Quarterly Report for Quarter Ending June 30, 2025 (Form 10-Q)

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.

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.

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.

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.

	●	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.

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.

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.

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.

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.