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MEDS Trxade Health

Filed: 26 Apr 21, 4:06pm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended March 31, 2021

 

OR

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from _______ to _______

 

Commission File Number: 001-39199

 

 

TRXADE GROUP, INC.

(Exact name of registrant as specified in its charter)

 

Delaware 46-3673928

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

   
3840 Land O’ Lakes Blvd.  
Land O’ Lakes, Florida 34639
(Address of principal executive offices) (Zip code)

 

Registrant’s telephone number, including area code: (800) 261-0281

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.00001 Par Value Per Share MEDS 

The NASDAQ Stock Market LLC

(The NASDAQ Capital Market)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer[  ]Accelerated filer[  ]
    
Non-accelerated filer[X]Smaller reporting company[X]
    
Emerging growth company[X]  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ]  No [X]

 

There were 8,125,362 shares of the registrant’s common stock outstanding on April 22, 2021, and no shares of preferred stock outstanding.

 

 

 

   

 

 

TRXADE GROUP, INC.

FORM 10-Q

For the Quarter Ended March 31, 2021

 

TABLE OF CONTENTS

 

  Page
Cautionary Note Regarding Forward-Looking Statements 1
   
PART I: FINANCIAL INFORMATION  
   
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) 3
   
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Changes in STOCKHOLDERS’ Equity 5
Consolidated Statements of Cash Flows 6
Notes to Unaudited Consolidated Financial Statements 7
   
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13
   
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 20
   
ITEM 4. CONTROLS AND PROCEDURES 21
   
PART II. OTHER INFORMATION  
   
ITEM 1. LEGAL PROCEEDINGS 22
   
ITEM 1A. RISK FACTORS 22
   
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 23
   
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 23
   
ITEM 4. MINE SAFETY DISCLOSURES 23
   
ITEM 5. OTHER INFORMATION 23
   
ITEM 6. EXHIBITS 23
   
SIGNATURES 24

 

   

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q (“Report”), including this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, regarding future events and the future results of the Company that are based on current expectations, estimates, forecasts, and projections about the industry in which the Company operates and the beliefs and assumptions of the management of the Company. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words, and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. In particular, as discussed in greater detail below, our financial condition and results could be materially adversely affected by the impacts and disruptions caused by the novel coronavirus (COVID-19) global pandemic and governmental responses thereto. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed elsewhere in this Report, including under “Risk Factors”, and in other reports the Company files with the Securities and Exchange Commission (“SEC”), including the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on March 29, 2021 (under the heading “Risk Factors” and in other parts of that report). The Company undertakes no obligation to revise or update publicly any forward-looking statements for any reason, except as otherwise required by law.

 

The following discussion is based upon our unaudited Consolidated Financial Statements included elsewhere in this report, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingencies. In the course of operating our business, we routinely make decisions as to the timing of the payment of invoices, the collection of receivables, the shipment of products, the fulfillment of orders, the purchase of supplies, and the building of inventory, among other matters. Each of these decisions has some impact on the financial results for any given period. In making these decisions, we consider various factors including contractual obligations, customer satisfaction, competition, internal and external financial targets and expectations, and financial planning objectives. On an on-going basis, we evaluate our estimates, including those related to sales returns, pricing credits, warranty costs, allowance for doubtful accounts, impairment of long-term assets, especially goodwill and intangible assets, contract manufacturer exposures for carrying and obsolete material charges, assumptions used in the valuation of stock-based compensation, and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Report, and in other reports we file with the SEC, and in our most recent Annual Report on Form 10-K. All references to years relate to the calendar year ended December 31 of the particular year.

 

Summary Risk Factors

 

We face risks and uncertainties related to our business, many of which are beyond our control. In particular, risks associated with our business include:

 

 We have been adversely affected by COVID-19 and may continue to be adversely affected by COVID-19;
   
 We were recently unprofitable, we have recently generated net losses, and we may incur losses in the future;
   
 We may need additional financing in the future, which may not be available on favorable terms, if at all;
   
 We may not be able to manage our future growth;
   
 Many of our competitors are better established and have resources significantly greater than ours;
   
 We will need to expand our member base or our profit margins to attain profitability;
   
 We face risks associated with our operations within the pharmaceutical distribution market;
   
 We are dependent on our current management;
   
 We rely on third party contracts, which may not be renewed or may be terminated;
   
 We are currently facing and may in the future face difficulties in sourcing products and inventory due to a variety of causes;
   
 We have in the past, and may in the future, not be able to sell our inventory, at or above the price we acquired such inventory for, have in the past, and may in the future, be forced to write-down inventory;

 

1

 

 We may not receive products or receive refunds for deposited amounts and may experience losses in connection with such deposits;
   
 We may be subject to claims that we violated intellectual property rights of others, which are extremely costly to defend and could require us to pay significant damages and limit our ability to operate;
   
 Our business and operations depend on the proper functioning of information systems, critical facilities and distribution networks and a disruption, cyber-attack, failure or destruction of such networks, systems, or technologies may disrupt our business or result in liability;
   
 There may be losses or unauthorized access to or releases of confidential information, including personally identifiable information, that could subject the Company to significant reputational, financial, legal and operational consequences;
   
 We face risks associated with our business in the telehealth market, including risks associated with legal challenges, relationships with third parties and affiliated professionals, our network of qualified providers, competition for services; new technologies, failure to develop widespread brand awareness and regulatory risks;
   
 The health passport market may not achieve and sustain high levels of demand, consumer acceptance and market adoption;
   
 Our certificate of incorporation limits the liability of our officers and directors and provides for indemnification rights;
   
 We incur significant costs to ensure compliance with U.S. and NASDAQ Capital Market reporting and corporate governance requirements;
   
 We may not be able to comply with NASDAQ’s continued listing standards;
   
 Regulatory changes that affect our distribution channels could harm our business;
   
 Healthcare fraud laws are often vague and uncertain, exposing us to potential liability;
   
 New and expanded laws or regulations could have a material adverse effect on our business operations, cash flows or future prospects;
   
 The public health crisis involving the abuse of prescription opioid pain medication could have a material negative effect on our business;
   
 Consolidation in the U.S. healthcare industry may negatively impact our results of operations;
   
 We have identified material weaknesses in our internal control over financial reporting and controls and procedures;
   
 There may not be sufficient liquidity in the market for our securities in order for investors to sell their shares. The market price of our comment stock may continue to be volatile;
   
 Stockholders may experience dilution to future equity sales, the exercise or conversion of outstanding convertible securities or future transactions;
   
 Our Chief Executive Officer and President are our two largest stockholders and, as a result, they can exert control over us and have actual or potential interests that may differ from yours;
   
 Risks associated with the JOBS Act and our status as an emerging growth company;
   
 Risks associated with future acquisitions, including unknown liabilities and difficulty integrating such acquisitions;
   
 Cyber security attacks and website problems; and
   
 Claims, litigation, government investigations, and other proceedings that may adversely affect our business and results of operations.

 

2

 

PART I: FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

Trxade Group, Inc.

Consolidated Balance Sheets

March 31, 2021 and December 31, 2020

(unaudited)

 

  March 31, 2021  December 31, 2020 
Assets        
Current Assets        
Cash $5,209,280  $5,919,578 
Accounts Receivable, net  1,936,850   805,043 
Inventory  470,122   1,257,754 
Prepaid Assets  457,738   151,248 
Other Receivables  1,081,250   1,087,675 
Total Current Assets  9,155,240   9,221,298 
         
Property Plant and Equipment, Net  160,647   162,397 
         
Other Assets        
Deposits  21,636   21,636 
Right of use leased assets  355,693   387,371 
         
Total Assets $9,693,216  $9,792,702 
         
Liabilities and Stockholders’ Equity        
         
Current Liabilities        
Accounts Payable $366,471  $256,829 
Accrued Liabilities  519,179   219,256 
Current Portion Lease Liabilities  117,030   131,153 
Customer Deposits  10,000   10,000 
Notes Payables– Related Party  225,000   225,000 
Total Current Liabilities  1,237,680   842,238 
         
Long Term Liabilities        
Other Long-Term Liabilities — Leases  253,912   271,306 
Total Liabilities  1,491,592   1,113,544 
         
Stockholders’ Equity        
Series A Preferred Stock, $0.00001 par value; 10,000,000 shares authorized; none issued and outstanding as of March 31, 2021 and December 31, 2020  -   - 
Common Stock, $0.00001 par value; 100,000,000 shares authorized; 8,093,199 shares issued and outstanding as of March 31, 2021 and December 31, 2020  81   81 
Additional Paid-in Capital  19,784,616   19,610,631 
Accumulated Deficit  (11,583,073)  (10,931,554)
Total Stockholders’ Equity  8,201,624   8,679,158 
         
Total Liabilities and Stockholders’ Equity $9,693,216  $9,792,702 

 

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

 

3

 

Trxade Group, Inc.

Consolidated Statements of Operations

For the Three Months Ended March 31, 2021 and 2020

(unaudited)

 

  2021  2020 
       
Revenues $3,053,235  $2,203,320 
         
Cost of Sales  1,669,924   563,184 
Gross Profit  1,383,311   1,640,136 
         
Operating Expenses        
General and Administrative  2,027,566   1,451,909 
         
Operating Income (Loss)  (644,255)  188,227 
         
Interest, net  (7,264)  (7,924)
Net Income (Loss) $(651,519) $180,303 
         
Net Income per Common Share – Basic: $(0.08) $0.03 
         
Net Income per Common Share – Diluted: $(0.08) $0.02 
         
Weighted average Common Shares Outstanding Basic  8,093,199   6,971,427 
         
Weighted average Common Shares Outstanding Diluted  8,093,199   7,423,669 

 

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

 

4

 

Trxade Group, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

For the Three Months Ended March 31, 2021 and 2020

(unaudited)

 

  Preferred Stock  Common Stock  Additional
Paid-in-
  Accumulated  Total
Stockholders’
 
  Shares  Amount  Shares  Amount  Capital  Deficit  Equity 
Balance at December 31, 2020  -  $-   8,093,199  $81  $19,610,631  $(10,931,554) $    8,679,158 
Common Stock issued for Services  -   -   -   -   98,247   -   98,247 
Options Expense  -   -   -   -   75,738   -   75,738 

Net Income (Loss)

        -             -   -   -   -   (651,519)  (651,519)
Balance at March 31, 2021  -  $-   8,093,199  $81  $19,784,616  $(11,583,073) $8,201,624 

 

  Preferred Stock  Common Stock  Additional
Paid-in-
  Accumulated  Total
Stockholders’
 
  Shares  Amount  Shares  Amount  Capital  Deficit  Equity 
Balance at December 31, 2019       -  $        -   6,539,415  $65  $12,535,655  $(8,395,503) $    4,140,217 
Common Stock issued from offering  -   -   922,219   10   5,994,414   -   5,994,424 
Fractional shares issued due to reverse split  -   -   40   -   -   -   - 
Stock Issuance Costs  -   -   -   -   (820,586)  -   (820,586)
Options Exercised for Cash  -   -   167   -   501   -   501 
Warrants Exercised for Cash  -   -   22,529   -   1,352   -   1,352 
Warrants Expense  -   -   -   -   79,089   -   79,089 
Options Expense  -   -   -   -   61,997   -   61,997 
Net Income  -   -   -   -   -   180,303   180,303 
Balance at March 31, 2020  -  $-   7,484,370  $75  $17,852,422  $(8,215,200) $9,637,297 

 

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

 

5

 

Trxade Group, Inc.

Consolidated Statements of Cash Flows

For the Three months ended March 31, 2021 and 2020

(unaudited)

 

  2021  2020 
       
Operating Activities:        
Net Income (Loss) $(651,519) $180,303 

Adjustments to reconcile net income (loss) to net cash used in operating activities:

        
Depreciation Expense  1,750   1,250 
Options expense  75,738   61,997 
Warrant Expense  -   79,089 
Common Stock Issued for Services  98,247   - 
Bad Debt Expense  -   9,000 
Amortization of right of use asset  31,678   23,635 
Changes in operating assets and liabilities:        
Accounts Receivable  (1,131,807)  (94,047)
Prepaid Assets and other Current Assets  (306,490)  (184,923)
Inventory  787,632   (311,640)
Deposits for Inventory Purchases  -   (580,800)
Other Receivables  6,425   - 
Lease Liability  (31,517)  (20,974)
Accounts Payable  109,642   (14,376)
Customer Deposits  -   305,972 
Accrued Liabilities and Other Liabilities  299,923   134,708 
Net Cash used in operating activities  (710,298)  (410,806)
         
Investing Activities:        
Purchase of Fixed Assets  -   (23,505)
Net Cash used in Investing activities  -   (23,505)
         
Financing Activities:        
Stock Issuance Costs  -   (732,355)
Proceeds from exercise of Warrants  -   1,352 
Proceeds from exercise of Stock Options  -   501 
Proceeds from Issuance of Common Stock  -   5,994,424 
Net Cash provided by financing activities  -   5,263,922 
         
Net increase (decrease) in Cash  (710,298)  4,829,611 

Cash at Beginning of the Period

  5,919,578   2,871,694 

Cash at End of the Period

 $5,209,280  $7,701,305 
         
Supplemental Cash Flow Information        
Cash Paid for Interest $1,639  $2,348 
Cash Paid for Income Taxes $-  $- 

 

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

 

6

 

Trxade Group, Inc.

Notes to Unaudited Consolidated Financial Statements

For the Three months ended March 31, 2021 and 2020

 

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION

 

Trxade Group, Inc. (“we”, “our”, “Trxade”, and the “Company”) owns 100% of Trxade, Inc., Integra Pharma Solutions, LLC, Community Specialty Pharmacy, LLC, Alliance Pharma Solutions, LLC and Bonum Health, LLC. The merger of Trxade, Inc. and Trxade Group, Inc. occurred in May 2013. Community Specialty Pharmacy was acquired in October 2018.

 

Trxade, Inc., operates a web-based market platform that enables commerce among healthcare buyers and sellers of pharmaceuticals, accessories, and services.

 

Integra Pharma Solutions, LLC, is a licensed pharmaceutical wholesaler and sells brand, generic and non-drug products.

 

Community Specialty Pharmacy, LLC, is an accredited independent retail pharmacy with a focus on specialty medications and a community-based model offering home delivery services to patients.

 

Alliance Pharma Solutions, LLC, has developed a same-day pharmaceutical delivery software – Delivmeds.com, and invested in SyncHealth MSO, LLC, a managed services organization during January 2019, which investment was divested in February 2020.

 

Bonum Health, LLC was formed to hold certain telehealth assets acquired in October 2019. The “Bonum Health Hub” was launched in November 2019 and was expected to be operational in April 2020; however, due to the COVID-19 pandemic, at present the Company does not anticipate installations moving forward until later in 2021 at the earliest. The hub is a Health Insurance Portability and Accountability Act (HIPPA)-compliant booth planned to be installed at select independent pharmacies, with technology that connects patients to board-certified medical care through the Bonum Health mobile app and website portal. The Bonum Health mobile application is also available on a subscription basis, primarily as a stand-alone telehealth software application that can be licensed on a business-to-business (B2B) model to clients as an employment health benefit for the clients’ employees. In August 2020, Bonum Health, LLC launched a business-to-business (B2B) platform called Bonum+, which bundles telehealth, a COVID-19 risk assessment tool and a personal protective equipment (PPE) purchasing tool, through a secure mobile dashboard for corporate clients.

 

MedCheks, LLC was formed in January 2021 and is a patient-centered, digital, precision healthcare platform that lets patients consolidate and control their health data via a digital Health Passport. The digital Health Passport allows users to share their health profile, tests and vaccinations simply and safely. Secured in a blockchain, the Health Passport includes health and vaccination status verification via a QR code (a two-dimensional machine-readable optical label), which is available for travel, entry into stadiums, concert venues, events, offices, industrial plants, warehouses, and other physical access points. MedCheks Health Passport stores all of a user’s health records securely in one place.

  

Basis of Presentation - The accompanying unaudited interim consolidated financial statements of Trxade Group, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission on March 29, 2021.

 

7

 

In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements that would substantially duplicate the disclosures contained in the audited financial statements for the year ended December 31, 2020 as reported in the Company’s Annual Report on Form 10-K have been omitted.

 

Income (loss) Per Common Share – Basic net income per common share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding. Diluted net income per common share is computed similar to basic net income per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The dilutive effect of the Company’s options and warrants is computed using the treasury stock method.

 

The following table sets forth the computation of basic and diluted Income (Loss) per Share:

 

  

For three months ended

March 31,

 
  2021  2020 
Numerator:        
Net Income (loss) $(651,519) $180,303 
         
Numerator for basic and diluted EPS - income available to common Shareholders  (651,519) $180,303 
         
Denominator:        
Denominator for basic EPS – Weighted average shares  8,093,199   6,971,427 
Dilutive Effect of Common Stock Equivalent  -   452,242 
Denominator for diluted EPS – adjusted Weighted average shares and assumed Conversions  8,093,199   7,423,669 
Basic income (loss) per common share $(0.08) $0.03 
Diluted income (loss) per common share $(0.08) $0.02 

 

NOTE 2– SHORT TERM DEBT – RELATED PARTIES

 

In October 2018, in connection with the acquisition of Community Specialty Pharmacy, LLC, a $300,000 promissory note was issued to Nikul Panchal, a non-executive officer of the Company, accruing simple interest at the rate of 10% per annum, payable annually, and having a maturity date in October 15, 2021. In October 2019, $75,000 of the note was converted into 25,000 common shares at $3.00 per share, leaving $225,000 of principal owed under the promissory note. There was a loss recognized on this conversion of $76,500.

 

At March 31, 2021 and December 31, 2020, total related party debt was $225,000.

 

NOTE 3 – STOCKHOLDERS’ EQUITY

 

2020 Equity Compensation Awards

 

On April 14, 2020, the Compensation Committee approved the grant of (a) 5,000 shares of restricted common stock to the Company’s legal counsel; and (b) 12,500 shares of restricted common stock to Howard A. Doss, the Company’s Chief Financial Officer, which shares vest at the rate of ¼th of such shares on July 1 and October 1, 2020 and January 1 and April 1, 2021. The shares have a fair value of $107,100 and the Company recognized stock-based compensation expense of $53,550 for the three months ended March 31, 2021.

 

Independent Director Compensation Plan

 

On April 14, 2020, the three independent members of the Board of Directors (Mr. Donald G. Fell, Dr. Pamela Tenaerts, and Mr. Michael L. Peterson), were each awarded 8,987 shares of restricted stock, which vest at the rate of ¼th of such shares on July 1 and October 1, 2020 and January 1 and April 1, 2021. The shares have a fair value of $165,000 and the Company recognized stock-based compensation expense of $82,500 for the three months ended March 31, 2021.

 

8

 

NOTE 4 – WARRANTS

 

For the three-month period ended March 31, 2021, no warrants were granted and none expired.

 

The Company uses the Black-Scholes pricing model to estimate the fair value of stock-based awards on the date of the grant.

 

The compensation cost related to the warrants granted was $0 and $79,089 for the three months ended March 31, 2021 and 2020, respectively.

 

The Company’s outstanding and exercisable warrants as of March 31, 2021 are presented below:

 

  Number Outstanding  Weighted Average Exercise Price  Contractual Life in Years  Intrinsic Value 
Warrants Outstanding as of December 31, 2020  82,751  $1.33   2.73  $352,951 
Warrants granted  -  $-   -   - 
Warrants expired or forfeited  -  $-   -   - 
Warrants exercised  -  $-   -   - 
                 
Warrants Outstanding as of March 31, 2021  82,751  $1.33   2.48  $349,157 
Warrants Exercisable as of March 31, 2021  60,223  $1.81   1.34  $232,462 

 

9

 

NOTE 5 – OPTIONS

 

The Company maintains stock option plans under which certain employees are awarded option grants based on a combination of performance and tenure. The stock option plans provide for the grant of up to 2,333,333 shares, and the Company’s 2019 Amended and Restated 2019 Equity Incentive Plan provides for automatic increases in the number of shares available under such plan (currently 2,000,000 shares) on April 1st of each calendar year, beginning in 2021 and ending in 2029 (each a “Date of Determination”), in each case subject to the approval and determination of the administrator of the plan (the Board of Directors or Compensation Committee) on or prior to the applicable Date of Determination, equal to the lesser of (A) ten percent (10%) of the total shares of common stock of the Company outstanding on the last day of the immediately preceding fiscal year and (B) such smaller number of shares as determined by the administrator. The administrator did not approve an increase in the number of shares covered under the plan as of April 1, 2021.

 

For the three-month period ended March 31, 2021, options to purchase 20,000 shares were granted, none were forfeited and none expired. The options granted during the period vest over a four-year period, the exercise price was $6.55 per share and the options have a term of 5 years.

 

The Company uses the Black-Scholes option pricing model to estimate the fair value of stock-based awards on the date of the grant. The following table summarizes the assumptions used to estimate the fair value of the stock options granted during the quarter ended March 31, 2021:

 

Expected dividend yield  0%
Weighted-average expected volatility  106-215%
Weighted-average risk-free interest rate  0.25%
Expected life of options  5 years 

 

Total compensation cost related to stock options granted was $75,738 and $61,997 for the three months ended March 31, 2021 and 2020, respectively.

 

The following table represents stock option activity for the three-month period ended March 31, 2021:

 

  Number Outstanding  Weighted Average Exercise Price  Contractual Life in Years  Intrinsic Value 
Options Outstanding as of December 31, 2020  425,817  $4.44   5.33  $597,322 
Options Exercisable as of December 31, 2020  282,167  $4.52   4.56  $384,226 
Options granted  20,000  $6.55   4.85   - 
Options forfeited  -  $-   -   - 
Options expired  -  $-   -   - 
Options exercised  -  $-   -   - 
                 
Options Outstanding as of March 31, 2021  445,817  $4.53   5.07  $586,080 
Options Exercisable as of March 31, 2021  304,867  $4.44   4.52  $421,737 

 

NOTE 6 – OTHER RECEIVABLES

 

In July 2020, the Company’s wholly-owned subsidiary, Integra Pharma Solutions, Inc. (“Integra”), entered into an agreement with Studebaker Defense Group, LLC (“Studebaker”) wherein Integra would pay Studebaker a down payment of $500,000 and Studebaker would deliver 180,000 boxes of nitrile gloves by August 14, 2020. Integra wired the $500,000 to Studebaker, but to date, Studebaker has not delivered the gloves or provided a refund of the deposit. In December 2020, we filed a complaint against Studebaker in Florida state court, Case No. 20-CA-010118 in the Circuit Court for the Thirteenth Judicial Circuit in Hillsborough County, for among other things, breach of contract. Studebaker did not answer the complaint, nor did counsel for Studebaker file an appearance. Accordingly, in February 2021 the Company filed for a default judgment; however, on March 22, 2021, counsel for Studebaker filed an appearance and shortly thereafter filed a motion to vacate the default judgment. A hearing on our motion for a default judgment has been set for April 27, 2021. The Company anticipates that irrespective of the outcome of such hearing on April 27, 2021, the Company will prevail on the merits; and believes Studebaker has the ability to satisfy a judgment.

 

In August 2020, Integra, entered into an agreement with Sandwave Group Dsn Bhd (“Sandwave”), wherein Integra would pay Sandwave a down payment of $581,250 and Sandwave’s supplier, Crecom Burj Group SDN BHD (“Crecom”), would deliver 150,000 boxes of nitrile gloves within 45 days. Integra wired the $581,250 to Sandwave, which in turn wired the purchase price to Crecom, which Crecom accepted; however, to date, Crecom has not delivered the nitrile gloves. Integra demanded return of its $581,250 and Crecom has acknowledged that Integra is entitled to a refund, but to date Crecom has failed to return Integra’s money. In February 2021, Integra filed a complaint against Crecom in Malaysia: Case No. WA-22NCC-55-02/2021 in the High Court of Malaysia at Kuala Lumpur in the Federal Territory, Malaysia for the Malaysian equivalent of breach of contract. Crecom filed an appearance on March 1, 2021. In April 2021, an Application for Summary Judgement was filed with the court, and on May 25, 2021, the Court will extract the sealed application and a copy thereof will be served on Crecom’s attorneys and Crecom will have two weeks to file an Affidavit in Reply with the court to show that there are issues to be tried and that this case must go to a full trial. We will be given 14 days thereafter to reply to that Affidavit in Reply (if there is a need to do so). In this case, we will request for a longer time to reply, given the distance involved (the court has taken note of this fact). Also at the May 25, 2021 hearing, the court will give directions on the timelines for both parties to file their written submissions/arguments in relation to the application for summary judgment If a judgment is entered against Crecom, the process of executing the judgment, and ultimately attempting to collect on the judgment, can take three to six months. The Company believes that it will prevail in the lawsuit filed; and believes Crecom has the ability to satisfy a judgment, and the steps to enforce a judgment in Malaysia, if any, may be cumbersome, time consuming or costly.

 

NOTE 7 – CONTINGENCIES

 

In January 2020, we became aware of a complaint filed by Jitendra Jain, Manish Arora, Scariy Kumaramangalam, Harsh Datta and Balvant Arora (collectively, plaintiffs), against our wholly-owned subsidiary, Trxade, Inc. and our Chief Executive Officer, Suren Ajjarapu as well as certain unrelated persons, Annapurna Gundlapalli, Gajan Mahendiran and Nexgen Memantine (collectively, defendants), in the Circuit Court of Madison County, Alabama (Case:47-CV-2019-902216.00). The complaint alleged causes of actions against the defendants including fraud in the inducement, relating to certain investments alleged to have been made by plaintiffs in Nexgen Memantine, breach of fiduciary duty, conversion and voidable transactions. The complaint related to certain investments alleged made by the plaintiffs in Nexgen Memantine and certain alleged fraudulent transfers of assets and funds alleged to have been taken by the defendants which are unrelated to the Company. The complaint sought $425,000 in compensatory damages and $1,275,000 in punitive damages. The Company and Mr. Ajjarapu denied in their entirety the plaintiffs’ allegations and filed a motion to dismiss the plaintiffs’ claims against the Company and Mr. Ajjarapu, which motion was granted in May 2020, due to the plaintiffs not being able to establish personal jurisdiction over the defendants, which motion was successful as to all defendants. The Company and Mr. Ajjarapu further refute any connections for the purpose of the suit to the other named defendants. To the Company’s and Mr. Ajjarapu’s knowledge, the complaint had no merit whatsoever. The final date for the plaintiffs to appeal the ruling to dismiss the lawsuit passed in August 2020, and there was no appeal. As such, the ruling is final.

 

However, in September 2020, the plaintiffs filed a similar complaint (alleging substantially similar facts) in the United States District Court for the Middle District of Florida, Tampa Division (Case 8:20-cv-02263), against the same defendants but adding Westminster Pharmaceuticals, LLC, our former wholly-owned subsidiary (“Westminster”), and raising claims for alleged fraud under Section 10(b) and Rule 10b-5 of the Exchange Act; joint and several liability under 15 U.S.C. Code 78t (against Trxade, Inc.); fraudulent transactions of securities under the Florida Securities Act (against all of the defendants except Trxade); and sale of unregistered securities under the Florida Securities Act (against all of the defendants except Trxade). The total amount of damages sought is unclear, but is thought to be in excess of $425,000. To the Company’s and Mr. Ajjarapu’s knowledge, the complaint has no merit whatsoever and each of the Company and Mr. Ajjarapu intend to defend themselves and oppose the relief sought in the complaint. The Company is not currently accused of any direct misconduct; instead, the Company is alleged to be liable for the acts of certain or all of the other defendants. The Company would likely only incur liability if some or all of the other defendants were found liable to plaintiffs and the Company is found to be jointly and severally liable for the actions of such other defendant or defendants. The lawsuit claims approximately $450,000 in damages; however, based on facts currently known, the Company assesses the likelihood of any material loss as remote.

 

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NOTE 8 – LEASES

 

The Company elected the practical expedient under Accounting Standards Update (ASU) 2018-11 “Leases: Targeted Improvements” which allows the Company to apply the transition provision for Topic 842 at the Company’s adoption date instead of at the earliest comparative period presented in the financial statements. Therefore, the Company recognized and measured leases existing at January 1, 2019, but without retrospective application. In addition, the Company elected the optional practical expedient permitted under the transition guidance which allows the Company to carry forward the historical accounting treatment for existing leases upon adoption. No impact was recorded to the beginning retained earnings for Topic 842. The Company has two operating leases for corporate offices. The following table outlines the details:

 

  Lease 1  Lease 2 
Initial Lease Term  December 2017 to December 2021   November 2018 to November 2023 
Renewal Term  January 2021 to December 2024   November 2023 to November 2028 
Initial Recognition of right-of-use assets at January 1, 2019 $534,140  $313,301 
Incremental Borrowing Rate  10%  10%

 

The Company decided not to renew the corporate office lease (Lease 1) on January 2021; however, the parties subsequently negotiated a one-year lease at the same location. The Company determined that the decision to not renew Lease 1 changed the corresponding lease term which required remeasurement of the lease liability resulting in the reduction of the right-of-use asset and the associated lease liability by $384,110. The reassessment of the lease term did not change the existing classification and the lease is still classified as an operating lease.

 

The table below reconciles the fixed component of the undiscounted cash flows for each of the first five years and the total remaining years to the operating lease liabilities recorded in the Consolidated Balance Sheet as of March 31, 2021.

 

Amounts due within twelve months of March 31   
2021 $146,218 
2022  49,452 
2023  50,949 
2024  52,478 
2025  54,052 
Thereafter  147,046 
Total minimum lease payments  500,195 
Less: effect of discounting  (129,253)
Present value of future minimum lease payments  370,942 
Less: current obligations under leases  117,030 
Long-term lease obligations $253,912 

 

For the three months ended March 31, 2021 and 2020, amortization of Right of Use Assets was $31,678 and $23,635, respectively.

 

For the three months ended March 31, 2021 and 2020, amortization of Lease Liability was $31,517 and $20,974, respectively.

 

NOTE 9 – SEGMENT REPORTING

 

The Company classifies its business interests into reportable segments which are Trxade, Inc., Community Specialty Pharmacy, LLC, Integra Pharma, LLC and Other. Operating segments are defined as the components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision makers in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision makers direct the allocation of resources to operating segments based on the profitability, cash flows, and growth opportunities of each respective segment.

 

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Three Months Ended

March 31, 2021

 Trxade, Inc.  Community Specialty Pharmacy, LLC  Integra Pharma, LLC  Other  Total 
Revenue $1,236,650  $397,896  $1,402,586  $16,103  $3,053,235 
Gross Profit $1,236,650  $36,089  $94,563  $16,009  $1,383,311 
Segment Assets $2,053,494  $(405,348) $3,111,536  $4,933,534  $9,693,216 
Segment Profit (Loss) $512,293  $(31,251) $(32,446) $(1,100,115) $(651,519)

 

Three Months Ended

March 31, 2020

 Trxade, Inc.  Community Specialty Pharmacy, LLC  Integra Pharma, LLC  Other  Total 
Revenue $1,519,907  $432,929  $245,016  $5,468  $2,203,320 
Gross Profit $1,519,907  $36,108  $78,653  $5,468  $1,640,136 
Segment Assets $2,055,429  $280,514  $1,817,170  $7,320,791  $11,473,904 
Segment Profit (Loss) $972,993  $(41,245) $(28,883) $(722,562) $180,303 

 

NOTE 10 – SUBSEQUENT EVENTS

 

2021 Equity Compensation Awards

 

On April 15, 2021, the Board of Directors, with the recommendation of the Compensation Committee, approved the grant of options to purchase an aggregate of 17,500 shares of our common stock to certain employees of the Company, in consideration for services to be rendered by such individuals through 2025. The options vest at the rate of ¼th of such options per year, on the first, second, third and fourth anniversaries of the grant date, subject to such option holders continuing to provide services to the Company on such dates, subject to the terms of the Company’s 2019 Amended and Restated Equity Incentive Plan (the “Plan”) and the option agreements entered into evidence such grants. The options were granted pursuant to, and are subject to the Plan, and have a term of five years from the grant date. The options have an exercise price of $4.76 per share, the closing price of the Company’s common stock on the date of the grant of such options.

 

In connection with and pursuant to the independent director compensation policy previously adopted by the Board of Directors, on April 15, 2021, the three independent members of the Board of Directors (Mr. Donald G. Fell, Dr. Pamela Tenaerts, and Mr. Michael L. Peterson), were each awarded 10,721 shares of restricted stock, valued at $55,000 ($5.13 per share) based on the closing sales price of the Company’s common stock on the Nasdaq Capital Market on the effective date of the grant, April 1, 2021, which vest at the rate of ¼th of such shares on July 1 and October 1, 2021 and January 1 and April 1, 2022, subject to such persons continuing to provide services to the Company on such dates, subject to the terms of the Plan and the Restricted Stock Grant Agreements entered into to evidence such awards.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

General Information

 

This information should be read in conjunction with the interim unaudited financial statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the audited financial statements and notes thereto and “Part II. Other InformationItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”, contained in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission on March 29, 2021 (the “Annual Report”).

 

Certain capitalized terms used below and otherwise defined below, have the meanings given to such terms in the footnotes to our unaudited consolidated financial statements included above under “Part I – Financial Information” – “Item 1. Financial Statements”.

 

Please see the section entitled “Glossary” in our Annual Report for a list of abbreviations and definitions used throughout this Report.

 

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Our logo and some of our trademarks and tradenames are used in this Report. This Report also includes trademarks, tradenames and service marks that are the property of others. Solely for convenience, trademarks, tradenames and service marks referred to in this Report may appear without the ®, ™ and SM symbols. References to our trademarks, tradenames and service marks are not intended to indicate in any way that we will not assert to the fullest extent under applicable law our rights or the rights of the applicable licensors if any, nor that respective owners to other intellectual property rights will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend the use or display of other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

 

The market data and certain other statistical information used throughout this Report are based on independent industry publications, reports by market research firms or other independent sources that we believe to be reliable sources. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. We are responsible for all of the disclosures contained in this Report, and we believe these industry publications and third-party research, surveys and studies are reliable. While we are not aware of any misstatements regarding any third-party information presented in this Report, their estimates, in particular, as they relate to projections, involve numerous assumptions, are subject to risks and uncertainties, and are subject to change based on various factors, including those discussed under, and incorporated by reference in, the section entitled “Item 1A. Risk Factors” of this Report. These and other factors could cause our future performance to differ materially from our assumptions and estimates. Some market and other data included herein, as well as the data of competitors as they relate to Trxade Group, Inc., is also based on our good faith estimates.

 

Unless the context requires otherwise, references to the “Company,” “we,” “us,” “our,” “Trxade”, “Trxade Group” and “Trxade Group, Inc.” refer specifically to Trxade Group, Inc. and its consolidated subsidiaries.

 

In addition, unless the context otherwise requires and for the purposes of this report only:

 

 Exchange Act” refers to the Securities Exchange Act of 1934, as amended;
   
 SEC” or the “Commission” refers to the United States Securities and Exchange Commission; and
   
 Securities Act” refers to the Securities Act of 1933, as amended.

 

Effective on February 12, 2020, the Company effected a stock split of its outstanding common stock in a ratio of 1-for-6 (“Reverse Stock Split”). Proportional retroactive adjustments were made to the conversion and exercise prices of the Company’s outstanding warrants and stock options, and to the number of shares issued and issuable under the Company’s stock incentive plans in connection with the Reverse Stock Split in the disclosures below.

 

Where You Can Find Other Information

 

We file annual, quarterly, and current reports, proxy statements and other information with the SEC. Our SEC filings are available to the public over the Internet at the SEC’s website at www.sec.gov and are available for download, free of charge, soon after such reports are filed with or furnished to the SEC, on the “NASDAQ: MEDS,” “SEC Filings” page of our corporate website at www.rx.trxade.com. Copies of documents filed by us with the SEC are also available from us without charge, upon oral or written request to our Secretary, who can be contacted at the address and telephone number set forth on the cover page of this Report. Our corporate website address is www.rx.trxade.com. The information on, or that may be accessed through, our corporate website is not incorporated by reference into this Report and should not be considered a part of this Report.

 

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Summary of The Information Contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:

 

 Overview. Discussion of our business and overall analysis of financial and other highlights affecting us, to provide context for the remainder of MD&A.
   
 Liquidity and Capital Resources. An analysis of changes in our consolidated balance sheets and cash flows and discussion of our financial condition.
   
 Results of Operations. An analysis of our financial results comparing the three months ended March 31, 2021 and 2020.
   
 Critical Accounting Policies. Accounting estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.

 

Company Overview

 

We have designed and developed, and now own and operate, a business-to-business web-based marketplace focused on the US pharmaceutical industry. Our core service brings the nation’s independent pharmacies and accredited national suppliers of pharmaceuticals together to provide efficient and transparent buying and selling opportunities.

 

We began operations as Trxade Group, Inc., a Nevada corporation (“Trxade Nevada”) in August of 2010 and spent over two years creating and enhancing our web-based services. Our services provide pricing transparency, purchasing capabilities and other value-added services on a single platform focused on serving the nation’s approximately 21,000 independent pharmacies with annual purchasing power of $78 billion (according to the National Community of Pharmacists Association’s 2018 Digest). Our national wholesale supply partners are able to fulfill orders on our platform in real-time and provide pharmacies with cost-saving payment terms and next-day delivery capabilities in unrestrictive states under the Model State Pharmacy Act and Model Rules of the National Association of Boards of Pharmacy (Model Act). We have expanded significantly since 2015 and now have around 12,100+ registered members on our sales platform.

 

Company Organization

 

Trxade Group, Inc. owns 100 percent of Trxade, Inc., and Integra Pharma Solutions, LLC (formerly Pinnacle Tek, Inc.), Alliance Pharma Solutions, LLC, Community Specialty Pharmacy, LLC, and Bonum Health, LLC. The reverse triangular merger of Trxade, Inc. and Trxade Group, Inc. occurred in July 2013. Integra was acquired in July 2013. We acquired 100 percent of Community Specialty Pharmacy, LLC, in October 2018. Alliance Pharma Solutions, LLC was formed in January 2018 and our joint venture with SyncHealth MSO, LLC, which was terminated in February 2020, was formed in January 2019. We acquired our Bonum Health operations in October 2019. Trxade, Inc. is a web-based market platform that enables commerce among healthcare buyers and sellers of pharmaceuticals, accessories and services.

 

Novel Coronavirus (COVID-19)

 

In December 2019, a novel strain of coronavirus, which causes the infectious disease known as COVID-19, was reported in Wuhan, China. The World Health Organization declared COVID-19 a “Public Health Emergency of International Concern” on January 30, 2020 and a global pandemic on March 11, 2020. In March and April, many U.S. states and local jurisdictions began issuing ‘stay-at-home’ orders. For example, the state of Florida, where the Company’s principal business operations are, issued a ‘stay-at-home’ order effective on April 1, 2020, which remained in place, subject to certain exceptions, through June 2020, when the order was gradually lifted until September 2020, when the order was completely lifted. The U.S. in general and Florida specifically, has recently seen decreases in total new COVID-19 infections, however, it is unknown whether such decreases will continue, new strains of the virus will cause numbers to increase, currently projected vaccine efficacy numbers will hold, or new strains of the virus will become dominate in the future, and/or whether the state of Florida, or other jurisdictions in which we operate, will issue new or expanded ‘stay-at-home’ orders, or how those orders, or others, may affect our operations.

 

15

 

To date, we have been deemed an essential healthcare technology provider under applicable governmental orders based on the critical nature of the products we offer and the community we serve. As such, our business operations were not materially impacted by the prior restrictions put in place by the State of Florida to slow the spread of COVID-19, which have since expired. Additionally, as shown in our results of operations below, we have to date, not experienced any significant material negative impact to our operations, revenues or gross profit due to COVID-19. We have however been adversely affected by reductions to, and interruptions in, the delivery of supply chain pharmaceuticals that have had a negative impact on our wholesalers and certain technology outsourcing in India and the Philippines due to the pandemic, which may become more frequent or material in the future. We are carefully managing our inventory supply network while we work to overcome these hopefully temporary challenges. As a result of the above and other unknown issues associated with the pandemic, our sales and operating results may be adversely impacted in the coming months. The full extent of the impact of COVID-19 on our business and operations currently cannot be estimated and will depend on a number of factors including the scope and duration of the global pandemic.

 

Since the start of the pandemic, we have taken steps to prioritize the health and safety of our employees. The Company’s employees started working remotely around March 17, 2020, and our corporate office is currently planned to be closed through May 31, 2021. The office is expected to open for our management team beginning in June 2021, while our remaining employees will continue to work remotely for the time being.

 

Currently we believe that we have sufficient cash on hand and will generate sufficient cash through operations to support our operations for the foreseeable future; however, we will continue to evaluate our business operations based on new information as it becomes available and will make changes that we consider necessary in light of any new developments regarding the ongoing pandemic.

 

Although COVID-19 has had a major impact on businesses around the world, to date, the pandemic has not had a significant negative impact on our business. However, the future impact of COVID-19 on our business and operations is currently unknown. The pandemic is developing rapidly and the full extent to which COVID-19 will ultimately impact us depends on future unknowable developments, including the duration and spread of the virus, as well as potential new seasonal outbreaks.

 

Liquidity and Capital Resources

 

Cash

 

Cash was $5,209,280 at March 31, 2021. We expect that our future available capital resources will consist primarily of cash generated from operations, remaining cash balances, borrowings, and additional funds raised through sales of debt and/or equity securities.

 

Liquidity

 

Cash, current assets, current liabilities, short term debt and working capital at the end of each period were as follows:

 

  March 31, 2021  December 31, 2020 
       
Cash $5,209,280  $5,919,578 
Current assets (excluding cash)  3,945,960   3,301,720 
Current liabilities (excluding short term debt) ��1,012,680   617,238 
Short Term Debt  225,000   225,000 
Working Capital  7,917,560   8,379,060 

 

Our principal sources of liquidity have been cash provided by operations, sales of equity, and borrowings under various debt arrangements. Our principal uses of cash have been for operating expenses and acquisitions. We anticipate these uses will continue to be our principal uses of cash in the future.

 

The decrease in cash as of March 31, 2021, compared to December 31, 2020, was primarily due to increased spending for the development and marketing of Bonum TeleHealth and MedCheks Health Passport.

 

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Liquidity Outlook cash explanation.

 

Cash Requirements

 

Our primary objectives for the remainder of 2021 are to continue the development of the Trxade Platform, Bonum Health telehealth services and MedCheks health passport, to increase our client base and operational revenue. As a result of our cash generated through operations and the cash raised in the February 2020 underwritten offering, we believe we have sufficient cash to support our operations for the foreseeable future. There can be no assurance that our operations will generate significant positive cash flow, or that additional funds will be available to us, through borrowings or otherwise, on favorable terms if required in the future, or at all.

 

We estimate our operating expenses and working capital requirements for the next 12 months to be approximately as follows:

 

Projected Expenses for April 2021 to March 2022 Amount 
General and administrative (1) $9,000,000 
Total $9,000,000 

 

(1)Includes wages and payroll, legal and accounting, marketing, rent and web development.

 

We currently anticipate paying the estimated expenses described above through cash on hand and revenues generated from our operations. Since inception, we have funded our operations primarily through debt and equity capital raises and operational revenue.

 

We may require additional funding in the future to expand or complete acquisitions. The sources of this capital are expected to be equity investments and notes payable. Our plan for the next twelve months is to continue using the same marketing and management strategies and continue providing a quality product with excellent customer service while also seeking to expand our operations organically or through acquisitions, as funding and opportunities arise. As our business continues to grow, customer feedback will be integral in making small adjustments to improve our products and overall customer experience. If in the future we require additional funding, we plan to raise such funds through the sale of debt or equity, which may not be available on favorable terms, if at all, and may, if sold, cause significant dilution to existing stockholders. If we are unable to access additional capital moving forward, it may hurt our ability to grow and to generate future revenues.

 

We believe that we have adequate cash to implement our plan to operate a business-to-business web-based marketplace focused on the United States pharmaceutical industry. Our core service is designed to bring the nation’s independent pharmacies and accredited national suppliers of pharmaceuticals together to provide efficient and transparent buying and selling opportunities.

 

As of the date of this filing, there has been a global viral outbreak that world governments have responded to with travel and other restrictions, including ‘stay-at-home’ orders, among other steps. The extent and duration of business disruptions and related financial impacts from the COVID-19 coronavirus cannot be reasonably estimated at this time; however, our exposure includes reductions to, and interruptions in, the delivery of supply chain pharmaceuticals that have had a negative impact on our wholesalers and certain technology outsourcing in India and the Philippines. In addition, employee sicknesses and remote working environments related to the coronavirus and the federal, state and local responses to such virus, could materially impact our consolidated results for the full year 2021. See also “Novel Coronavirus (COVID-19)”, above.

 

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Cash Flows

 

The following table summarizes our Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020:

 

  Three months Ended       
  March 31, 2021  March 31, 2020  Change  Percent Change 
Net (Loss) Income $(651,519) $180,303  $(831,822)  (461%)
Net Cash Provided by (used in):                
Operating Activities  (710,298)  (410,806)  (299,492)  (73%)
Investing Activities  -   (23,505)  23,505   100%
Financing Activities  -   5,263,922   (5,263,922)  (100)%
Net increase (decrease) in cash $(710,298) $4,829,611  $(5,539,909) $(115)%

 

Cash used in operations for the three months ended March 31, 2021 was $710,298, compared to cash used in operations for the three months ended March 31, 2020 of $410,806. The decrease in cash as of March 31, 2021, compared to March 31, 2020, was due to increased spending for the development and marketing of Bonum TeleHealth and MedCheks Health Passport and an increase in Accounts Receivables.

 

There was no cash used in investing activities for the three months ended March 31, 2021, compared to cash used in investing activities for the three months ended March 31, 2020 of $23,505. Cash used in investing activities for the three months ended March 31, 2020, was associated with the purchase of fixed assets.

 

Cash provided by financing activities for the three months ended March 31, 2021 was $0, compared to cash provided by financing activities for the three months ended March 31, 2020 of $5,263,922. Cash provided by financing activities for the three months ended March 31, 2020, included the sale of common stock in the February 2020 underwritten offering which generated $5,994,424 of proceeds and approximately $5.26 million in cash to the Company after expenses and the exercise of warrants and options which generated cash of $1,853.

 

Results of Operations

 

The following selected consolidated financial data should be read in conjunction with the unaudited consolidated financial statements and the notes to these statements included above.

 

Three Month Period Ended March 31, 2021 Compared to Three Month Period Ended March 31, 2020

 

  Three Months Ended     Percent 
  March 31, 2021  March 31, 2020  Change  Change 
             
Revenues $3,053,235  $2,203,320  $849,915   39%
Cost of Sales  1,669,924   563,184   1,106,740   197%
                 
Gross Profit  1,383,311   1,640,136   (256,825)  (16)%
Operating Expenses:                
General and Administrative*  1,853,581   1,310,823   542,758   41%
Warrants and Options Expense  173,985   141,086   32,899   23%
Total Operating Expense  2,027,566   1,451,909   575,657   40%
                 
Interest Expense  (7,264)  (7,924)  660   (8)%
                 
Net Income (loss) $(651,519) $180,303  $(831,822)  (461)%

 

* Less warrants and options expense.

 

Our revenues for the three months ended March 31, 2021 were from the Trxade platform, Community Specialty Pharmacy and Integra Pharma Solutions. Revenues increased by $849,915, compared to the prior period. Integra Pharma Solutions revenue increased to $1,402,586 for the three months ended March 31, 2021, compared to $245,016, in the prior year’s period. The increase was mainly a result of sourcing protective medical gowns. Cost of sales and gross profit for the three-month period ended March 31, 2021, were $1,669,924 and $1,383,311, respectively, and for the three-month period ended March 31, 2020, were $563,184 and $1,640,136, respectively. As sales for PPE increased in 2021, the cost of sales increased. Revenue from the Trxade Platform decreased 19%, from $1,519,907 for the three months ended March 31, 2020, to $1,236,650 for the three months ended March 31, 2021. The decrease in 2021 related to weather disruptions for shipping and supply chain issues for drugs selling on the platform and certain non-recurring large purchases of additionally supplies by pharmacies in March 2020, at the start of the COVID-19 pandemic.

 

Gross profit as a percentage of sales was 45% for the three months ended March 31, 2021, compared to 74% for the three months ended March 31, 2020. The reason for the decrease in gross profit as a percentage of sales was the cost of the orders of PPE related products in the current period. In 2020, a larger percentage of revenue was generated by the Trxade Platform, which carries no cost of sales.

 

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General and administrative expenses (less stock-based compensation expense) increased for the three months ended March 31, 2021 to $1,853,581, compared to $1,310,823 for the comparable period in 2019. The increase was mainly due to IT development, legal expenses and marketing expenses relating to Bonum Health and MedCheks.

 

Total stock-based compensation expense increased to $173,985 for the three months ended March 31, 2021, compared to $141,086 for the prior year’s period, due to Board of Directors restricted stock grants.

 

We had interest expense of $7,264 for the three months ended March 31, 2021, compared to interest expense of $7,924 for the three months ended March 31, 2020, which decreased due to decreases in the amount of outstanding debt we had as of the current period.

 

Net loss increased to $651,519 for the three months ended March 31, 2021, compared to net income of $180,303, for the three months ended March 31, 2020, mainly due to increased development of the Trxade Platform, Bonum Health and MedCheks start up development.

 

Off-Balance Sheet Arrangements

 

We had no outstanding off-balance sheet arrangements as of March 31, 2021.

 

Critical Accounting Policies

 

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of net sales and expenses for each period. The following represents a summary of our critical accounting policies, defined as those policies that we believe are the most important to the portrayal of our financial condition and results of operations and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.

 

Revenue Recognition

 

In general, the Company accounts for revenue recognition in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers.

 

Trxade, Inc. provides an online web-based buying and selling platform for licensed pharmaceutical wholesalers (“Suppliers”) to sell products and services to licensed pharmacies (“Customers”). The Company charges Suppliers a transaction fee, a percentage of the purchase price of the prescription drugs and other products sold through its website service. Fulfillment of confirmed orders, including delivery and shipment of prescription drugs and other products, is the responsibility of the Supplier, not the Company. The Company holds no inventory and assumes no responsibility for the shipment or delivery of any products or services from our website. The Company considers itself an agent for this revenue stream and as such, reports revenue as net. Step One: Identify the contract with the Customers – Trxade, Inc.’s Terms and Use “Agreement,” which outlines the terms and conditions between the Company and the Supplier, is acknowledged and agreed to by the Supplier. Collection is probable based on a credit evaluation of the Supplier. Step Two: Identify the performance obligations in the Agreement – the Company provides the Supplier access to the online website, ability to upload catalogs of products and Dashboard access to review status of inventory as well as posted and processed orders. The Agreement requires the Supplier to post a catalog of pharmaceuticals on the platform, deliver the pharmaceuticals and, upon shipment, remit the stated platform fee. Step Three: Determine the transaction price – the Agreement outlines the fee, which is based on the type of product: generic, brand or non-drug. There are no discounts for volume transactions or early payment of invoices. Step Four: Allocate the transaction price – the Agreement details the fee: There is no difference between contract price and “stand-alone selling price”. Step Five: Recognize revenue when or as the entity satisfies a performance obligation – revenue is recognized upon Supplier’s fulfillment of the applicable order.

 

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Integra Pharma Solutions, LLC is a licensed wholesaler of brand, generic and non-drug products to Customers. The Company takes orders for products, creates invoices for each order and recognizes revenue at the time the Customer receives the product. Customer returns are not material. Step One: Identify the contract with the Customer – the Company requires that an application and a credit card for payment be completed by the Customer prior to the first order. Each transaction is evidenced by an order form sent by the Customer and an invoice for the product is sent by the Company. The collection is probable based on the application and credit card information provided prior to the first order. Step Two: Identify the performance obligations in the contract – Each order is distinct and evidenced by the shipping order and invoice. Step Three: Determine the transaction price – The consideration is variable if product is returned. The variability is determined based on the return policy of the product manufacturer. There are no sales or volume discounts. The transaction price is determined at the time of the order evidenced by the invoice. Step Four: Allocate the transaction price – There is no difference between contract price and “stand-alone selling price”. Step Five: Recognize revenue when or as the entity satisfies a performance obligation – The Revenue is recognized when the Customer receives the product.

 

Community Specialty Pharmacy, LLC is a licensed retail pharmacy. The Company fills prescriptions for drugs written by a doctor and recognizes revenue at the time the patient confirms delivery of the prescription. Customer returns are not material. Step One: Identify the contract with the Customer – The prescription is written by a doctor for a patient and presented by the patient to the Customer and is in turn delivered to the Company. The prescription identifies the performance obligations in the contract. The Company fills the prescription and delivers to the Customer the drugs, fulfilling the contract. The collection is probable because there is confirmation that the patient has insurance for reimbursement to the Company prior to filling of the prescription. Step Two: Identify the performance obligations in the contract – Each prescription is distinct to the Customer. Step Three: Determine the transaction price – The consideration is not variable. The transaction price is determined to be the price of prescription at the time of delivery which considers the expected reimbursements from third party payors (e.g., pharmacy benefit managers, insurance companies and government agencies). Step Four: Allocate the transaction price – The price of the prescription invoiced represents the expected amount of reimbursement from third party payors. There is no difference between contract price and “stand-alone selling price”. Step Five: Recognize revenue when or as the entity satisfies a performance obligation – Revenue is recognized after the delivery of the prescription.

 

Stock-Based Compensation

 

The Company accounts for stock-based compensation to employees in accordance with ASC 718, “Compensation-Stock Compensation”. ASC 718 requires companies to measure the cost of employee services received in exchange for an award of equity instruments, including stock options, based on the grant date fair value of the award and to recognize it as compensation expense over the period the employee is required to provide service in exchange for the award, usually the vesting period. Stock option forfeitures are recognized at the date of employee termination. Effective January 1, 2019, the Company adopted ASU 2018-07 for the accounting of share-based payments granted to non-employees for goods and services.

 

RECENTLY ISSUED ACCOUNTING STANDARDS

 

For more information on recently issued accounting standards, see “Note 1 – Organization and Basis of Presentation”, to the Notes to Consolidated Financial Statements included herein under “Part IItem 1. Financial Statements”.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).

 

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ITEM 4. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer (our principal executive officer and principal accounting/financial officer), Mr. Ajjarapu and Mr. Doss, respectively, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that as of March 31, 2021, our disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed in our reports filed with the SEC pursuant to the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.

 

As a result of the formative stage of our development, the Company has not fully implemented the necessary internal controls. The matters involving internal controls and procedures that the Company’s management considered to be material weaknesses under the standards of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) were: (1) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of accounting principles generally accepted in the United States of America (“GAAP”) and SEC disclosure requirements; and (2) ineffective controls over period end financial disclosure and reporting processes.

 

Management believes that the material weaknesses set forth above did not have an effect on the Company’s financial results reported herein. We are committed to improving our financial organization. As part of this commitment, we have recently increased our personnel resources and technical accounting expertise as we develop the internal and financial resources of the Company. In addition, the Company will prepare and implement sufficient written policies and checklists which will set forth procedures for accounting and financial reporting with respect to the requirements and application of GAAP and SEC disclosure requirements.

 

Management believes that preparing and implementing sufficient written policies and checklists will remedy the following material weaknesses (i) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of GAAP and SEC disclosure requirements; and (ii) ineffective controls over period end financial close and reporting processes.

 

We have improved our financial organization as we have increased our personnel resources and technical accounting expertise. We will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis.

 

Changes in Internal Control over Financial Reporting

 

There has not been any change in our internal control over financial reporting that occurred during the quarter ended March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

In the ordinary course of business, we may become a party to lawsuits involving various matters. The impact and outcome of litigation, if any, is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We believe the ultimate resolution of any such current proceeding will not have a material adverse effect on our continued financial position, results of operations or cash flows.

 

Such current litigation or other legal proceedings are described in, and incorporated by reference in, this “Item 1. Legal Proceedings” of this Form 10-Q from, “Part IItem 1. Financial Statements” in the Notes to Consolidated Financial Statements in “Note 6 – Other Receivables” and “Note 7 – Contingences”. The Company believes that the resolution of currently pending matters will not individually or in the aggregate have a material adverse effect on our financial condition or results of operations. However, assessment of the current litigation or other legal claims could change in light of the discovery of facts not presently known to the Company or by judges, juries or other finders of fact, which are not in accord with management’s evaluation of the possible liability or outcome of such litigation or claims.

 

Additionally, the outcome of litigation is inherently uncertain. If one or more legal matters were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s financial condition and operating results for that reporting period could be materially adversely affected.

 

ITEM 1A. RISK FACTORS

 

There have been no material changes from the risk factors previously disclosed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Commission on March 29, 2021 (the “Form 10-K”), under the heading “Risk Factors”, which risk factors are incorporated by reference herein, except as set forth below, and investors should review the risks provided in the Form 10-K and below, prior to making an investment in the Company. The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in the Form 10-K for the year ended December 31, 2020, under “Risk Factors”, and below, any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price.

 

The risk factor in the Form 10-K entitled, “We have been, and may in the future be, adversely affected by the global COVID-19 pandemic, the duration and economic, governmental and social impact of which is difficult to predict, which may significantly harm our business, prospects, financial condition and operating results.”, is replaced in its entirety by the below:

 

We have been, and may in the future be, adversely affected by the global COVID-19 pandemic, the duration and economic, governmental and social impact of which is difficult to predict, which may significantly harm our business, prospects, financial condition and operating results.

 

During 2020 and continuing into 2021, there has been a widespread worldwide impact from the COVID-19 pandemic, and we have been, and may in the future be, adversely affected as a result. Numerous government regulations and public advisories, as well as shifting social behaviors, have temporarily limited or closed non-essential transportation, government functions, business activities, and person-to-person interactions, and the duration of such trends is difficult to predict. The outbreak of the COVID-19 coronavirus, the global response to such coronavirus, including travel restrictions and quarantines that governments are instituting, has adversely affected our operations, may continue to have an adverse effect on our operations, and/or may have a significant negative impact on our results of operations, the production of pharmaceuticals and our ability to timely obtain pharmaceuticals for resale. Currently, we are experiencing reductions to, and interruptions in, the delivery of supply chain pharmaceuticals that are having a negative impact on our wholesalers and certain technology outsourcing in India and the Philippines. Notwithstanding the above disruptions, our results of operations have not, to date, been materially adversely affected by the pandemic. However, if we continue to experience production difficulties, quality control problems or further shortages in supply of pharmaceuticals in the future, this could harm our business and results of operations, any of which could have a material adverse effect on our operations and the value of our securities. In addition, employee sicknesses and remote working environments, and the potential negative effect thereof on productivity and internal controls, related to the coronavirus and the federal, state and local responses to such virus, could materially impact our consolidated results for the year for 2021 and beyond. The COVID-19 outbreak could also restrict our access to capital such as credit facilities and lead to material nonrecurring charges, write-downs, impairments and expenses. The Company is actively and continually monitoring the pandemic’s effect on our businesses and endeavoring to adapt quickly in real time to meet the rapidly-changing demands of our Customers and Suppliers.

 

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To mitigate the spread of COVID-19, we implemented travel restrictions and remote working arrangements for most of our employees in order to minimize physical contact, and we implemented additional sanitation and personal protection measures. The Company’s employees started working remotely around March 17, 2020, and although productivity did not drop, if it does, it could impact revenues and profitability. The Company’s corporate office is closed through May 31, 2021. The office is expected to open for our management team beginning in June 2021, while our remaining employees will continue to work remotely for the time being. These measures might not fully mitigate COVID-19 risks to our workforce and we could experience unusual levels of absenteeism that might impair operations and delay delivery of products. The COVID-19 pandemic affects product manufacturing, supply and transport availability and cost. The pandemic reduces demand for some products due to delays or cancellations of elective medical procedures, consumer self-isolation and business closures, among other reasons. The COVID-19 pandemic also influences shortages of some products, with product allocation resulting in delivery delays for customers. Additionally, as a result of the recent coronavirus outbreak, various states have adopted price gouging laws. Our failure to comply with such laws and regulations could subject us to claims, penalties, fines or lawsuits.

 

We have been impacted and may be further impacted by COVID-19 as follows:

 

 As a result of COVID-19, various states have adopted price gouging laws. Our failure to comply with such laws and regulations could subject us to claims, penalties, fines or lawsuits;
   
 Inventory price fluctuations as a result of supply and demand issues caused by COVID-19 have caused values of inventory to decrease, which has had a direct impact on gross profit and has resulted in a direct write-off of inventory value;
   
 Payment Terms with customers may be altered or extended, which would have an impact on current ratios and cash flow; and
   
 There have previously been material impairments with respect to goodwill and may be future material impairments and/or affects on right-of-use assets as the evaluation of the long-term impact to delivery of service or physical space assessments changes.

 

COVID-19 may cause further disruptions to our business, including, but not limited to:

 

 causing one or more of our customers to file for bankruptcy protection or shut down, including as a result of broader economic disruption;
   
 reducing health system or health plan subscription agreement fees generated, as well as visit fees, by customers or providers, as a result of funding constraints related to loss of revenue or employment;
   
 negatively impacting collections of accounts receivable;
   
 negatively impacting our ability to facilitate the provision of our telehealth services due to unpredictable demand;
   
 negatively impacting our ability to forecast our business’s financial outlook;
   
 creating regulatory uncertainty on our telehealth services, if certain restrictions on reimbursement or the practice of medicine across state lines are reintroduced at some point in the future; and
   
 harming our business, results of operations and financial condition.

 

The ongoing impacts of the pandemic may cause a general economic slowdown or recession in one or more markets, disruptions and volatility in global capital markets and other broad and adverse effects on the economy, business conditions, commercial activity and the healthcare industry. The pandemic might impact our business operations, financial position and results of operation in unpredictable ways that depend on highly-uncertain future developments, such as determining the effectiveness of current or future government actions to address the public health or economic impacts of the pandemic. Any of these risks might have a materially adverse impact on our business operations and our financial position or results of operations.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

There have been no sales of unregistered securities during the quarter ended March 31, 2021 and from the period from April 1, 2021, to the filing date of this report, which have not previously been disclosed in a prior Quarterly Report on Form 10-Q or a Current Report on Form 8-K, if any.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

None.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

See the Exhibit Index following the signature page to this Quarterly Report on Form 10-Q for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 Trxade Group, Inc.
   
 By:/s/ Suren Ajjarapu
  Suren Ajjarapu
  

Chief Executive Officer

(Principal Executive Officer)

   
  Date: April 26, 2021
   
 By:/s/ Howard Doss
  Howard Doss
  

Chief Financial Officer

(Principal Accounting/Financial Officer)

   
  Date: April 26, 2021

 

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EXHIBIT INDEX

 

    Incorporated by Reference  
Exhibit No. Description Form File No. Exhibit Filing Date Filed Herewith
10.1* Trxade Group, Inc. 2019 Equity Incentive Plan Restricted Stock Grant Agreement          
10.2* Trxade Group, Inc. 2019 Equity Incentive Plan Stock Option Agreement          
31.1* Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act*         X
31.2* Certification of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act*         X
32.1** Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act**         X
32.2** Certification of Principal Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act**         X
101.INS XBRL Instance Document         X
101.SCH XBRL Taxonomy Extension Schema Document         X
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document         X
101.DEF XBRL Taxonomy Extension Definition Linkbase Document         X
101.LAB XBRL Taxonomy Extension Label Linkbase Document         X
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document         X

 

*Filed herewith.
  
**Furnished herewith.

 

***Indicates management contract or compensatory plan or arrangement.

 

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