents approximately % of the Company’s total issued and outstanding shares on a fully diluted basis prior to the settlement. This settlement was executed after the reporting date and is not reflected in the condensed consolidated financial statements as of June 30, 2025.
Companies’ Creditors Arrangement Act “CCAA” Filing
Also on August 11, 2025, SRx Canada, a wholly owned subsidiary of the Company, commenced proceedings under the Companies’ Creditors Arrangement Act (Canada) (“CCAA”) with the Ontario Superior Court of Justice (the “Court”). The CCAA filing was made in response to liquidity constraints and the inability to refinance maturing obligations.
In connection with the CCAA proceedings, SRx Canada sought a stay of proceedings and approval of debtor-in-possession (“DIP”) financing to provide stability while it considers strategic alternatives, which may include a restructuring transaction or the sale of all or substantially all of its business or assets through a court-supervised process. As of the date of this filing, neither the Company nor its other subsidiaries, including Halo, Purely for Pets, Inc., has made any filing under any bankruptcy or insolvency legislation in the United States or Canada.
| 38 |
The CCAA filing and Settlement Agreement represent significant subsequent events. The Company’s condensed consolidated financial statements as of and for the period ended June 30, 2025 do not reflect the impact of these developments, as they occurred after the reporting date.
To assist stakeholders in evaluating the Company’s financial position, pro-forma financial information for the three and nine months ended June 30, 2025 is presented below. The pro forma results reflect only the U.S. operations, which are not subject to the CCAA proceedings and do not have associated debt obligations. These pro forma figures are presented for illustrative purposes only and do not reflect actual or anticipated outcomes of the CCAA process.
| Three months ended June 30, | Nine months ended June 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross margin | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Gain on sale of assets | ( | ) | ( | ) | ||||||||||||
| Impairment of intangible assets | ||||||||||||||||
| Total Expenses | ( | ) | ||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Interest income (expense), net | ( | ) | ( | ) | ||||||||||||
| Gain on extinguishment of debt | ||||||||||||||||
| Other income | ||||||||||||||||
| Change in fair value of warrant liabilities | ( | ) | ||||||||||||||
| Net income (loss) before taxes | ( | ) | ( | ) | ||||||||||||
| Income tax (expense) income | ||||||||||||||||
| Net income (loss) after taxes | ( | ( | ) | |||||||||||||
Shares issued for professional fees
In July 2025, the Company issued shares of common stock to certain arm’s length advisors in exchange for certain professional advisory fees rendered in connection with the Company’s financing and capital markets activities, and the shares were issued with a weighted average price of $ per share.
Share Exchange Agreement
On
August 21, 2025, the Company entered into a Share Exchange Agreement (the “Exchange Agreement”), with Halo Spin-Out SPV,
Inc., a Delaware corporation (“SPV”), whereby the Company acquired the
Shares issued to related parties
On August 25, 2025, the Company issued to certain directors, officers and employees an aggregate of shares of restricted common stock as performance bonus compensation. The restricted stock awards were immediately vested with a weighted average price of $ per share.
On September 16, 2025, the Company issued to certain current and former directors an aggregate of shares of restricted common stock at a weighted average issue price of $ per share.
Additionally, between July and September 2025, the Company issued shares of common stock pursuant to a retraction of shareholders’ exchangeable shares which converted into a share of common stock. These shareholders were former employees and shareholders of SRx Canada that initially received exchangeable shares in the Merger.
| 39 |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
The following discussion includes forward-looking statements about our business, financial condition and results of operations, including discussions about management’s expectations for our business. The financial condition, results of operations and cash flows discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are those of SRx Health Solutions Inc. and its consolidated subsidiaries, collectively, the “Company,” “SRx,” “we,” “our,” or “us”. These statements represent projections, beliefs and expectations based on current circumstances and conditions and in light of recent events and trends, and you should not construe these statements either as assurances of performance or as promises of a given course of action. Instead, various known and unknown factors are likely to cause our actual performance and management’s actions to vary, and the results of these variances may be both material and adverse. A description of material factors known to us that may cause our results to vary or may cause management to deviate from its current plans and expectations, is set forth under “Risk Factors.” See “Cautionary Note Regarding Forward-Looking Statements.” The following discussion should also be read in conjunction with our audited consolidated financial statements including the notes thereto appearing elsewhere in this filing. Accordingly, readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. We undertake no obligation to publicly release the results of any revision to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Overview and Outlook
At SRx, we make specialty healthcare simple for Canadians.
We are a fully integrated Canadian healthcare services provider operating at the intersection of pharmacy, clinical services, and pharmaceutical distribution. Our mission is to simplify access to complex therapies and improve health outcomes for patients with chronic, rare, or specialty conditions. Through the strategic development of the SRx Network—a national platform of advanced specialty healthcare infrastructure—we are redefining how specialty care is delivered across Canada.
The SRx Network includes approximately 30 specialty pharmacies, 37 specialty health clinics, two clinical trial sites, a diagnostics lab, national Patient Support Programs (PSPs), a multi-disciplinary allied health and nursing services team, and a fully owned, Health Canada–accredited pharmaceutical wholesale and distribution facility in Mississauga, Ontario. With operations spanning all ten Canadian provinces, SRx is one of the country’s most accessible and scalable providers of customized specialty healthcare solutions. Our geographic footprint and integrated model uniquely position us to deliver continuity of care while supporting a rapidly evolving specialty drug ecosystem.
Specialty drugs—the core focus of our clinical and pharmacy operations—are high-cost, high-complexity therapies used to treat chronic, complex, or rare diseases. These drugs often exceed $6,000 annually and require advanced logistics, clinical oversight, and patient engagement to be used effectively. As these therapies become more central to modern medicine, SRx’s infrastructure, experience, and national reach provide a meaningful competitive advantage.
Our platform supports a collaborative network of stakeholders, including physicians, pharmacists, nurses, PSP providers, pharmaceutical manufacturers, distributors, and third-party payors. This interconnected ecosystem enables us to streamline the management and distribution of specialty therapies—delivering value to patients, providers, and partners alike.
Looking ahead, we believe that increasing demand for specialty medications, alongside health system capacity challenges, will continue to drive strong tailwinds for our model. With an established footprint, a growing pipeline of partnerships, and a demonstrated ability to scale efficiently, SRx is well-positioned to expand our leadership role in Canada’s specialty healthcare landscape.
Recent Corporate Developments
In 2023, the Company executed a number of strategic acquisitions aimed at expanding its national footprint, enhancing service capabilities, and strengthening its position in the specialty healthcare market. By contrast, 2024 saw a deliberate slowdown in acquisition activity, as the Company shifts focus toward integration, operational optimization, and organic growth initiatives across the existing SRx Network.
| 40 |
The Company was not in compliance with certain financial covenants related to its loan facility with Canadian Western Bank (“CWB”) as of June 30, 2025, which resulted in the debt being callable by the lender. During the quarter, the Company actively engaged in discussions with CWB to address the non-compliance. Subsequent to June 30, 2025, the Company sought creditor protection under a formal restructuring proceedings under the Companies’ Creditors Arrangement Act (Canada) (“CCAA”). Refer to Note 23 – Subsequent events for more information.
On April 24, 2025, SRx Canada completed a business combination with Better Choice Company, Inc. Refer below and to Note 4 – Business Combinations for further information.
On April 30, 2025, Better Choice Company, Inc. completed its name change to SRx Health Solutions Inc. and started trading under the new ticker symbol ‘SRXH’ on the NYSE American. Concurrent with the transaction events, the following management team and Board of Directors changes occurred: Michael Young resigned from his role as Chairman and remained on the Board; Adesh Vora was named Executive Chairman of the Board; Kent Cunningham remained in his role as Chief Executive Officer; Carolina (Nina) Martinez remained in her role as Chief Financial Officer; and Davender Sohi was named President.
On June 10, 2025, Davender Sohi resigned from his role as President.
On June 11, 2025, the Company announced the following management team and Board of Directors changes: Lionel Conacher, current Board member, was appointed as Chairman of the Board; Adesh Vora, current Executive Chairman, remained on the Board and was appointed Chief Executive Officer; and Kent Cunningham, current Chief Executive Officer, assumed role as President.
On July 15, 2025, Kent Cunnigham, current President, was reappointed as Chief Executive Officer, and Adesh Vora, current Chief Executive Officer and Board member, was named Vice Chairman of the Board.
On August 12, 2025, the Company initiated restructuring proceedings for its SRx Canada subsidiaries under the CCAA. Refer to Note 23 – Subsequent events for more information.
On August 13, 2025, Adesh Vora resigned from his role as Vice Chairman and was no longer a shareholder nor Board member of the Company.
On August 14, 2025, the Company announced the cancellation of approximately 18.8 million shares of its fully diluted capital stock, of which majority were exchangeable shares of common stock. Refer to Note 23 – Subsequent events for more information.
Arrangement Agreement
On September 3, 2024, SRx Health Solutions Inc. (“SRx”), a corporation organized under the laws of the Province of Ontario, announced that it had entered into an arrangement agreement (the “Arrangement Agreement”) with Better Choice Company Inc. (“Better Choice”), a publicly listed company on the NYSE American, along with 1000994476 Ontario Inc. (“AcquireCo”), an indirect wholly-owned subsidiary of Better Choice, and 1000994085 Ontario Inc. (“CallCo”), a direct wholly-owned subsidiary of Better Choice, both existing under the laws of the Province of Ontario. Pursuant to the Arrangement Agreement and the related Plan of Arrangement, SRx will be acquired by Better Choice in an all-stock transaction through a statutory amalgamation under Canadian law between SRx and AcquireCo (the “Amalgamation”).
Following the Amalgamation, all property, rights, obligations and liabilities of SRx will become those of the newly formed amalgamated entity (“Amalco”), which will operate as an indirect wholly owned subsidiary of Better Choice. The Arrangement Agreement was subsequently amended on December 6, 2024, January 24, 2025, and February 25, 2025.
Under the terms of the Amalgamation, each issued and outstanding common share of SRx will be converted, based on a defined exchange ratio (the “Exchange Ratio”), into either shares of common stock of Better Choice (“BTTR Common Stock”) or, at the election of the holder, exchangeable shares of Amalco. These exchangeable shares will be convertible on a one-for-one basis into BTTR Common Stock. The Exchange Ratio will be calculated five business days prior to closing, based on the trailing 30-day volume-weighted average price of BTTR Common Stock on the NYSE American, subject to an aggregate collar of 19,750,000 to 30,000,000 shares. The Amalgamation reflects an assigned equity value of SRx of USD $80 million, assuming net debt at closing of USD $43 million, subject to a two-way adjustment. All outstanding SRx warrants and restricted stock units will be settled or terminated prior to closing.
The transaction was unanimously approved by the boards of directors of both SRx and Better Choice. The shareholders of SRx approved the Amalgamation at a meeting held on February 26, 2025, and Better Choice shareholders approved the transaction at a special meeting on March 21, 2025. The transaction closed on April 24, 2025 and the Company began trading under its new legal name and ticker on April 30, 2025.
Following the completion of the Amalgamation, Better Choice intends to continue operating its premium and super-premium pet product brands under the Halo brand, while SRx will continue to operate as a cornerstone of the Combined Company’s healthcare business. The Combined Company aims to become a leading global health and wellness platform, offering a portfolio of solutions designed to support better choices for both people and pets.
| 41 |
Results of Operations for the nine months ended June 30, 2025 and 2024
The following table sets forth our condensed consolidated results for the periods presented (in thousands):
| Nine Months Ended June 30, | Change | |||||||||||||||
| 2025 | 2024 | $ | % | |||||||||||||
| Net sales | $ | 41,082 | $ | 117,122 | $ | (76,040 | ) | (65 | )% | |||||||
| Cost of goods sold | 30,786 | 93,695 | (62,909 | ) | (67 | )% | ||||||||||
| Gross profit | 10,296 | 23,427 | (13,131 | ) | (56 | )% | ||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative | 39,783 | 31,627 | 8,156 | 26 | % | |||||||||||
| Impairment expense | 2,690 | - | 2,690 | 100 | % | |||||||||||
| Total operating expenses | 42,473 | 31,627 | 10,846 | 34 | % | |||||||||||
| Loss from operations | (32,177 | ) | (8,200 | ) | (23,977 | ) | (292 | )% | ||||||||
| Other income (expense): | ||||||||||||||||
| Other Income (expense) | 3,457 | (69 | ) | 3,526 | 5110 | % | ||||||||||
| Interest income (expense), net | (3,348 | ) | (3,260 | ) | (88 | ) | 3 | % | ||||||||
| Bargain purchase gain | 1,693 | - | 1,693 | 100 | % | |||||||||||
| Total other expense | 1,802 | (3,329 | ) | (5,131 | ) | (45 | )% | |||||||||
| Net loss before income taxes | (30,375 | ) | (11,529 | ) | (18,846 | ) | 163 | % | ||||||||
| Income tax (expense) income | (840 | ) | (157 | ) | (683 | ) | 435 | % | ||||||||
| Deferred tax income (expense) | 1,470 | 609 | 861 | 141 | % | |||||||||||
| Net loss available to common stockholders | $ | (29,745 | ) | $ | (11,077 | ) | $ | (18,668 | ) | 169 | % | |||||
Net sales
We generate revenue primarily through our specialty pharmacy operations, including the dispensing of high-cost prescription medications reimbursed by third-party payors. Revenue is recognized when control transfers to the customer, typically at the time a prescription is filled, or a service is rendered. Most transactions involve a single performance obligation. Reported net sales are reduced by trade promotions, discounts, and co-pay assistance programs, which are estimated and recorded as reductions to gross revenue. We also maintain a revenue reserve for expected product returns based on historical patterns. While specialty pharmacy remains our core revenue driver, we continue to expand into clinical services, diagnostics, and wholesale distribution, which are expected to contribute more meaningfully over time.
Information about our revenue channels is as follows (in thousands):
| Nine Months Ended June 30, | ||||||||||||||||
| 2025 | 2024 | |||||||||||||||
| Services provided by pharmacy | ||||||||||||||||
| Retail pharmacy | $ | 33,598 | 82 | % | $ | 113,921 | 97 | % | ||||||||
| Infusion services | 724 | 2 | % | 948 | 1 | % | ||||||||||
| Specialty clinics | 411 | 1 | % | 417 | 0 | % | ||||||||||
| Wholesale distribution of drugs and other medications | 31 | 0 | % | 612 | 1 | % | ||||||||||
| Patient support program | 731 | 2 | % | 744 | 1 | % | ||||||||||
| Clinical trials | 792 | 2 | % | 8 | 0 | % | ||||||||||
| Consumer packaged goods | 2,673 | 7 | % | - | 0 | % | ||||||||||
| Other service revenue | 2,122 | 4 | % | 472 | 0 | % | ||||||||||
| Total revenue(1) | $ | 41,082 | 100 | % | $ | 117,122 | 100 | % | ||||||||
| (1) | None of the Company’s customers represented greater than 10% of net sales for the nine months ended June 30, 2025 or 2024. |
| 42 |
Net sales decreased by $76.0 million, or 65%, to $41.1 million for the nine months ended June 30, 2025, compared to $117.1 million for the nine months ended June 30, 2024. The decrease was primarily attributable to significant operational disruptions driven by liquidity constraints, which limited our ability to purchase and dispense high-cost specialty medications. As a result, patient volumes and prescription fulfillment rates declined across our specialty pharmacy and clinic operations. Additionally, staffing and service reductions at certain locations further constrained our ability to maintain historical levels of service delivery.
Gross profit
Cost of goods sold primarily includes the cost of pharmaceuticals and medical products purchased from manufacturers and suppliers, as well as associated packaging materials, inbound freight to our facilities, and third-party logistics expenses related to warehousing and fulfillment. We regularly evaluate inventory for obsolescence, expiration, or slow movement, and record inventory at the lower of cost or net realizable value. Any adjustments for impaired or unsellable inventory are recognized as a component of cost of goods sold.
Our gross profit has been and will continue to be influenced by several key factors, including the mix of products and services sold, sales volumes across our core business lines, and pricing strategies, the acquisition cost of pharmaceuticals and medical products, and freight and logistics expenses incurred from our warehouse to the pharmacy.
During the nine months ended June 30, 2025, gross profit decreased $13.1 million, or 56%, to $10.3 million compared to $23.4 million during the nine months ended June 30, 2024. The decrease in gross profit was primarily driven by the significant decline in net sales resulting from operational and liquidity challenges that limited access to inventory and reduced prescription volumes. Lower throughput and under-absorption of fixed costs across pharmacy and clinic operations also contributed to margin pressure during the period.
We continue to actively collaborate with our supply chain, distribution, and logistics partners to identify cost-saving opportunities and improve gross margins over time. However, we expect ongoing margin variability due to macroeconomic factors, including inflationary pressures on transportation, labor, and pharmaceutical sourcing costs. As market conditions evolve, we remain focused on refining our pricing strategy to respond effectively to cost fluctuations and maintain competitive positioning.
Operating expenses
Our Selling, general and administrative (“SG&A”) expenses consist of the following:
| ● | Sales and marketing costs are generally limited to localized initiatives, targeted corporate branding, and patient outreach in connection with new clinic openings or service launches. During the nine months ended June 30, 2025, sales and marketing costs increased approximately $0.3 million, or 389%, to $0.4 million from $0.1 million during the nine months ended June 30, 2024. The increase primarily reflects marketing and brand development efforts related to the integration of Better Choice, which was included in results for the current period. Despite the increase, overall spend remains modest and consistent with SRx’s strategic emphasis on referral-based patient acquisition, provider partnerships, and clinical engagement—rather than broad-based consumer advertising or paid media campaigns. | |
| ● | Employee compensation and benefits remained constant at $16.8 million during the nine months ended June 30, 2025 and June 30, 2024. While SRx experienced a reduction in headcount due to operational downsizing, this was offset by the inclusion of personnel costs from Better Choice, which was consolidated during the current period. As a result, total compensation expense remained consistent year over year despite changes in organizational structure. | |
| ● | Share-based compensation includes expenses related to equity awards issued to employees and non-employee directors. During the nine months ended June 30, 2025, Share-based compensation increased $1.8 million or 71% to $4.4 million compared to $2.6 million for the nine months ended June 30, 2024. The increase was primarily driven by share-based compensation expense recognized by Better Choice, which was included in condensed consolidated results for the current period. SRx’s standalone share-based compensation activity remained limited, with no significant changes from the prior year. |
| 43 |
| ● | Freight, primarily related to the shipping and distribution of specialty pharmaceuticals and medical supplies to clinics and pharmacies, decreased $0.1 million or 28% during the nine months ended June 30, 2025 to $0.5 million from $0.4 million during the nine months ended June 30, 2024. This increase is consistent with the decline in sales volume and reduced distribution network during the period. | |
| ● | Other general and administrative costs for various general corporate expenses, including information technology, insurance, travel, costs related to merchant credit card fees, product development costs, rent, non-cash charges and certain tax costs. During the nine months ended June 30, 2025, other general and administrative costs decreased $0.9 million, or 9% to $8.6 million compared to $9.5 million in the nine months ended June 30, 2024. The decrease was primarily driven by a reduction in amortization expense following the write-down of intangible assets as of September 30, 2024, as well as the sale of certain retail locations during the current period. The divestiture of these stores also contributed to lower office-related expenses, including rent, supplies, and administrative overhead. | |
| ● | Consulting fees, which primarily consist of fees paid to a small number of directors who provided consulting services to the Company until January 1, 2024. During the nine months ended June 30, 2025, consulting fees decreased by $0.5 million, or 66% to $0.3 million compared to $0.8 million in the nine months ended June 30, 2024. The decrease was driven by the transition of these individuals from consultants to employees beginning in January 2024, resulting in consulting fees being replaced by payroll expenses. | |
| ● | Professional fees, which primarily consist of audit, tax, legal, valuation, and transaction-related advisory services. During the nine months ended June 30, 2025, professional fees increased $3.9 million, or 285% to $5.2 million compared to $1.3 million in the nine months ended June 30, 2024. The increase was primarily driven by transaction-related expenses associated with the reverse merger completed during the current period. This increase was partially offset by a decline in acquisition activity at SRx, which resulted in lower purchase price allocation (PPA) and deal-related advisory costs compared to the prior year. |
Impairment of long-lived intangible assets resulted in an impairment charge of $2.7 million for the three and nine months ended June 30, 2025, with no corresponding activity for the nine months ended June 30, 2024. See Note 8 – Intangible Assets for additional information.
Other income (expense), net
Other income improved by $4.4 million to $4.3 million for the nine months ended June 30, 2025, compared to an expense of $0.1 million for the nine months ended June 30, 2024. This improvement was primarily driven by a gain on the sale of assets at the SRx level during the current period. The gain resulted from the divestiture of certain retail locations and related assets as part of the Company’s strategy to optimize its asset base and strengthen liquidity.
Interest expense, net
During the nine months ended June 30, 2025, interest expense remained constant at $3.3 million compared to the fiscal nine months ended June 30, 2024. Interest expense for the nine months ended June 30, 2025 and 2024 is comprised of interest on our CWB term loan, CEBA loans, Macdonald DND loan, Meridian loan, and Arbinder Sohi loan, interest on finance leases. Interest expense in the current period was not materially impacted by the consolidation of Better Choice, and there were no significant changes in debt balances that affected expense year over year.
Income taxes
Our income tax expense (benefit) consists of estimated federal and provincial income taxes based on enacted Canadian tax rates, adjusted for allowable credits, deductions, and uncertain tax positions as they arise. For the nine months ended June 30, 2025, we recorded an income tax recovery of $0.63 million, compared to an expense of $0.45 million in 2024. The effective tax rate was (2.46%) for 2025 compared to (3.92%) in 2024, differing from the combined Canadian statutory rate of 26.5% primarily due to a significant increase in valuation allowances related to the uncertainty of realizing the benefit of net operating losses (NOLs). The Company has recognized deferred tax assets of approximately $37.5 million before valuation allowance, primarily related to net operating losses totaling approximately $136.8 million, which expire between 2037 and 2043. A valuation allowance of $37.1 million has been recorded against these deferred tax assets due to uncertainties regarding future taxable income sufficient to realize these benefits. Should the Company generate adequate taxable income in the future or identify viable tax planning strategies, a reversal of the valuation allowance could reduce future income tax expense.
There were no uncertain tax positions as of June 30, 2025 and 2024. The Company is subject to tax examinations primarily for the years 2020 through 2024 in Canada.
| 44 |
Non-GAAP Measures
Adjusted EBITDA
We define Adjusted EBITDA to supplement the financial measures prepared in accordance with GAAP. Adjusted EBITDA adjusts EBITDA to eliminate the impact of certain items that we do not consider indicative of our core operations. Adjusted EBITDA is determined by adding the following items to net loss: interest expense, tax expense (benefit), depreciation and amortization, share-based compensation, gain on extinguishment of debt and accounts payable, loss on disposal of assets, transaction-related expenses, and other non-recurring expenses.
We present Adjusted EBITDA as it is a key measure used by our management and board of directors to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. We believe that the disclosure of Adjusted EBITDA is useful to investors as this non-GAAP measure forms the basis of how our management team reviews and considers our operating results. By disclosing this non-GAAP measure, we believe that we create for investors a greater understanding of and an enhanced level of transparency into the means by which our management team operates our company. We also believe this measure can assist investors in comparing our performance to that of other companies on a consistent basis without regard to certain items that do not directly affect our ongoing operating performance or cash flows.
Adjusted EBITDA does not represent cash flows from operations as defined by GAAP. Adjusted EBITDA has limitations as a financial measure and you should not consider it in isolation, or as a substitute for, or superior to, financial measures calculated in accordance with GAAP. Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net loss, gross margin, and our other GAAP results.
The following table presents a reconciliation of net loss, the closest GAAP financial measure, to EBITDA and Adjusted EBITDA for each of the periods indicated (in thousands):
| Nine Months Ended June 30, | ||||||||
| 2025 | 2024 | |||||||
| Net loss | $ | (29,745 | ) | $ | (11,077 | ) | ||
| Interest expense, net | 3,348 | 3,260 | ||||||
| Income tax benefit | (630 | ) | (452 | ) | ||||
| Depreciation and amortization | 2,923 | 3,322 | ||||||
| EBITDA | (24,104 | ) | (4,947 | ) | ||||
| Share-based compensation | 4,452 | 2,582 | ||||||
| Impairment of intangible assets | 2,690 | - | ||||||
| Bargain purchase gain | (1,693 | ) | - | |||||
| Gain on disposal of assets | (4,254 | ) | - | |||||
| Transaction related expenses (a) | 1,143 | 518 | ||||||
| Other non-recurring expenses (b) | 2,624 | 1,713 | ||||||
| Adjusted EBITDA | $ | (19,142 | ) | $ | (135 | ) | ||
(a) Transaction-related expenses related to non-recurring business matters include legal and professional fees related to the Company’s Merger, private placement, and certain investor relations and capital markets activities directly tied to financing efforts.
(b) One-time and non-recurring expenses primarily related to restructuring and severance costs from corporate headcount reductions and executive transitions; costs associated with pharmacy and clinic closures; and historical accounts receivable write-offs and tax adjustments. These items have been excluded from Adjusted EBITDA as they are not reflective of the Company’s ongoing operations.
| 45 |
Liquidity and capital resources
Historically, we have financed our operations primarily through debt financing. On June 30, 2025 and June 30, 2024, we had cash and cash equivalents of $0.9 million and $0.1 million, respectively.
We are subject to risks common in the healthcare and pharmacy services industry, including, but not limited to, our dependence on key personnel, intense competition, our ability to effectively market and scale our service offerings, the protection and enforcement of proprietary technology and data systems, expansion into new markets or service lines, and compliance with complex and evolving healthcare, data privacy, and pharmaceutical regulations. As of June 30, 2025, we have not experienced a significant adverse impact to our business, financial condition or cash flows resulting from geopolitical actions or threat of cyber-attacks. However, we have seen adverse impacts to our gross margin from time to time due to inflationary pressures in the current economic environment. Uncertainties regarding the continued economic impact of inflationary pressures, geopolitical actions and threat of cyber-attacks are likely to result in sustained market turmoil, which could negatively impact our business, financial condition, and cash flows in the future.
We have historically incurred losses and expect to continue to generate operating losses and consume cash resources in the near term. These conditions raise substantial doubt about our ability to continue as a going concern for a period of twelve months from the date these condensed consolidated financial statements are issued, meaning that we may be unable to generate sufficient operating cash flows to pay our short-term obligations. We have implemented and continue to implement plans to achieve operating profitability, including various margin improvement initiatives, the consolidation of and introduction of new co-manufacturers, the optimization of our pricing strategy and ingredient profiles, and new product innovation.
Our ability to raise additional capital may be adversely impacted by the potential worsening of global economic conditions, including inflationary pressures, the recent disruptions to, and volatility in, the credit and financial markets in the United States, Canada, and worldwide resulting from geopolitical tensions. If we seek additional financing to fund our business activities in the future and there remains doubt about our ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding on commercially reasonable terms or at all. If we are unable to raise the necessary funds when needed or achieve planned cost savings, or other strategic objectives are not achieved, we may not be able to continue our operations, or we could be required to modify our operations that could slow future growth.
A summary of our cash flows is as follows (in thousands):
| Nine Months Ended June 30, | ||||||||
| 2025 | 2024 | |||||||
| Cash flows (used in) provided by: | ||||||||
| Operating activities | $ | (15,744 | ) | $ | 613 | |||
| Investing activities | 13,280 | (4,490 | ) | |||||
| Financing activities | 3,154 | 3,841 | ||||||
| Net increase (decrease) in cash and cash equivalents | $ | 690 | $ | (36 | ) | |||
| Effect of foreign currency translation adjustments | 116 | (1,546 | ) | |||||
| Cash and cash equivalents, beginning of period | 106 | 2,070 | ||||||
| Cash and cash equivalents, end of period | $ | 912 | $ | 488 | ||||
Cash flows from operating activities
Cash used in operating activities was $15.7 million during the nine months ended June 30, 2025, compared to cash provided by operating activities of $0.6 million during the nine months ended June 30, 2024. The change was primarily driven by a higher net loss of $29.7 million in 2025 compared to $11.1 million in 2024, partially offset by non-cash adjustments including impairment expense, depreciation and amortization, gain on sale of assets, share-based compensation, and an income tax benefit. Working capital changes also contributed with decreases in trade receivables and inventory, and purchase of prepaid consulting services during the nine-month period ended June 30, 2025.
| 46 |
Cash flows from investing activities
Cash provided by investing activities was $13.3 million during the nine months ended June 30, 2025, compared to cash used in investing activities of $4.5 million during the nine months ended June 30, 2024. Proceeds from the sale of assets as well as acquiring cash in the Merger contributed, offset by cryptocurrency investing activity. In 2024, investing activities were primarily attributable to acquisitions completed during the period.
Cash flows from financing activities
Cash provided by financing activities was $3.2 million during the nine months ended June 30, 2025, compared to $3.8 million during the nine months ended June 30, 2024. The increase is primarily attributable to the proceeds from private placements done prior to and at the Merger closing, offset by paydowns of its senior secured facilities. During the nine months ended June 30, 2024, proceeds were received related to short-term and long-term debt facilities, offset by repayment of borrowings and lease liabilities.
CWB Facility
As of June 30, 2025, the Company maintained senior secured term loan facilities with CWB Financial Group (“CWB”) totaling $23.1 million, which were originally entered into to support the development and acquisition of select pharmacy locations. On September 18, 2023, SRx Health Solutions Inc. refinanced its existing term facilities under a new consolidated agreement with CWB, which imposed updated financial covenants. These include maintaining a Senior Funded Debt to Adjusted EBITDA ratio of less than 4.0x and a Fixed Charge Coverage Ratio greater than 1.0x.
As at both June 30, 2025 and 2024, the Company was not in compliance with the CWB loan covenants, and as a result, the full amount of the CWB loans has been classified as a current liability. The debt remains callable at the lender’s discretion due to this non-compliance. Interest rates on the outstanding CWB loans range from 8.67% to 9.21%, with maturity dates extending through late 2027.
The lack of compliance is being actively managed, and the Company is in ongoing discussions with CWB to explore potential solutions. However, there can be no assurance that the Company will be able to renegotiate terms or cure the default in the near term.
Contractual Commitments and Obligations
We are contractually obligated to make future cash payments for various items, including debt arrangements, certain purchase obligations, as well as the lease arrangement for our office. See “Note 12 – Debt” to our audited consolidated financial statements included in this Annual Report on Form 10-K for more information about our debt obligations. Our purchase obligations include certain ongoing marketing projects, software subscriptions as well as in-transit or in-production purchase orders with our suppliers, for which amounts vary depending on the purchasing cycle. The majority of our software subscriptions are not under long-term contracts, and we do not have long-term contracts or commitments with any of our suppliers beyond active purchase orders. These purchase obligations were not material as of the date of this Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as defined by applicable regulations of the SEC, that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of our condensed consolidated financial statements and related disclosures requires us to make estimates, assumptions and judgements that affect the reported amounts of assets, liabilities, net sales, costs and expenses and related disclosures. We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our financial statements and, therefore, we consider these to be our critical accounting estimates. Accordingly, we evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and conditions. See “Note 1 - Nature of business and summary of significant accounting policies” to our audited consolidated financial statements included in this Annual Report on Form 10-K for a description of our significant accounting policies.
| 47 |
Share-Based Compensation
Share-based compensation expense is measured based on the estimated fair value of awards granted to employees, directors, officers and consultants on the grant date. Forfeitures are accounted for as they occur, therefore there are no forfeiture related estimates required.
The fair value of an option award is estimated on the date of grant using the Black–Scholes option valuation model, which requires the development of input assumptions, as described in “Note 19 - Share-based compensation”. Determining the appropriate fair value model and calculating the fair value of share-based payment awards requires the input of the subjective assumptions described in “Note 19 - Share-based compensation”. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, which involve inherent uncertainties and the application of management’s judgment. See “Note 19 - Share-based compensation” to our audited consolidated financial statements included in this Annual Report on Form 10-K for more information.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this Item.
| ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of management, including our Chief Executive Officer (our Principal Executive Officer or “PEO”) and our Chief Financial Officer (our Principal Financial Officer or “PFO”), we evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not fully effective as of June 30, 2025, due to certain significant deficiencies in internal control over financial reporting identified during the audit of our 2023 financial statements. These deficiencies primarily related to documentation and execution of key controls, credit loss provisioning, inventory tracking, and support for certain financial estimates. While these deficiencies did not result in a determination of material weaknesses, we are actively remediating them and have implemented or are in the process of implementing improvements to the design and operating effectiveness of our internal control environment.
Notwithstanding the material weaknesses in our internal control over financial reporting, we have concluded that the condensed consolidated financial statements included in this Form 10-Q, when read with the notes thereto, present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America.
| 48 |
Material Weaknesses
During the audit of our consolidated financial statements for the fiscal year ended September 30, 2024, our independent auditor identified deficiencies in our internal control over financial reporting that were evaluated and concluded to represent material weaknesses, as defined by the standards of the Public Company Accounting Oversight Board (PCAOB). These material weaknesses raise a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements would not be prevented or detected on a timely basis.
The auditor identified several areas where the Company’s controls were either not properly designed or not operating effectively. These included the lack of retained documentation to support retail pharmacy sales following the divestiture of certain locations, unsupported fair value determinations for common shares, and the absence of signatures from third-party lenders on formal debt agreements. Additionally, a material weakness related to management override of controls was identified, stemming from actions by the former CFO to redirect employer RRSP contributions to fund operating activities without appropriate approval or disclosure. Weaknesses were also noted in the Company’s technical accounting processes, including an overreliance on third-party experts without sufficient internal review or analysis by management, particularly in areas such as purchase price allocations, goodwill impairment testing, and U.S. GAAP transition accounting.
The audit also identified general IT control weaknesses in key systems used to process retail revenue and inventory data, including Kroll and SAP. These weaknesses were identified through procedures performed by the auditor’s enterprise risk team and included deficiencies in the design and implementation of IT general controls. Management has initiated remediation plans to address each of the identified weaknesses, including enhanced documentation and retention procedures, improved oversight of technical accounting matters, formalized internal control processes, and system control upgrades. These efforts are ongoing, and the Company expects to continue strengthening its internal control environment throughout fiscal 2025.
Significant Deficiencies
As part of the audit of our financial statements for the year ended September 30, 2024, our external auditors identified certain deficiencies in internal control over financial reporting. One such matter was identified as a significant deficiency. Specifically, the auditors noted that there was a lack of documentation of key controls, such as formal evidence of review and approval of account reconciliations and loan amortization schedules.
Management is committed to strengthening the Company’s internal control environment and has initiated efforts to improve documentation and oversight of key control activities. We will continue to assess and enhance our internal control processes to ensure the integrity of our financial reporting.
Remediation Plan
Management is committed to strengthening the Company’s internal control environment and is in the process of evaluating potential enhancements to address the significant deficiencies identified during the most recent audit. While formal remediation efforts are still being assessed, we are considering a range of improvements to our processes, systems, and documentation practices to support the development of more effective internal controls. As these efforts progress, we remain focused on building a control framework that supports accurate financial reporting and continued compliance with applicable standards. We intend to monitor and adjust our approach as needed to ensure that any enhancements are appropriately designed and can operate effectively over time.
Changes in Internal Control Over Financial Reporting
Other than the changes described above, there has not been any change in our internal controls over financial reporting identified in connection with the evaluation that occurred during the quarter ended June 30, 2025 that has materially affected, or is reasonably likely to materially affect, those controls.
PART II
| ITEM 1. | LEGAL PROCEEDINGS |
From time to time, we are subject to litigation and other proceedings that arise in the ordinary course of our business. Subject to the inherent uncertainties of litigation and although no assurances are possible, we believe after discussing with legal counsel that there are no pending lawsuits or claims that, individually or in the aggregate, will have a material adverse effect on our business, financial condition or our yearly results of operations.
| ITEM 1A. | RISK FACTORS |
There have been no material changes from the risk factors described under the heading “Risk Factors” in our Annual Report filed on July 9, 2025. While we believe there have been no material changes from the risk factors previously disclosed, you should carefully consider, in addition to the other information set forth in this report, the risk factors discussed in our Annual Report that could materially affect our business, financial condition or future results. The risks described in our Annual Report are not the only risks facing our Company. In addition to risks and uncertainties inherent in forward-looking statements contained in this Quarterly Report, additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
| None. |
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
| ITEM 5. | OTHER INFORMATION |
None.
| 49 |
| ITEM 6. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
The following exhibits are filed herewith.
EXHIBIT INDEX
| 50 |
| † | Indicates a management contract or any compensatory plan, contract or arrangement. |
| * | Filed or furnished herewith. |
| # | Certain schedules and similar attachments to this agreement have been omitted in accordance with Item 601(b)(5) of Regulation S-K. The Company will furnish copies of any schedules or similar attachments to the SEC upon request. |
| *** | Certain information in this document has been excluded pursuant to Regulation S-K, Item 601(b)(10). Such excluded information is not material and would likely cause competitive harm to the registrant if publicly disclosed. |
| 51 |
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SRx Health Solutions Inc. | ||
| Date: September 30, 2025 | By: | /S/ KENT CUNNINGHAM |
| Kent Cunningham | ||
Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: September 30, 2025 | By: | /S/ CAROLINA MARTINEZ |
| Carolina Martinez | ||
Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
| 52 |