Better Choice pany (BTTR) - 2025 Q2 - Quarterly Report

Cover Page & Preliminary Information General Information The section identifies SRx Health Solutions Inc. as a non-accelerated, smaller reporting company filing its Q2 2025 Form 10-Q - Filing Type: Quarterly Report on Form 10-Q for the period ended June 30, 2025[2] - Registrant Name: SRx Health Solutions Inc. (formerly Better Choice Company, Inc.)[2] - Trading Symbol: SRXH on NYSE American[3] - Filer Status: Non-accelerated filer and Smaller reporting company[4] - Common Stock Outstanding (as of Sep 29, 2025): 24,853,633 shares[5] Explanatory Note This note clarifies the business combination (Merger) on April 24, 2025, where SRx Canada merged with Better Choice Company, Inc - Business Combination Date: April 24, 2025[6] - Accounting Acquirer: SRx Health Solutions, Inc. (formerly SRx Canada)[7] - Legal Acquirer: Better Choice Company, Inc.[6] - Post-Merger Name: SRx Health Solutions, Inc.[7] Forward-Looking Statements This section highlights that the report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from projections - Forward-looking statements discuss current expectations and projections relating to financial condition, results of operations, plans, objectives, future performance, and business[13] - Key risks include: ability to continue as a going concern, impact of cyber-attacks, business interruptions from geopolitical actions, ability to implement growth strategy, achieve/maintain profitability, loss of key management, ability to generate cash flow or raise capital, dependence on subsidiaries, product development, competition, customer retention, product allegations, supply chain management, regulatory compliance (FDA, FTC, USDA), product recalls, shifting customer demand, and inflationary pressures[14][18] Note Regarding Trademarks This standard disclosure confirms the company's ownership or rights to use trademarks and trade names mentioned in the report - Company owns or has rights to use trademarks and trade names in its business operations[17] - References without ® or ™ symbols do not waive rights to these trademarks and trade names[17] Part I ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements for SRx Health Solutions Inc., including the statements of operations, balance sheets, shareholders' equity, and cash flows, along with comprehensive notes detailing the company's financial position, performance, and significant accounting policies. The statements reflect the impact of the recent reverse merger and highlight the company's ongoing liquidity challenges and going concern uncertainty Unaudited Condensed Consolidated Statements of Operations This section presents the unaudited condensed consolidated statements of operations, detailing the company's financial performance over specified periods | Metric (USD in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change ($) | Change (%) | | :------------------------ | :--------------------------- | :--------------------------- | :--------- | :--------- | | Net sales | 11,447 | 42,670 | (31,223) | (73.2%) | | Cost of goods sold | 8,028 | 33,254 | (25,226) | (75.9%) | | Gross margin | 3,419 | 9,416 | (5,997) | (63.7%) | | Operating loss | (17,422) | (1,322) | (16,100) | (1217.9%) | | Net loss after taxes | (15,133) | (3,115) | (12,018) | (385.8%) | | Net loss per share, basic | (0.74) | (0.14) | (0.60) | (428.6%) | | Metric (USD in thousands) | 9 Months Ended June 30, 2025 | 9 Months Ended June 30, 2024 | Change ($) | Change (%) | | :------------------------ | :--------------------------- | :--------------------------- | :--------- | :--------- | | Net sales | 41,082 | 117,122 | (76,040) | (65.0%) | | Cost of goods sold | 30,786 | 93,695 | (62,909) | (67.1%) | | Gross margin | 10,296 | 23,427 | (13,131) | (56.1%) | | Operating loss | (32,177) | (8,200) | (23,977) | (292.4%) | | Net loss after taxes | (29,745) | (11,077) | (18,668) | (168.5%) | | Net loss per share, basic | (1.54) | (0.50) | (1.04) | (208.0%) | Unaudited Condensed Consolidated Balance Sheets This section provides the unaudited condensed consolidated balance sheets, outlining the company's financial position at specific dates | Metric (USD in thousands) | June 30, 2025 | September 30, 2024 | Change ($) | Change (%) | | :------------------------ | :------------ | :----------------- | :--------- | :--------- | | Total Assets | 33,985 | 33,764 | 221 | 0.7% | | Total Liabilities | 79,865 | 88,884 | (9,019) | (10.1%) | | Total Shareholders' Deficit | (45,880) | (55,119) | 9,239 | 16.8% | | Cash and cash equivalents | 912 | 106 | 806 | 760.4% | | Working Capital Deficiency | (49,581) | (67,667) | 18,086 | 26.7% | Unaudited Condensed Consolidated Statements of Shareholders' Equity (Deficit) This section details the unaudited condensed consolidated statements of shareholders' equity (deficit), showing changes in equity over time | Metric (USD in thousands) | June 30, 2025 | September 30, 2024 | Change ($) | Change (%) | | :------------------------ | :------------ | :----------------- | :--------- | :--------- | | Common Stock Amount | 21 | 22 | (1) | (4.5%) | | Additional Paid-in Capital | 38,642 | 12,491 | 26,151 | 209.4% | | Accumulated Deficit | (98,424) | (70,031) | (28,393) | (40.5%) | | Accumulated Other Comprehensive Loss | 13,881 | 2,399 | 11,482 | 478.6% | | Total Shareholders' Deficit | (45,880) | (55,119) | 9,239 | 16.8% | - Shares redeemed in connection with business combinations: (26,323,200 shares), reducing common stock by $26K and additional paid-in capital by $7,244K[26] - Shares issued for private placement, post-merger: 1,280,000 shares, increasing common stock by $9K and additional paid-in capital by $8,791K[26] - Fair value of shares issued to acquire Better Choice: 8,898,069 shares, increasing common stock by $9K and additional paid-in capital by $8,930K[26] Unaudited Condensed Consolidated Statements of Cash Flows This section presents the unaudited condensed consolidated statements of cash flows, summarizing cash inflows and outflows from operating, investing, and financing activities | Metric (USD in thousands) | 9 Months Ended June 30, 2025 | 9 Months Ended June 30, 2024 | Change ($) | Change (%) | | :------------------------ | :--------------------------- | :--------------------------- | :--------- | :--------- | | Operating activities | (15,744) | 613 | (16,357) | (2668.3%) |\ | Investing activities | 13,280 | (4,490) | 17,770 | (395.8%) |\ | Financing activities | 3,154 | 3,841 | (687) | (17.9%) |\n| Net increase (decrease) in cash | 690 | (36) | 726 | (2016.7%) |\ | Cash and cash equivalents, end of period | 912 | 488 | 424 | 86.9% | - Cash used in operating activities increased significantly due to a higher net loss, partially offset by non-cash adjustments and working capital changes[300] - Cash provided by investing activities increased due to proceeds from asset sales and cash acquired in the merger, offsetting prior period acquisitions[301] - Cash provided by financing activities decreased slightly, with private placement proceeds offset by senior secured facility paydowns[302] Notes to the Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the financial statements, covering significant accounting policies, the reverse merger, specific asset and liability accounts, revenue recognition, segment performance, income taxes, related party transactions, share activity, financial instruments, asset disposals, commitments, and crucial subsequent events like the CCAA filing Note 1 – Nature of business and summary of significant accounting policies This note outlines the company's business operations, the impact of the reverse merger, and key accounting policies - Company operates as a vertically integrated healthcare organization (Canadian pharmacy and healthcare services via SRx Canada) and a branded pet wellness company (premium pet health and nutrition products via Halo)[35] - Reverse Merger: SRx Canada (Accounting Acquirer) consummated a business combination with Better Choice Company, Inc. (Legal Acquirer) on April 24, 2025. Better Choice changed its name to SRx Health Solutions, Inc.[32][33] - Halo Spin-Out Distribution: On April 25, 2025, 17% of Halo's capital stock was distributed to Better Choice stockholders, treated as a common control equity reorganization with Halo remaining fully consolidated[36][38] - SRx Canada filed for protection under the Companies' Creditors Arrangement Act (Canada) ('CCAA') on August 12, 2025[39] Note 2 – Basis of Preparation This note details the basis of financial statement preparation, identifies an immaterial error, and highlights going concern uncertainties - Financial statements prepared in accordance with U.S. GAAP and SEC rules for interim reports[40] - Immaterial error identified in FY2024 revenue related to billed but undispensed prescriptions, resulting in a $1.8 million reduction to accumulated deficit as of September 30, 2024[43][44] - Going Concern Uncertainty: Company has accumulated deficit ($98.4M), working capital deficiency ($49.6M), recurring net losses ($15.1M for 3 months, $29.7M for 9 months ended June 30, 2025), and non-compliance with CWB debt covenants[49][50] - Management plans to address going concern include raising capital, debt restructuring, cost control, scaling high-margin services, and divesting non-core assets. However, there is no assurance of success[53][59] - CCAA Filing: SRx Canada initiated CCAA proceedings in August 2025, leading to operational changes (divestiture, workforce reductions) to stabilize liquidity, but outcome remains uncertain[54] - U.S. pet food business (legacy Better Choice) faces significant liquidity constraints and operating losses, with management evaluating strategic alternatives[55] Note 3 – Summary of significant accounting policies This note summarizes the company's significant accounting policies, including segment reporting, business combinations, revenue recognition, and asset impairment - Segment Information: Following the reverse merger, the Company reports two segments: Health Solutions (Canadian pharmacy/healthcare) and Consumer Products (legacy Halo pet food business, primarily U.S.)[62][63] - Business Combinations: Accounted for using the acquisition method (ASC 805). Goodwill is measured as excess consideration over net identifiable assets. A bargain purchase gain is recognized if net assets acquired exceed consideration[64][66][70] - Revenue Recognition: For healthcare services, revenue is recognized when control of goods/services transfers (e.g., prescription dispensed, service completed). For Halo pet food, revenue is recognized upon product shipment[78][80][85] - Impairment of Non-Financial Assets: Long-lived assets (property, equipment, finite-lived intangibles, ROU assets) are reviewed for impairment when circumstances indicate carrying amount may not be recoverable (ASC 360). Goodwill is tested annually or more frequently (ASC 350)[105][106] - Share Repurchases: Board authorized a stock repurchase plan for up to $6.5 million. 76,800 shares repurchased between April 24, 2025, and June 30, 2025[75] Note 4 – Business Combinations This note details the reverse merger, the resulting bargain purchase gain, acquisition-related costs, and prior pharmacy acquisitions - Reverse Merger (April 24, 2025): Better Choice issued 8,898,069 shares and 19,701,935 exchangeable shares. Former SRx Canada shareholders hold ~88% of combined voting power. Accounted for as a reverse acquisition with SRx Canada as accounting acquirer[142][143] - Bargain Purchase Gain: Preliminary gain of $1.69 million recognized in Q2 2025 due to total consideration transferred being less than the fair value of net assets acquired[144][150] - Acquisition-Related Costs: Issued 1,599,231 common shares for advisory and professional services, totaling $3.3 million, expensed in Q2 2025[146] - Private Placement: Completed on April 24, 2025, issuing 1,280,000 common shares and 2,756,697 pre-funded warrants for $8.8 million gross proceeds[147] - Prior Pharmacy Acquisitions (9 months ended June 30, 2024): Acquired Elora Apothecary Ltd., Trailside Pharmacy Ltd., 0864009 B.C. Ltd. (Mediglen), and Vaughan Endoscopy Clinic Inc., totaling $4.019 million in consideration and $2.441 million in goodwill[152] Note 5 – Trade and other receivables This note provides a breakdown of trade and other receivables, including the allowance for current expected credit losses | Metric (USD in thousands) | June 30, 2025 | September 30, 2024 | Change ($) | Change (%) | | :------------------------ | :------------ | :----------------- | :--------- | :--------- | | Receivables from third-party customers | 5,519 | 4,223 | 1,296 | 30.7% | | Other receivables | 2,460 | 2,883 | (423) | (14.7%) | | Sales and income tax receivables | 247 | 2,371 | (2,124) | (89.6%) | | Less: Allowance for CECL | (88) | (202) | 114 | (56.4%) | | Total Accounts Receivable, net | 8,138 | 9,275 | (1,137) | (12.3%) | - Allowance for current expected credit losses (CECL) decreased from $202K to $88K[165] Note 6 – Inventory This note presents the composition of the company's inventory, including finished goods and packaging supplies | Metric (USD in thousands) | June 30, 2025 | September 30, 2024 | Change ($) | Change (%) | | :------------------------ | :------------ | :----------------- | :--------- | :--------- | | Finished goods | 4,582 | 3,369 | 1,213 | 36.0% | | Inventory packaging and supplies | 550 | - | 550 | N/A | | Total Inventory, net | 5,132 | 3,369 | 1,763 | 52.3% | Note 7 – Fixed assets This note details the company's fixed assets, accumulated depreciation, and depreciation expense | Metric (USD in thousands) | June 30, 2025 | September 30, 2024 | Change ($) | Change (%) | | :------------------------ | :------------ | :----------------- | :--------- | :--------- | | Total fixed assets | 7,698 | 11,207 | (3,509) | (31.3%) | | Accumulated depreciation | (4,628) | (5,176) | 548 | (10.6%) | | Fixed assets, net | 3,070 | 6,031 | (2,961) | (49.1%) | - Depreciation expense for the nine months ended June 30, 2025, was $0.5 million, compared to $0.4 million for the same period in 2024[167] Note 8 – Intangible assets This note outlines the company's intangible assets, amortization expense, and impairment losses | Metric (USD in thousands) | June 30, 2025 (Net Carrying Amount) | September 30, 2024 (Net Carrying Amount) | Change ($) | Change (%) | | :------------------------ | :---------------------------------- | :--------------------------------------- | :--------- | :--------- | | Computer software | 30 | 50 | (20) | (40.0%) | | Domain/website | 1 | 1 | 0 | 0.0% | | Customer lists | 424 | 6,210 | (5,786) | (93.2%) | | Charter license | 669 | 740 | (71) | (9.6%) | | Total Intangible Assets | 1,124 | 7,001 | (5,877) | (83.9%) | - Amortization expense for the nine months ended June 30, 2025, was $2.4 million, compared to $1.0 million for the same period in 2024, an increase of 140%[169] - Impairment loss of $2.7 million recognized during the nine months ended June 30, 2025, related to customer list intangible assets, driven by a decline in estimated fair value[170] Note 9 – Goodwill This note details the company's goodwill, including impairment charges and their underlying causes | Metric (USD in thousands) | June 30, 2025 | September 30, 2024 | Change ($) | Change (%) | | :------------------------ | :------------ | :----------------- | :--------- | :--------- | | Beginning balance | - | 18,346 | (18,346) | (100.0%) | | Acquisitions | - | 2,438 | (2,438) | (100.0%) | | Impairment expense | - | (19,669) | 19,669 | (100.0%) | | Ending balance | - | - | 0 | N/A | - A goodwill impairment charge of $19.7 million was recognized for the three and twelve months ended September 30, 2024, for the Pharmacy and Prescription Drug Sales reporting unit[173] - Impairment was primarily due to the loss of a key contract, reduced projected revenue, increased pricing pressure, lower long-term growth expectations, and a higher discount rate[172] Note 10 – Leases This note provides information on the company's operating lease assets, liabilities, and associated costs | Metric (USD in thousands) | June 30, 2025 | September 30, 2024 | Change ($) | Change (%) | | :------------------------ | :------------ | :----------------- | :--------- | :--------- | | Operating lease assets | 4,717 | 6,490 | (1,773) | (27.3%) | | Total Operating lease liabilities | 5,044 | 7,092 | (2,048) | (28.9%) | - Total lease cost for the nine months ended June 30, 2025, was $1.707 million, a decrease of 6% from $1.816 million in 2024[176] - Weighted average remaining lease term is 4.78 years, with a weighted average discount rate of 7.74%[176] Note 11 – Debt This note details the company's debt structure, including short-term borrowings, CWB facilities, and covenant non-compliance | Metric (USD in thousands) | June 30, 2025 | September 30, 2024 | Change ($) | Change (%) | | :------------------------ | :------------ | :----------------- | :--------- | :--------- | | Short-term borrowings | 4,077 | 3,715 | 362 | 9.7% | | CWB Term Facilities | 23,054 | 30,603 | (7,549) | (24.7%) | | Other borrowings | 3,685 | 1,668 | 2,017 | 120.9% | | Total Debt | 30,816 | 35,986 | (5,170) | (14.4%) | | Current portion of long-term borrowings | 24,836 | 31,575 | (6,739) | (21.3%) | | Long-term portion of other borrowings | 1,903 | 696 | 1,207 | 173.4% | - Company was not in compliance with CWB loan covenants (Senior Funded Debt to Adjusted EBITDA < 4.0x and Fixed Charge Coverage Ratio > 1.0x) as of June 30, 2025, and September 30, 2024, leading to reclassification of the entire CWB loan as a current liability[183] - Revolving Loan with Better Choice Company Inc. (BTTR) was converted into common shares upon the reverse merger on April 24, 2025, and is no longer outstanding[181][182] Note 12 – Convertible debentures This note describes the company's convertible debentures, including conversions and new issuances | Metric (USD in thousands) | June 30, 2025 | September 30, 2024 | Change ($) | Change (%) | | :------------------------ | :------------ | :----------------- | :--------- | :--------- | | Convertible debentures | 1,145 | 2,230 | (1,085) | (48.7%) | - Better Choice Convertible Note ($1.45 million principal) converted into common shares upon the reverse merger on April 24, 2025, and is no longer outstanding[190][191] - During the nine months ended June 30, 2025, an additional $1.0 million in convertible debentures were issued[189] Note 13 – Revenue This note provides a detailed breakdown of the company's revenue by channel for various periods | Revenue Channel (USD in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change ($) | Change (%) | 9 Months Ended June 30, 2025 | 9 Months Ended June 30, 2024 | Change ($) | Change (%) | | :--------------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Retail pharmacy | 6,790 | 41,438 | (34,648) | (83.6%) | 33,598 | 113,921 | (80,323) | (70.5%) | | Infusion services | 207 | 428 | (221) | (51.6%) | 724 | 948 | (224) | (23.6%) | | Specialty clinics | 142 | 111 | 31 | 27.9% | 411 | 417 | (6) | (1.4%) | | Wholesale distribution | 1 | 245 | (244) | (99.6%) | 31 | 612 | (581) | (95.0%) | | Patient support program | 193 | 262 | (69) | (26.3%) | 731 | 744 | (13) | (1.7%) | | Clinical trial | 213 | 7 | 206 | 2942.9% | 792 | 8 | 784 | 9800.0% | | Consumer packaged goods | 2,673 | - | 2,673 | N/A | 2,673 | - | 2,673 | N/A | | Other service revenue | 1,228 | 179 | 1,049 | 586.0% | 2,122 | 472 | 1,650 | 349.6% | | Total revenue | 11,447 | 42,670 | (31,223) | (73.2%) | 41,082 | 117,122 | (76,040) | (65.0%) | Note 14 – Segment information This note outlines the company's two reportable segments: Health Solutions and Consumer Products, and their respective financial contributions - Company operates two reportable segments: Health Solutions (Canadian pharmacies, core business) and Consumer Products (legacy Halo pet food, primarily U.S.)[195] - CODM (Board of Directors) evaluates segments based on revenues, gross margin, and Adjusted EBITDA, but not total assets[196][197] | Segment (USD in thousands) | 3 Months Ended June 30, 2025 (Net Sales) | 3 Months Ended June 30, 2024 (Net Sales) | 9 Months Ended June 30, 2025 (Net Sales) | 9 Months Ended June 30, 2024 (Net Sales) | | :------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Health Solutions | 8,774 | 42,670 | 38,409 | 117,122 | | Consumer Products | 2,673 | - | 2,673 | - | | Total | 11,447 | 42,670 | 41,082 | 117,122 | - U.S. revenue (Consumer Products) for 9 months ended June 30, 2025, was $2.673 million (N/A in 2024). Canadian revenue (Health Solutions) for 9 months ended June 30, 2025, was $38.409 million, down from $117.122 million in 2024[201] - Long-lived assets in the U.S. increased to $4.090 million as of June 30, 2025 (from $0 in 2024), while Canadian long-lived assets decreased to $0.104 million (from $13.032 million in 2024)[202] Note 15 – Income taxes This note details the company's income tax provision, deferred tax income, and effective tax rates | Metric (USD in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 9 Months Ended June 30, 2025 | 9 Months Ended June 30, 2024 | | :------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Income tax provision | 100 | 300 | 800 | 200 | | Deferred tax income (expense) | 1,700 | (400) | 1,500 | 600 | - U.S. operations have a federal statutory tax rate of 21%, but the effective tax rate was less than 1% due to a full valuation allowance against deferred tax assets related to net operating losses[205] Note 16 – Related party transactions This note describes transactions with related parties, including working capital advances and balances due to former executives - Historical non-interest-bearing working capital advances with largest shareholder and common control entities were forgiven, resulting in a capital contribution[206][207] - As of June 30, 2025, net related party balances transitioned to a payable position of $82K (from a receivable of $81K in Sep 2024)[210] - A $1.4 million balance due to former CEO Adesh Vora was recorded as an increase to beginning accumulated deficit and a non-cash capital distribution[208] Note 17 – Share issuances and warrants This note details the company's share issuances, private placements, and warrant activity | Metric | June 30, 2025 | September 30, 2024 | Change | | :------------------------ | :------------ | :----------------- | :----- | | Warrants Outstanding () | 3,075,042 | 232,438 | 2,842,604 | | Weighted average price ($)| 14.94 | 2.02 | 12.92 | - On April 24, 2025, issued 1,280,000 common shares and 2,756,697 pre-funded warrants for $8.8 million in a private placement[212] - Issued 1,941,120 shares for settlement of $2.9 million inventory-related accounts payable and $3.1 million professional fee-related accounts payable during the nine months ended June 30, 2025[213] Note 18 – Loss per share This note presents the company's net loss per share, including basic and diluted calculations | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 9 Months Ended June 30, 2025 | 9 Months Ended June 30, 2024 | | :------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net loss | (15,133) | (3,115) | (29,745) | (11,077) | | Weighted average shares (basic & diluted) | 20,401,138 | 21,922,889 | 19,334,671 | 22,005,842 | | Net loss per share (basic & diluted) | (0.74) | (0.14) | (1.54) | (0.50) | - Basic and diluted net loss per share are the same as potentially dilutive securities were anti-dilutive due to net losses[215][216] Note 19 – Share-based compensation This note outlines the company's share-based compensation expense, incentive plans, and restricted stock unit activity | Metric (USD in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 9 Months Ended June 30, 2025 | 9 Months Ended June 30, 2024 | | :------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Share-based compensation expense | 2,900 | 800 | 4,500 | 2,600 | - Amended 2019 Incentive Award Plan adopted post-Merger, authorizing 1,928,023 shares for issuance[217][222] - Granted 890,192 shares of immediately vested restricted common stock in April 2025 for performance bonus compensation ($1.9 million expense)[220] - RSUs outstanding decreased from 1,594,641 (Sep 30, 2024) to 0 (June 30, 2025) due to vesting and conversion in the Reverse Merger[222] Note 20 – Financial instruments This note discusses the fair value of financial instruments, exposure to credit, liquidity, and market risks, and contractual maturities - Fair value of cash, receivables, and payables approximate carrying amounts due to short-term maturities[224] - Convertible debt classified as Level 3 financial instrument due to unobservable inputs in valuation[225] - Company is exposed to credit risk, liquidity risk, and market risk (interest rate risk)[227] - Liquidity risk is monitored through cash flow forecasts and access to credit facilities[228] | Contractual Maturities (USD in thousands) | Year 1 (June 30, 2025) | Year 2 (June 30, 2025) | Total (June 30, 2025) | Year 1 (Sep 30, 2024) | Year 3 (Sep 30, 2024) | Total (Sep 30, 2024) | | :---------------------------------------- | :--------------------- | :--------------------- | :-------------------- | :-------------------- | :-------------------- | :------------------- | | Long-term borrowings | 24,836 | 1,903 | 26,739 | 31,575 | 696 | 32,271 | | Convertible debentures | 1,145 | - | 1,145 | 2,230 | - | 2,230 | | Due to related parties | 82 | - | 82 | 288 | - | 288 | | Short-term borrowings | 4,077 | - | 4,077 | 3,715 | - | 3,715 | | Trade and other payables | 41,638 | - | 41,638 | 41,697 | - | 41,697 | | Total | 71,778 | 1,903 | 73,681 | 79,505 | 696 | 80,201 | Note 21 – Disposal of assets This note details the gains recognized from the disposal of various assets during the period - Net total gain of $4.3 million from asset disposals for the nine months ended June 30, 2025[236] - Key asset sales include Niagara Community Pharmacy Ltd. (gain of $1.3M), P.A. Pharmacy Limited (gain of $2.1M), warehouse building (gain of $0.4M), Clearbrook Pharmacy (1987) (gain of $0.4M), and Greg's Drug Ltd. (gain of $0.4M)[231][232][233][234][235] Note 22 – Commitments and contingencies This note addresses the company's involvement in legal proceedings, claims, and regulatory inquiries, and related loss contingencies - Company is involved in legal proceedings, claims, and regulatory inquiries in the ordinary course of business[237] - Loss contingencies are accrued when probable and estimable; management is not aware of any claims that would have a material adverse effect[237][238] Note 23 – Subsequent events This note discloses significant events occurring after the reporting period, including asset sales, financing activities, share cancellations, and the CCAA filing - Asset Sale: On July 11, 2025, sold assets of 3788602 Manitoba Ltd. for $1.8 million, resulting in a gain of $1.066 million[240] - Equity Line of Credit (ELOC): On July 7, 2025, entered agreement to sell up to $50 million of common shares (capped at 19.99% unless stockholder approval). Issued $1 million in Commitment Shares[241] - Convertible Note and Warrant Financing: On July 7, 2025, issued $7.65 million senior secured convertible notes (8% interest, due July 8, 2027, convertible at $0.6274/share) and warrants for 21,338,062 shares (exercisable at $0.6274)[242] - Share Cancellation: On August 1, 2025, 18,839,332 shares (common and exchangeable) were forfeited and cancelled by original founders/officers, representing ~46% of fully diluted capital stock prior to settlement[243] - CCAA Filing: On August 11, 2025, SRx Canada commenced proceedings under the Companies' Creditors Arrangement Act (Canada) due to liquidity constraints and inability to refinance maturing obligations[244] - Pro-forma financial information for U.S. operations (not subject to CCAA) shows net income of $1.710 million for 3 months ended June 30, 2025, and net loss of $(0.651) million for 9 months ended June 30, 2025[247][248] - Issued 2,193,355 shares in July 2025 for professional advisory fees ($0.61/share weighted average price)[249] - Share Exchange Agreement: On August 21, 2025, acquired 17% interest in Halo from Halo Spin-Out SPV, Inc. by issuing 4,950,000 common shares, regaining 100% ownership of Halo[250] - Issued 2,396,697 shares of restricted common stock to directors/officers/employees as performance bonus compensation in August 2025 ($0.40/share weighted average price)[251] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial performance and condition for the nine months ended June 30, 2025, compared to the prior year. It details the business overview, recent corporate developments including the reverse merger and CCAA filing, and a comprehensive analysis of revenue, gross profit, operating expenses, and liquidity, emphasizing the significant challenges faced due to liquidity constraints and covenant non-compliance Overview and Outlook This section provides an overview of SRx's integrated Canadian healthcare services business and its strategic outlook - SRx is a fully integrated Canadian healthcare services provider, focusing on specialty healthcare at the intersection of pharmacy, clinical services, and pharmaceutical distribution[255] - The SRx Network includes ~30 specialty pharmacies, 37 specialty health clinics, 2 clinical trial sites, a diagnostics lab, national Patient Support Programs (PSPs), and a wholesale/distribution facility, operating across all ten Canadian provinces[256] - Specialty drugs, high-cost and complex therapies, are the core focus, requiring advanced logistics and clinical oversight[257] - Outlook: Expects increasing demand for specialty medications and health system capacity challenges to drive growth, leveraging established footprint and partnerships[259] Recent Corporate Developments This section summarizes key corporate events, including CWB loan covenant non-compliance, the reverse merger, and management changes - 2023 focused on strategic acquisitions; 2024 shifted to integration, operational optimization, and organic growth[260] - Non-compliance with CWB loan financial covenants as of June 30, 2025, led to debt being callable. Subsequent to June 30, 2025, the Company sought creditor protection under CCAA[261] - Reverse merger with Better Choice Company, Inc. completed on April 24, 2025; Better Choice changed name to SRx Health Solutions Inc. and began trading as 'SRXH'[262][263] - Multiple management and Board of Directors changes occurred between April and August 2025, including changes in CEO and Chairman roles, and the resignation of Adesh Vora[263][264][265] - Cancellation of approximately 18.8 million shares of fully diluted capital stock announced on August 14, 2025[266] Arrangement Agreement This section details the all-stock arrangement agreement with Better Choice Company Inc., which closed on April 24, 2025 - Arrangement Agreement with Better Choice Company Inc. (publicly listed) for SRx's acquisition through an all-stock transaction, closed on April 24, 2025[267][270] - SRx common shares converted into Better Choice common stock or exchangeable shares (1:1 convertible). Former SRx shareholders hold ~88% of combined voting power[143][269] - Transaction reflects an assigned equity value of SRx of USD $80 million, assuming net debt of USD $43 million[269] - Combined Company aims to be a leading global health and wellness platform, continuing Halo pet product brands and SRx healthcare business[271][272] Results of Operations for the nine months ended June 30, 2025 and 2024 The company experienced a significant decline in net sales and gross profit for the nine months ended June 30, 2025, primarily due to operational disruptions and liquidity constraints. Operating expenses increased due to transaction-related professional fees and share-based compensation, while other income improved from asset sales. The net loss widened considerably Net sales This section analyzes the significant decrease in net sales, primarily attributed to operational disruptions and liquidity constraints - Net sales decreased by $76.0 million (65%) to $41.1 million for the nine months ended June 30, 2025, from $117.1 million in 2024[273][276] - Primary drivers for decrease: significant operational disruptions due to liquidity constraints, limiting ability to purchase and dispense high-cost specialty medications, leading to reduced patient volumes and prescription fulfillment rates[276] - Retail pharmacy revenue, the core driver, decreased by $80.3 million (70.5%) for the nine months ended June 30, 2025[194] Gross profit This section examines the decline in gross profit, driven by reduced net sales and operational challenges - Gross profit decreased by $13.1 million (56%) to $10.3 million for the nine months ended June 30, 2025, from $23.4 million in 2024[273][279] - Decrease primarily driven by significant decline in net sales, operational and liquidity challenges, and under-absorption of fixed costs[279] - Company is collaborating with supply chain partners for cost-saving opportunities but expects ongoing margin variability due to macroeconomic factors (inflationary pressures)[280] Operating expenses This section details the increase in total operating expenses, including SG&A, share-based compensation, and professional fees - Total operating expenses increased by $10.8 million (34%) to $42.5 million for the nine months ended June 30, 2025, from $31.6 million in 2024[273] - Selling, general and administrative (SG&A) expenses increased by $8.2 million (26%) to $39.8 million[273] - Sales and marketing costs increased by $0.3 million (389%) due to Better Choice integration[281] - Employee compensation and benefits remained constant at $16.8 million, as headcount reductions were offset by Better Choice personnel costs[281] - Share-based compensation increased by $1.8 million (71%) to $4.4 million, primarily due to Better Choice consolidation[281] - Impairment of long-lived intangible assets resulted in a $2.7 million charge in 2025 (none in 2024)[283] - Professional fees increased by $3.9 million (285%) to $5.2 million, driven by reverse merger transaction-related expenses[288] Other income (expense), net This section explains the improvement in other income, primarily due to gains from asset sales - Other income improved by $3.5 million to $3.457 million for the nine months ended June 30, 2025, from an expense of $0.069 million in 2024[273][284] - Improvement primarily driven by a gain on the sale of assets at the SRx level, as part of asset base optimization and liquidity strengthening[284] Interest expense, net This section discusses the company's interest expense, which remained relatively constant year-over-year - Interest expense remained constant at $3.3 million for the nine months ended June 30, 2025, compared to $3.26 million in 2024[273][285] - Comprised of interest on CWB term loan, CEBA loans, and other borrowings; not materially impacted by Better Choice consolidation[285] Income taxes This section analyzes the income tax recovery and the effective tax rate, influenced by valuation allowances against deferred tax assets - Income tax recovery of $0.63 million for the nine months ended June 30, 2025, compared to an expense of $0.45 million in 2024[286] - Effective tax rate was (2.46%) in 2025 vs. (3.92%) in 2024, differing from the 26.5% Canadian statutory rate due to a significant increase in valuation allowances against deferred tax assets (primarily NOLs)[286] Non-GAAP Measures This section defines and reconciles Adjusted EBITDA, a non-GAAP measure used by management for performance evaluation and strategic decisions - Adjusted EBITDA is a non-GAAP measure used by management to evaluate operating performance, generate future plans, and make strategic capital allocation decisions[290] - Adjusted EBITDA is calculated by adding interest expense, tax expense (benefit), depreciation and amortization, share-based compensation, gain on extinguishment of debt and accounts payable, loss on disposal of assets, transaction-related expenses, and other non-recurring expenses to net loss[289] | Metric (USD in thousands) | 9 Months Ended June 30, 2025 | 9 Months Ended June 30, 2024 | Change ($) | Change (%) | | :------------------------ | :--------------------------- | :--------------------------- | :--------- | :--------- | | Net loss | (29,745) | (11,077) | (18,668) | (168.5%) | | EBITDA | (24,104) | (4,947) | (19,157) | (387.3%) | | Adjusted EBITDA | (19,142) | (135) | (19,