Exhibit 99.1
SRX HEALTH SOLUTIONS INC.
CONSOLIDATED FINANCIAL STATEMENTS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars)
Table of contents
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of SRx Health Solutions Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of SRx Health Solutions Inc. and its subsidiaries (the “Company”) as at September 30, 2024 and 2023, and the related consolidated statements of operations, changes in shareholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of September 30, 2024 and 2023, and the results of its consolidated operations and its consolidated cash flows for each of the years in the two-year period ended September 30, 2024, in conformity with accounting principles generally accepted in the United States of America.
Material Uncertainty Related to Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2.3 to the consolidated financial statements, the Company has incurred a net loss from continuing operations, a negative operating cash flow, a significant deficit and has a net capital deficiency which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2.3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Chartered Professional Accountants
Licensed Public Accountants
We have served as the Company’s auditor since 2021.
Burlington, Canada
July 9, 2025
MNP LLP
| 602, 1122 International Blvd, Burlington ON, L7L 6Z8 | T: 905.333.9888 F: 905.333.9583 |
 |
MNP.ca |
| 3 |
SRX HEALTH SOLUTIONS INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
| Notes | September 30, 2024 | September 30, 2023 | ||||||||||
| Assets | ||||||||||||
| Current assets | ||||||||||||
| Cash | $ | $ | ||||||||||
| Accounts receivable, net | 5 | |||||||||||
| Inventory | 6 | |||||||||||
| Prepaid expenses | ||||||||||||
| Current portion of lease receivable | 10 | |||||||||||
| Due from shareholders | 16 | |||||||||||
| Due from related parties | 16 | |||||||||||
| Other current assets | ||||||||||||
| Total current assets | ||||||||||||
| Non-current assets | ||||||||||||
| Property and equipment | 7 | |||||||||||
| Right-of-use assets | 10 | |||||||||||
| Lease receivable | ||||||||||||
| Deferred tax assets | 15 | |||||||||||
| Intangible assets | 8 | |||||||||||
| Goodwill | 9 | |||||||||||
| Total non-current assets | ||||||||||||
| Total Assets | $ | $ | ||||||||||
| Liabilities | ||||||||||||
| Current liabilities | ||||||||||||
| Short-term borrowings | 11 | $ | $ | |||||||||
| Trade and other payables | ||||||||||||
| Deferred revenue | ||||||||||||
| Current portion of long-term borrowings | 11 | |||||||||||
| Current portion of lease liabilities | 10 | |||||||||||
| Convertible debentures | 12 | |||||||||||
| Income tax payable | ||||||||||||
| Due to shareholders | 16 | |||||||||||
| Total current liabilities | ||||||||||||
| Non-current liabilities | ||||||||||||
| Long-term borrowings | 11 | |||||||||||
| Lease liabilities | 10 | |||||||||||
| Deferred tax liability | 15 | |||||||||||
| Total non-current liabilities | ||||||||||||
| Total liabilities | ||||||||||||
| Shareholders’ Deficit | ||||||||||||
| Common stock, $ par value, shares authorized, & shares issued and outstanding as of September 30, 2024 and 2023, respectively | ||||||||||||
| Additional paid-in capital | ||||||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||||||
| Total liabilities and Stockholders’ Deficit | $ | $ | ||||||||||
Commitments and contingencies (Note 21), Subsequent events (Note 22)
The accompanying notes are an integral part of these Consolidated Financial Statements
| 4 |
SRX HEALTH SOLUTIONS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
| Notes | 2024 | 2023 | ||||||||||
| Revenue | 13 | $ | $ | |||||||||
| Cost of sales | ||||||||||||
| Gross profit | ||||||||||||
| General and administrative | ||||||||||||
| Goodwill impairment | 9 | |||||||||||
| Intangibles impairment | 8 | |||||||||||
| Depreciation and amortization | ||||||||||||
| Operating expenses | ||||||||||||
| Operating loss | ( | ) | ( | ) | ||||||||
| Interest expense | ||||||||||||
| Other expense | ||||||||||||
| Total other expense | ||||||||||||
| Loss before income taxes | ( | ) | ( | ) | ||||||||
| Income tax expense | 15 | |||||||||||
| Deferred tax income | 15 | ( | ) | ( | ) | |||||||
| Net loss | ( | ) | ( | ) | ||||||||
| Weighted average number of common shares outstanding: | ||||||||||||
| Basic and diluted | 18 | |||||||||||
| Net loss per share | ||||||||||||
| Basic and diluted | 18 | $ | ) | $ | ) | |||||||
The accompanying notes are an integral part of these Consolidated Financial Statements
| 5 |
SRX HEALTH SOLUTIONS INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
| Notes | Number of Shares # | Amount $ | Additional paid-in capital $ | Accumulated Deficit $ | Total Shareholders’ Deficit $ | |||||||||||||||||||
| Balance as at September 30, 2023 | ( | ) | ( | ) | ||||||||||||||||||||
| Capital distribution – debt forgiveness | 16 | - | ||||||||||||||||||||||
| Share-based compensation | 19 | - | ||||||||||||||||||||||
| Settlement of RSUs | 19 | ( | ) | |||||||||||||||||||||
| Share redemption | 19 | ( | ) | ( | ) | ( | ) | |||||||||||||||||
| Equity issued in business combinations | 4 | |||||||||||||||||||||||
| Shares issued for private placement | 17 | |||||||||||||||||||||||
| Issuance of warrants | 17 | - | ||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance as at September 30, 2024 | ( | ) | ( | ) | ||||||||||||||||||||
| Notes | Number of Shares # | Amount $ | Additional paid-in capital $ | Accumulated Deficit $ | Total Shareholders’ Deficit $ | |||||||||||||||||||
| Balance as at September 30, 2022 | ( | ) | ( | ) | ||||||||||||||||||||
| Share-based compensation | 19 | - | ||||||||||||||||||||||
| Settlement of RSUs | 19 | ( | ) | |||||||||||||||||||||
| Equity issued in business combinations | 4 | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance as at September 30, 2023 | ( | ) | ( | ) | ||||||||||||||||||||
The accompanying notes are an integral part of these Consolidated Financial Statements
| 6 |
SRX HEALTH SOLUTIONS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
| Operating activities | Notes | 2024 | 2023 | |||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Impairment of goodwill | 9 | |||||||||||
| Impairment of intangibles | 8 | |||||||||||
| Deferred tax income | 15 | ( | ) | ( | ) | |||||||
| Interest expense on lease liability | 10 | |||||||||||
| Provision for expected credit losses | 5 | |||||||||||
| Share-based compensation | 19 | |||||||||||
| Working capital changes: | ||||||||||||
| Trade and other receivables | ( | ) | ( | ) | ||||||||
| Prepaids and other assets | ( | ) | ||||||||||
| Inventory | ( | ) | ||||||||||
| Deferred revenue | ( | ) | ||||||||||
| Trade and other payables | ||||||||||||
| Income tax payable | ( | ) | ||||||||||
| Net cash flows (used in) from operating activities | ( | ) | ||||||||||
| Investing activities | ||||||||||||
| Property and equipment | ( | ) | ||||||||||
| Acquisitions | ( | ) | ( | ) | ||||||||
| Purchase of intangible assets | ( | ) | ||||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||||||
| Financing activities | ||||||||||||
| Proceeds from long-term borrowings | 11 | |||||||||||
| Repayment of long-term borrowings | 11 | ( | ) | ( | ) | |||||||
| Payment of principal portion of lease liabilities | 10 | ( | ) | ( | ) | |||||||
| Proceeds from short-term borrowings | ||||||||||||
| Payments to related parties | ( | ) | ( | ) | ||||||||
| Proceeds from share issuance | ||||||||||||
| Redemption of shares | ( | ) | ||||||||||
| Net cash flows from financing activities | ||||||||||||
| Net (decrease) increase in cash | ( | ) | ||||||||||
| Cash, beginning of year | ||||||||||||
| Cash, end of year | $ | $ | ||||||||||
The accompanying notes are an integral part of these Consolidated Financial Statements
| 7 |
SRX HEALTH SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
1. Corporate information
SRx Health Solutions Inc. and its subsidiaries are together referred to in these consolidated financial statements as “SRx” or the “Company”. The Company was incorporated under the laws of the province of Ontario on April 26, 2022. The Company’s registered head office is 65 Queen Street West, Suite 800, Toronto, Ontario, M5H 2M5. The Company, together with its subsidiaries owns and operates retail pharmacies located throughout Canada. The Company is a Canadian collaborative network of pharmacists and healthcare practitioners engaged in the provision of specialized treatments and integrated support services to Canadians.
Previously, the Company operated under SRx Health Solutions Group and was made up of 24 entities (collectively, the “Group”) each of which was incorporated and operating in Canada, and all either owned directly or indirectly by Mr. Adesh Vora (the controlling “Shareholder”). On September 9th, 2022, there was a reorganization where SRx acquired the Group and as a result the financial statements are presented on a consolidated basis. The controlling Shareholder remains the controlling party after the reorganization.
2. Basis of Preparation
2.1 Statement of Compliance
The Company’s consolidated financial statements are prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for annual financial reports and accounting principles generally accepted in the United States of America (“GAAP”).
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 Canadian dollars and all values are rounded to the nearest thousand ($000), except when otherwise indicated.
The Company has prepared the consolidated financial statements on the basis that it will continue to operate as a going concern. Refer to Note 2.1 – Going Concern for more information.
The significant measurement and presentation rules applied to prepare these consolidated financial statements are described below.
2.2 Basis of Consolidation
The consolidated financial statements comprise the financial statements of the Company and entities controlled by the Company. 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 consolidated statements of financial position and the earnings accruing to non-controlling interest holders are disclosed as a separate line item in the consolidated statements of operations. The financial results of subsidiaries are included in the 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.
The Company has prepared the consolidated financial statements on the basis that it will continue to operate as a going concern, which presumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of operations for the foreseeable future.
| 8 |
SRX HEALTH SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
2.2 Basis of Consolidation (continued)
The consolidated financial statements include the following entities, which are wholly owned:
| Entity name | Principal activity | Province | ||
| 1093507 B.C Ltd. | Pharmacy | Vancouver, B.C | ||
| 3788602 Manitoba Ltd. | Pharmacy | Winnipeg, MB | ||
| Alberta Specialty Rx Inc. | Pharmacy | Calgary, AB | ||
| ConnectRX Inc. | Distribution/Wholesale | Etobicoke, ON | ||
| Edmonton SRX Inc. | Pharmacy | Edmonton, AB | ||
| Golfview Pharmaceuticals Inc. | Pharmacy | Oakville, ON | ||
| Nepean Medical Pharmacy Inc. | Pharmacy | Nepean, ON | ||
| Origen Pharmaceuticals Inc. | Rental of warehouses | Milton, ON | ||
| Physician’s Clinical Research Inc. | Clinical Trials | Toronto, ON | ||
| P.A. Pharmacy Limited | Pharmacy | Prince Albert, SK | ||
| RX Solutions Inc. | Pharmacy | Winnipeg, MB | ||
| SRX Diagnostics Inc. | Laboratory/ Testing | Etobicoke, ON | ||
| SRX Health Initiatives Inc. | Patient support programs | Etobicoke, ON | ||
| SRX Holdings NL Inc. | Pharmacy | St. John, NL | ||
| SRX Island Holdings Inc. (2) | Pharmacy | Abbotsford, BC | ||
| SRX London Inc. | Pharmacy | London, ON | ||
| SRX NB Inc. | Pharmacy | Moncton, NB | ||
| SRX NS Inc. | Pharmacy | Halifax, NS | ||
| SRX Pharma Inc. | Pharmacy | Saskatoon, SK | ||
| SRx Solutions Inc. | Patient support programs | Etobicoke, ON | ||
| SRX-Kelowna Holdings Inc. | Pharmacy | Kelowna, BC | ||
| TH Ellesmere Pharmacy Inc. | Pharmacy | Scarborough, ON | ||
| MNV Drugs Inc. | Pharmacy | Mississauga, ON | ||
| Ottawa Pharmacy Group Inc. | Pharmacy | Ottawa, ON | ||
| PSV Pharmacy Inc. | Pharmacy | Kingston, ON | ||
| SRx Toronto Inc. | Pharmacy | Toronto, ON |
| 9 |
SRX HEALTH SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
2.2 Basis of Consolidation (continued)
| Entity name | Principal activity | Province | ||
| TDDA SR SMO Inc. | Clinical Trials | Woodbridge, ON | ||
| Toronto Digestive Disease Associates Inc. | Clinical Trials | Woodbridge, ON | ||
| Trillium Pharmaceuticals Inc. | Pharmacy | Etobicoke, ON | ||
| VMD Holdings Inc. | Pharmacy | Regina, SK | ||
| SRX Health Ontario Inc. (2) | Ontario Charter Holder (Pharmacy) | Toronto, ON | ||
| SRX Health Solutions Inc. | Corporate | Toronto, ON | ||
| Pier Health Recreational Centre Ltd (1) | Pharmacy | Vancouver, BC | ||
| S. Parsons Pharmacy Ltd (1) | Pharmacy | Red Deer, BC | ||
| SRX 101 Inc. (1) | Pharmacy | Calgary, AB | ||
| Greg’s Drugs Ltd. (1) | Pharmacy | Medicine Hat, AB | ||
| Clearbrook Pharmacy (1987) (2) | Pharmacy | Abbotsford, BC | ||
| Garden Park Pharmacy Ltd (2) | Pharmacy | Abbotsford, BC | ||
| Niagara Community Pharmacy Ltd. (2) | Pharmacy | Niagara, ON | ||
| Elora Apothecary Ltd. (3) | Pharmacy | Elora, ON | ||
| Trailside Pharmacy Ltd. (3) | Pharmacy | Fergus, ON | ||
| 0864009 B.C. Ltd. (4) | Pharmacy | Coquitlam, BC | ||
| Vaughan Endoscopy Clinic Inc. (5) | Medical services | Vaughan, ON |
| (1) | Parsons Pharmacy Ltd, Pier Health Recreational Centre Ltd, SRX 101 Inc. and Greg’s Drugs Ltd were acquired on December 22, 2022, December 23, 2022, January 13, 2023 and March 14, 2023, respectively. Refer to Note 4 Business Combinations for further details. | |
| (2) | On June 9, 2023, the Company acquired the assets of Clearbrook Pharmacy (1987) and Garden Park Pharmacy Ltd through SRX Island Holdings Inc. On June 26th, 2023, the Company acquired the assets of Niagara Community Pharmacy Ltd through SRx Health Ontario Inc. | |
| (3) | Elora Apothecary Ltd. And Trailside Pharmacy Ltd. were acquired on October 6, 2023. Refer to Note 4 Business Combinations for further details. The assets of Elora Apothecary Ltd. And Trailside Pharmacy Ltd. were subsequently sold on August 31, 2024. | |
| (4) | 0864009 B.C. Ltd. was acquired on October 16, 2023. Refer to Note 4 Business Combinations for further details. | |
| (5) | Vaughan Endoscopy Clinic Inc. was acquired on February 29, 2024. Refer to Note 4 Business Combinations for further details. |
2.3 Going concern
These 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 September 30, 2024, the Company had an accumulated deficit of $
The Company is also subject to certain financial covenants under its debt agreements. As of September 30, 2024, the Company was in violation of these covenants. Refer to Note 11 – Debt for more information. As a result, the debt has been classified as current and the Company is in active discussions with the lender regarding an amendment.
| 10 |
SRX HEALTH SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
These conditions—recurring operating losses, negative operating cash flows, working capital deficiency, and potential and actual 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:
| ● | 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.
These 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.
3. Summary of significant accounting policies
(a) Segment information
Operating segments are defined as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker (“CODM”) in making decisions regarding resource allocation and assessing performance. The Company has viewed its operations and manages its business as two reportable segments. The Company’s CODM reviews operating results and makes decisions based on financial information for the “Pharmacy and sale of prescription drugs” segment and the “Clinical trials” segment. All the assets and operations of the Company are in Canada. See Note 16 - Segment information for additional disclosures on segment reporting.
The Company is organized into forty-three operating segments, which include thirty-three pharmacies, two patient support programs, two wholesale entities, one diagnostic lab, one corporate entity, one medical services entity and three clinical trial sites. These operating segments reflect the way financial information is internally reported.
The
Company has aggregated these forty-three operating segments into
(b) 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.
| 11 |
SRX HEALTH SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
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 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.
(c) 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. The Company recorded approximately $
(d) 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.
| 12 |
SRX HEALTH SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
(e) 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 years ended September 30, 2024, and September 30, 2023, revenues attributed to infusion services, consulting services, testing services, clinical trial services, or patient support programs were not material.
(f) 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.
| 13 |
SRX HEALTH SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
(g) 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.
(h) 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. Prior to September 30, 2023, depreciation of property and equipment was calculated based on a declining balance basis using the estimated depreciation rates of the assets, unless otherwise specified:
| Computer equipment | ||
| Furniture and fixtures | ||
| Medical equipment | ||
| Building | ||
| Automobiles | ||
| Signs | ||
| Leasehold improvements |
As at September 30, 2023, the Company changed its estimate of 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 |
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 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 consolidated statements of operations when the asset is derecognized.
| 14 |
SRX HEALTH SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
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 consolidated financial statements.
(i) 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.
Prior to September 30, 2023, amortization was calculated over the estimated useful lives of the assets using the declining balance method as follows:
| Computer software | ||
| Domain (website) | ||
| Charter license | ||
| Customer lists |
As at September 30, 2023, the Company changed its estimate of 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 |
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 consolidated financial statements.
(j) 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 12 months or less) for which the Company has elected the short-term lease exemption.
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 |
| 15 |
SRX HEALTH SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
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 consolidated statements of operations. For finance leases, amortization of the ROU asset and interest expense on the lease liability are presented separately in the consolidated statements of operations.
(k) 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.
(l) Financial Instruments
Recognition and derecognition
Financial instruments are recognized in the 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.
| 16 |
SRX HEALTH SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
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 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 consolidated balance sheets.
(m) 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.
(n) 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.
The Company maintains a Long-Term Omnibus Compensation Plan (the “Omnibus Plan”) under which it may grant stock options and restricted stock units (“RSUs”) 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 is limited to 10% of the Company’s issued and outstanding common shares at any given time. Awards that expire, are canceled, or are 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, entitle 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 do not carry voting or dividend rights prior to settlement.
| 17 |
SRX HEALTH SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
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 typically ranges from months to years. The Company accounts for forfeitures as they occur.
Share-based compensation expense is included in general and administrative expenses in the consolidated statement of operations. stock options were granted during either fiscal year.
(p) Significant accounting judgments, estimates and assumptions
The preparation of the 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 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 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. | |
| ● | 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 U.S. 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. |
| 18 |
SRX HEALTH SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
| ● | 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 uses judgment in assessing the criteria used to determine the aggregation of operating segments. The Pharmacy and sale of prescription drugs segment consists of several operating segments comprised primarily of pharmacies, wholesale distribution of drugs and other medications, patient support programs and a diagnostic lab. | |
| The Company considered the quantitative thresholds, including revenue, profit or loss, and assets, in determining its reportable segments. Based on both the quantitative analysis and the qualitative factors described below, the Company has determined that it has two reportable segments. | |
| The Company has aggregated its Pharmacy and sale of prescription drugs segment on the basis of their similar economic characteristics, customers and nature of products. This similarity in economic characteristics reflects the fact that the entities in the Company’s Pharmacy and sale of prescription drugs segment operate primarily in Canada and are therefore subject to the same economic market pressures and regulatory environment. The entities in the Company’s Pharmacy and sale of prescription drugs segment are subject to similar competitive pressures such as price and product innovation and assortment from existing competitors and new entrants into the marketplace. The Pharmacy and sale of prescription drugs segment customer profile is primarily individuals who are purchasing specialty drugs and related health services. The aggregation of the Pharmacy and sale of prescription drugs segment reflects the nature and financial effects of the business activities in which the Company engages and the economic environment in which it operates. The Company aggregates Pharmacies acquired through business combination within its Pharmacy and sale of prescription drugs segment. In addition, the Company has aggregated the three clinical trial sites into one reportable segment, the Clinical trial segment. The Company therefore has two reportable segments. |
(q) New accounting standards
Recently adopted
In November 2023, FASB issued Accounting Standards Update ASU 2023-07, Segment Reporting, establishing improvements to reportable segments disclosures to enhance segment reporting under Topic 280. This ASU aims to change how public entities identify and aggregate operating segments and apply quantitative thresholds to determine their reportable segments. This ASU also requires public entities that operate as a single reportable segment to provide all segment disclosures in Topic 280, not just entity level disclosures. The guidance is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024 and the amendments should be applied retrospectively to all periods presented in the financial statements. The new standard did not have a material impact on the consolidated financial statements for the year ended September 30, 2024. See Note 18 - Segment information for additional disclosures on segment reporting.
| 19 |
SRX HEALTH SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
4. Business Combinations
Acquisition of pharmacies
The following table summarizes the fair value of the assets and liabilities acquired in business combinations for the year-ended September 30, 2024:
| 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 $
If
the acquisition had taken place at the beginning of the period, revenue would have been $
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 $
The
excess of the purchase price over the net identifiable assets acquired and the liabilities assumed resulted in goodwill of $
| 20 |
SRX HEALTH SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
From
the date of acquisition, Trailside contributed $
If
the acquisition had taken place at the beginning of the period, revenue would have been $
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, 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 $
If
the acquisition had taken place at the beginning of the period, revenue would have been $
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 $
If
the acquisition had taken place at the beginning of the period, revenue would have been $
| 21 |
SRX HEALTH SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
The following table summarizes the fair value of the assets and liabilities acquired in business combinations for the year ended September 30, 2023:
| Pier Health Resource Centre Ltd. | S. Parsons Pharmacy Ltd. | Greg’s Drugs Ltd. | 1907248 Alberta Ltd. | Clearbrook & Garden Park Pharmacy | Niagara Community Pharmacy Ltd. | Total - $ | ||||||||||||||||||||||
| Total consideration transferred: | ||||||||||||||||||||||||||||
| Cash consideration | ||||||||||||||||||||||||||||
| Share consideration | ||||||||||||||||||||||||||||
| Assumed debt | ||||||||||||||||||||||||||||
| 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 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Income tax payable | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Lease liabilities | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Deferred tax liabilities | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Net assets assumed | ||||||||||||||||||||||||||||
| Goodwill | ||||||||||||||||||||||||||||
| (1) |
Acquisition of Greg’s Drugs Ltd.
On
March 14, 2023, the Company acquired
Greg is a retail pharmacy, located in Medicine Hat, AB, that provides customers with adequate prescription medications and other health related products and services. The acquisition of Greg 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, Greg contributed $
The
Company expensed $
If
the acquisition had taken place at the beginning of the year, revenue would have been $
Acquisition of 1907248 Alberta Ltd.
On January 13, 2023, the Company, under its wholly owned subsidiary SRX 101 Inc., acquired the assets of 1907248 Alberta Ltd. (“101”) as a business combination.
101 is a retail pharmacy located in Calgary, AB, that provides customers with adequate prescription medications and other health related products and services. The acquisition of 101 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 $
| 22 |
SRX HEALTH SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
From
the date of acquisition, 101 contributed $
The
Company expensed $
If
the acquisition had taken place at the beginning of the year, revenue would have been $
Acquisition of Pier Health Resource Centre Ltd.
On
December 23, 2022, the Company acquired
Pier is a retail pharmacy, located in Vancouver, BC, that provides customers with adequate prescription medications and other health related products and services. The acquisition of Pier 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, Pier contributed $
The
Company expensed $
If
the acquisition had taken place at the beginning of the year, revenue would have been $
Acquisition of S. Parsons Pharmacy Ltd.
On
December 22, 2022, the Company acquired
Parsons is a retail pharmacy located in Red Deer, AB, that provides customers with adequate prescription medications and other health related products and services. The acquisition of Parsons 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, Parsons contributed $
The
Company expensed $
If
the acquisition had taken place at the beginning of the year, revenue would have been $
Acquisition of Clearbrook Pharmacy (1987) and Garden Park Pharmacy Ltd.
On June 09, 2023, the Company acquired the assets of Clearbrook Pharmacy (1987) Ltd. and Garden Park Pharmacy (“Abbotsford”) as a business combination.
Abbotsford are retail pharmacies located in Abbotsford, BC, that provide customers with adequate prescription medications and other health related products and services. The acquisition of the Abbotsford pharmacies compliment and is in line with the Company’s growth strategy.
| 23 |
SRX HEALTH SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
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, Abbotsford contributed $
The
Company expensed $
If
the acquisition had taken place at the beginning of the year, revenue would have been $
Acquisition of Niagara Community Pharmacy Ltd.
On June 26, 2023, the Company acquired the assets of Niagara Community Pharmacy Ltd. (“Niagara”) as a business combination.
Niagara is a retail pharmacy located in Niagara, ON, that provides customers with adequate prescription medications and other health related products and services. The acquisition of Niagara 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, Niagara contributed $
The
Company expensed $
If
the acquisition had taken place at the beginning of the year, revenue would have been $
The
acquisitions completed during the year ended September 30, 2024, contributed approximately $
The
acquisitions completed during the year ended September 30, 2023, contributed approximately $
5. Trade and other receivables
| 2024 | 2023 | |||||||
| 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.
| 2024 | 2023 | |||||||
| Opening CECL balance | $ | $ | ||||||
| Less: Removal of accounts receivables | ( | ) | ( | ) | ||||
| Plus: Provision for CECL | ||||||||
| $ | $ | |||||||
| 24 |
SRX HEALTH SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
6. Inventory
Inventories are summarized as follows:
| 2024 | 2023 | |||||||
| Finished goods | $ | $ | ||||||
| Less: provision for slow moving items | ( | ) | ||||||
| $ | $ | |||||||
7. Property and equipment
Property and equipment consist of the following:
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Computer equipment | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Medical equipment | ||||||||
| Automobiles | ||||||||
| Buildings | ||||||||
| Leasehold improvements | ||||||||
| Signs | ||||||||
| Total fixed assets | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Fixed assets, net | $ | $ | ||||||
Depreciation
expense was $
8. Intangible Assets
| September 30, 2024 | ||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Impairment Loss | Net Carrying Amount | |||||||||||||
| Computer software | $ | $ | ( | ) | $ | $ | ||||||||||
| Domain/website | ( | ) | ||||||||||||||
| Customer lists | ( | ) | ( | ) | ||||||||||||
| Charter license | ( | ) | ||||||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
| 25 |
SRX HEALTH SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
| September 30, 2023 | ||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||
| Computer software | $ | $ | ( | ) | $ | |||||||
| Domain/website | ( | ) | ||||||||||
| Customer lists | ( | ) | ||||||||||
| Charter license | ( | ) | ||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | |||||||
Amortization
expense was $
The estimated future amortization of intangible assets is as follows:
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Thereafter | ||||
| Total | $ |
During
the year ended September 30, 2024, the Company recognized an impairment loss of $
9. Goodwill
The change in the carrying amount of goodwill for the years ended September 30, 2024 and 2023 is summarized as follows:
| September 30, 2024 | September 30, 2023 | |||||||
| 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 the goodwill impairment.
| 26 |
SRX HEALTH SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
As
of 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 $
The key assumptions used in the DCF model included projected cash flows, revenue growth rates, operating margins, discount rate, and terminal growth rate. These assumptions reflect Level 3 inputs in the fair value hierarchy under ASC 820, Fair Value Measurement, due to their reliance on unobservable inputs and management judgment.
The
DCF model incorporated five years of projected cash flows based on the Company’s historical results, current operating performance,
and management’s best estimates of future conditions.
The
estimated future cash flows were discounted using an after-tax weighted average cost of capital (WACC) of
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 as of September 30, 2023 and 2024, consist of the following:
| September 30, 2024 | September 30, 2023 | |||||||
| Operating lease assets | $ | $ | ||||||
| Current operating lease liabilities | $ | $ | ||||||
| Non-current operating lease liabilities | ||||||||
| Total Operating lease liabilities | $ | $ | ||||||
Total lease costs for the twelve months ended September 30, 2023 and 2024 were:
| 2024 | 2023 | |||||||
| Operating lease cost | $ | $ | ||||||
| Variable lease cost | ||||||||
| Total lease cost | $ | $ | ||||||
| 27 |
SRX HEALTH SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
Approximate aggregate annual lease payments as of September 30, 2024:
| Year | Operating Leases | |||
| October 1 – December 31, 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Thereafter | ||||
| Total | $ | |||
| Less: Imputed interest | ( | ) | ||
| Present value of net lease payments | $ | |||
The following table includes supplemental lease information:
| Year Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| 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 | % | % | ||||||
11. Debt
Short-term borrowings
| As at September 30, 2024 | AAs at September 30, 2023 | |||||||
| Revolving line of credit | ||||||||
| 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 (“Promissory Note”) with Better Choice whereby the
Company may borrow, repay, and reborrow in accordance with the terms set out in the Promissory Loan Agreement, not to exceed $
The
Borrower shall make payments of principal in accordance with the Repayment Schedule set forth in the agreement. Interest under the Promissory
Note shall be due and payable in monthly installments until the Promissory Note matures on
There
was
| 28 |
SRX HEALTH SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
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 September 30, 2024 and 2023, the Company is not in compliance with the covenants and the debt is callable by the lender. As a result, the entire CWB loan is classified as a current liability. The terms of these facilities have been summarized below.
| Notional amount | Interest rate | Maturity | As at September 30, 2024 | As at September 30, 2023 | ||||||||||||||||
| $ | % | $ | $ | |||||||||||||||||
| CWB Financial Limited | % | |||||||||||||||||||
| CWB Financial Limited | % | |||||||||||||||||||
| CWB Financial Limited | % | |||||||||||||||||||
| Total | ||||||||||||||||||||
Other borrowings
| Nominal amount | Interest rate | Maturity | As at September 30, 2024 | As at September 30, 2023 | ||||||||||||||
| $ | % | $ | $ | |||||||||||||||
| CEBA loans | % | |||||||||||||||||
| Macdonald DND Site Development LP | % | |||||||||||||||||
| Meridian OneCap | % | |||||||||||||||||
| Arbinder Sohi | % | |||||||||||||||||
| Total | ||||||||||||||||||
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 January 19, 2024, and the loans now have a maturity date of December 31, 2026 and bear an interest rate at
The following outlines the impact of the refinancing on September 18, 2023 for the CWB loans:
| Carrying amount of debt, September 18, 2023 | ||||
| Loss on extinguishment of debt | ||||
| Legal fees | ( | ) | ||
The following outlines the current and long-term portion of the borrowings during the year:
| As at September 30, 2024 | As at September 30, 2023 | |||||||
| Current portion of long-term borrowings | $ | $ | ||||||
| Long-term portion | ||||||||
| Total | ||||||||
| 29 |
SRX HEALTH SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
12. Convertible debentures
The amount of convertible debentures recorded during the year is composed of the following:
| Nominal amount | Interest rate | Maturity | As at September 30, 2024 | As at September 30, 2023 | ||||||||||||||||
| $ | % | $ | $ | |||||||||||||||||
| Convertible debentures | % | |||||||||||||||||||
| Better Choice Company Inc. convertible promissory note | % | |||||||||||||||||||
| 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
On
August 15, 2024, Better Choice Company Inc. (“BTTR”) entered into a convertible promissory note agreement with the Company
in the amount of $
The
convertible promissory note includes a provision granting BTTR the right, at its sole discretion and only upon the occurrence of an event
of default, to convert all or a portion of the outstanding principal and any accrued but unpaid interest into common shares of the Company.
In the event of such conversion, the outstanding amount is multiplied by three and divided by the conversion price. The conversion price
is defined as the lower of (a) the fair market value of the Company’s common shares as determined by an independent appraisal firm
or (b) the per-share value calculated based on a total equity valuation of the Company of $
As of September 30, 2024, no event of default had occurred and no definitive agreement had been executed or terminated. Accordingly, the note remains outstanding in accordance with its original terms. The Company has assessed the fair value of the convertible promissory note in accordance with applicable U.S. GAAP guidance under ASC 820. Given the proximity of the note’s issuance date to the Company’s fiscal year-end and the absence of any changes in market conditions, credit risk, or contractual provisions, management has concluded that the carrying value of the note approximates its fair value as of September 30, 2024.
The Company has issued each convertible debenture and a convertible promissory note, which represent hybrid financial instruments comprised of a host liability and an embedded conversion feature. In accordance with U.S. GAAP, the Company evaluated whether the embedded conversion features required bifurcation and separate accounting under the guidance in ASC 815, Derivatives and Hedging.
The Company evaluated the embedded conversion features and determined they were clearly and closely related to the host debt and therefore not subject to bifurcation. Accordingly, the Company did not separate these embedded features as derivatives. No fair value option was elected.
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.
13. Revenue
The Company’s disaggregated revenue is as follows:
| 2024 | 2023 | |||||||
| Services provided by pharmacy | ||||||||
| Retail pharmacy | $ | $ | ||||||
| Infusion services | ||||||||
| Wholesale distribution of drugs and other medications | ||||||||
| Patient support program | ||||||||
| Clinical trials | ||||||||
| Testing revenue | ||||||||
| Other service revenue | ||||||||
| Total revenue | ||||||||
| 30 |
SRX HEALTH SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
14. Segment information
The
Company evaluated its operating segments in accordance with ASC 280, “Segment Reporting” and determined it operates as
| ► | Pharmacy and sale of prescription drugs from which revenues is composed of prescription and Over the Counter (OTC) as well as infusion services and other consultancy services. |
| ► | Clinical trials, which relates to clinical trial research with the industry and healthcare community to advance therapeutic treatment options. |
The Chief Executive Officer is the CODM and monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on profit or loss and is measured consistently with profit or loss in the consolidated financial statements. The Company’s financing (including finance costs, finance income and other income) and income taxes are managed on a Company basis and are not allocated to operating segments.
The accounting policies of the segments are consistent with those described in Note 3 - Summary of Significant Accounting Policies.
Year ended September 30, 2024 | Pharmacy and sale of prescription drugs | Clinical trials | Consolidated | |||||||||
| Revenue | ||||||||||||
| Revenue from external sources | $ | $ | $ | |||||||||
| Total revenue | ||||||||||||
| Expenses | ||||||||||||
| Cost of sales | ||||||||||||
| General and administrative | ||||||||||||
| Goodwill impairment | ||||||||||||
| Intangibles impairment | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Finance costs | ||||||||||||
| Income taxes (recovery) | ( | ) | ||||||||||
| Deferred tax recovery | ( | ) | ( | ) | ||||||||
| Other expense (income) | ( | ) | ||||||||||
| Segment loss | ( | ) | ( | ) | ( | ) | ||||||
Year ended September 30, 2023 | Pharmacy and sale of prescription drugs | Clinical trials | Consolidated | |||||||||
| Revenue | ||||||||||||
| Revenue from external sources | $ | $ | $ | |||||||||
| Total revenue | ||||||||||||
| Expenses | ||||||||||||
| Cost of sales | ||||||||||||
| General and administrative | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Finance costs | ||||||||||||
| Income taxes | ||||||||||||
| Deferred tax recovery | ( | ) | ( | ) | ||||||||
| Other expense | ||||||||||||
| Segment loss | ( | ) | ( | ) | ( | ) | ||||||
| 31 |
SRX HEALTH SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
15. Income taxes
For financial reporting purposes, loss before income taxes includes the following components:
| Years ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Canadian | $ | ( | ) | $ | ( | ) | ||
| Foreign | ||||||||
| Total | $ | ( | ) | $ | ( | ) | ||
The expense (benefit) for income taxes consists of:
Years ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Current: | ||||||||
| Canadian | $ | $ | ||||||
| Deferred and other: | ||||||||
| Canadian | ( | ) | ( | ) | ||||
| ( | ) | ( | ) | |||||
| Total tax expense (recovery) | $ | ( | ) | $ | ||||
Components of income tax expense (benefit) consist of:
| 2024 | 2023 | |||||||
| Current tax expense (benefit) | $ | $ | ||||||
| Deferred tax expense (benefit) | ( | ) | ( | ) | ||||
| Total tax expense (benefit) | $ | ( | ) | $ | ||||
Reconciliation between the effective tax rate (ETR) on loss before income taxes and the statutory tax rate is as follows:
| Years ended September 30, | ||||||||||||||||
| 2024 | 2023 | |||||||||||||||
| Income
tax expense (benefit) at federal statutory rate (2024- | % | ( | ) | % | ( | ) | ||||||||||
| Non-deductible (non-taxable) expenses and stock-based compensation | - | % | - | % | ||||||||||||
| Difference in statutory tax rates and other | - | % | - | % | ||||||||||||
| Change in valuation allowance | - | % | - | % | ||||||||||||
| Effect of prior year tax expense (benefit) adjusted in the current year | % | ( | ) | - | % | |||||||||||
| Other | % | ( | ) | - | % | |||||||||||
| Income tax expense (benefit) | % | ( | ) | - | % | |||||||||||
The
Federal and Provincial tax rates were
| 32 |
SRX HEALTH SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
The components of the Net Deferred Tax Asset or Deferred Tax Liability consist of the following:
| Years ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Property Plant Equipment and Intangible Assets | $ | $ | ||||||
| Reserves and Deferred Charges | ||||||||
| Lease Liability | ||||||||
| Others | ||||||||
| Net Capital Losses | ||||||||
| Net Operating Losses | ||||||||
| Subtotal | ||||||||
| Less: Valuation Allowance | ( | ) | ( | ) | ||||
| Total net DTAs | $ | $ | ||||||
| Property Plant Equipment and Intangible Assets | ( | ) | ( | ) | ||||
| Right of Use Asset | ( | ) | ( | ) | ||||
| Total DTLs | $ | ( | ) | $ | ( | ) | ||
| Net DTA (DTL) | $ | ( | ) | $ | ( | ) | ||
| As presented in the balance sheet: | 2024 | 2023 | ||||||
| Deferred tax asset | $ | $ | ||||||
| Deferred tax liability | ( | ) | ( | ) | ||||
| Total | $ | ( | ) | $ | ( | ) | ||
An analysis of our deferred tax asset valuation allowances is as follows:
| Years ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Balance at the beginning of the year | $ | $ | ||||||
| Additions | ||||||||
| Balance at the end of the year | $ | $ | ||||||
The Company’s deferred tax asset valuation allowances are primarily the result of uncertainties regarding the future realization of recorded tax benefits on tax loss carry forwards in Canada. Current evidence does not suggest that the Company will realize sufficient taxable income of the appropriate character within the carry forward period to avail of these deferred tax benefits. If the Company were to identify and implement tax planning strategies to recover these deferred tax assets or generate sufficient income of the appropriate character in these jurisdictions in the future, it may lead to the reversal of these valuation allowances and accordingly a reduction of income tax expense. The Company believes that it will generate sufficient future taxable income to realize the tax benefits related to the remaining net deferred tax assets in our consolidated balance sheet.
In
Canada, we have income tax NOL carry forwards related to our operations of approximately $
| 33 |
SRX HEALTH SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
There
were no uncertain tax positions as of September 30, 2024 and 2023. The Company recognizes interest and penalties related to uncertain
tax positions, if any, as income tax expense. Accrued interest and penalties are included within the related tax liability line in the
consolidated statement of financial position. As of November 30, 2024 and 2023, there were
16. Related party transactions
Purchase of Niagara Community Pharmacy Ltd.
On June 26, 2023, the Company purchased all the assets of Niagara Community Pharmacy Ltd. (“Niagara”) from the Company’s Chief Executive Officer, Adesh Vora. The net assets of Niagara were purchased from the Professional Corporation (“PC”) of the Chief Executive Officer, Adesh Vora. The shares of Niagara were purchased by the PC on May 15, 2023. As the Company was unable to originally purchase the shares under its Ontario Charter company, SRX Health Ontario Inc., due to certain restrictions unique to the province of Ontario. The terms and purchase price originally negotiated between the vendor and the PC were the same as outlined in Note 4 between the Company and the PC.
Related Party Loans and Balances
During the fiscal years ended September 30, 2023 and 2024, the Company engaged in non-interest-bearing working capital advances with its largest shareholder and entities under common control. These transactions occurred while the Company was privately held and were intended to provide or receive short-term liquidity.
These advances were informal, non-interest-bearing, and not governed by formal written agreements. The Company did not incur or recognize interest expense in connection with these transactions. For the years ended September 30, 2023 and 2024, all related party balances were reclassified to retained earnings as capital contributions. No amounts remain outstanding.
As of September 30, 2024, there are no 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 as of September 30, 2024:
| 2024 | ||||
| Balance due from former affiliates | $ | |||
| Balance due from shareholders related to acquisitions | ||||
| Total due from related parties/shareholders | ||||
| Balance due to former affiliates | ( | ) | ||
| Balance due to shareholders related to acquisitions | ( | ) | ||
| Balance at the end of the year | $ | |||
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.
17. Share Issuances and Warrants
During
the year ended September 30, 2024, the Company issued common shares at a price of $ per share through a private placement,
for gross proceeds 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 |
SRX HEALTH SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
| 2024 | 2023 | |||||||
| 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: convertible debt instruments, of warrants 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.
The Company has established a Long-Term Omnibus Compensation Plan (the “Omnibus Plan”) for directors, officers, employees and consultants of the Company. The Company’s Board of Directors determines, among other things, the eligibility of individuals to participate in the Omnibus Plan and the term, vesting period and the exercise price of options and share units granted to individuals under the Omnibus Plan. The Company’s authorized shares consist of an unlimited number of common shares.
Each option converts into one common share of the Company on exercise. No amounts are paid or payable by the individual on receipt of the option. The options carry neither the right to dividend nor voting rights. Options may be exercised at any time from the date of vesting to the date of their expiry. Each share unit converts into a single common share of the Company on the vesting date.
The Company’s Omnibus Plan provides that the number of common shares reserved for issuances of options and shares may not exceed % of the number of common shares outstanding. Options and share units that expire, are canceled, or otherwise terminate are returned to the reserve for future grants.
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. The Company accounts for forfeitures as they occur.
| 2024 | 2023 | |||||||
| Restricted Stock Units (“RSUs”) | $ | $ | ||||||
During the year-ended September 30, 2024, the Company issued RSUs to certain directors, officers and employees that vest over a period of months to years. The weighted average issue price was $ per share.
During
the year-end September 30, 2024 and 2023, no options were issued by the Company. During the year-ended September 30, 2024, the Company
redeemed a total of common shares with an aggregate value of $
| 35 |
SRX HEALTH SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
RSUs # | Weighted average issue price $ | |||||||
| Outstanding on September 30, 2022 | $ | |||||||
| RSUs issued | ||||||||
| RSUs vested | ( | ) | ||||||
| RSUs forfeited and cancelled | ( | ) | ||||||
| Outstanding on September 30, 2023 | ||||||||
| RSUs issued | ||||||||
| RSUs vested | ( | ) | ||||||
| RSUs forfeited and cancelled | ( | ) | ||||||
| Outstanding on September 30, 2024 | $ | |||||||
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.
The following table summarizes the contractual maturities of the Company’s financial liabilities (including principal and interest):
September 30, 2024
| (in thousands) | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 and over | Total | ||||||||||||||||||
| Long-term borrowings | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Bank indebtedness | ||||||||||||||||||||||||
| Convertible debentures | ||||||||||||||||||||||||
| Trade and other payables | ||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||
| 36 |
SRX HEALTH SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended September 30, 2024 and 2023
(Expressed in thousands of Canadian dollars except per share amounts)
September 30, 2023
| (in thousands) | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 and over | Total | ||||||||||||||||||
| Long-term borrowings | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Bank indebtedness | ||||||||||||||||||||||||
| Convertible debentures | ||||||||||||||||||||||||
| Trade and other payables | ||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||
21. 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.
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 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 consolidated financial position or results of operations of the Company.
22. Subsequent events
The Company has evaluated subsequent events and transactions that occurred after the 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 consolidated financial statements.
On
October 1, 2024, the Company issued common shares at a price of $ per share through a private placement, for gross proceeds
of $
On
October 18, 2024, the Company sold the assets of Niagara Community Pharmacy Ltd. for a total net proceeds of $
On
November 29, 2024, the Company issued common shares at a price of $ per share through a private placement, for gross proceeds
of $
On
December 6, 2024, CWB provided the Company a demand and notice of intention to enforce security relating to the credit agreement. The
total amount of indebtedness secured by the security as at December 6, 2024 is $
On
December 20, 2024, the Company sold the assets of P.A. Pharmacy Limited for a total sale price of $
On
April 30, 2025, the Company sold the assets of Clearbrook Pharmacy (1987) for a total sale price of $
The
Promissory Note discussed in Note 12 – Debt was subsequently amended on December 31, 2024 to allow for the borrowing of an additional
$
Reverse Merger
On September 3, 2024, we, SRx Health, entered into an Arrangement Agreement (the “Arrangement Agreement”) with BCC, AcquireCo (a wholly-owned subsidiary of BCC), and 1000994085 Ontario Inc. (“CallCo”), a direct wholly-owned subsidiary of BCC and a corporation existing under the laws of the Province of Ontario. The business combination contemplated under the Arrangement Agreement (the “Business Combination”) was completed on April 24, 2025 (the “Closing Date”), subsequent to the fiscal quarter to which this Quarterly Report relates.
Pursuant to the Arrangement Agreement, on the Closing Date, we amalgamated with AcquireCo, with SRx Health continuing as the surviving entity. As a result of the Business Combination, BCC acquired our business, and we became a wholly-owned subsidiary of BCC. BCC will continue our existing operations under its corporate structure.
In connection with the Business Combination, on the Closing Date, BCC issued shares of its common stock, par value $ per share (the “Company Common Stock”), to certain of our stockholders. In addition, AcquireCo issued exchangeable shares to certain of our stockholders. These exchangeable shares are exchangeable into Company Common Stock on a one-for-one basis.
| 37 |