UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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TRxADE HEALTH, INC.
FORM 10-Q
For the Quarter Ended March 31, 2023
TABLE OF CONTENTS
| 2 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Report”), including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements, within the meaning of the federal securities laws, including 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. These factors include, but are not limited to:
● Our limited amount of cash;
● The negative effect on our business and our ability to raise capital that is created by the fact that there is a substantial doubt about our ability to continue as a going concern;
● Risks of our operations not being profitable;
● Claims relating to alleged violations of intellectual property rights of others;
● Technical problems with our websites;
● Risks relating to implementing our acquisition strategies;
● Negative effects on our operations associated with the opioid pain medication health crisis;
● Regulatory and licensing requirement risks;
● Risks related to changes in the U.S. healthcare environment;
● The status of our information systems, facilities and distribution networks;
● Risks associated with the operations of our more established competitors;
● Regulatory changes;
● Healthcare fraud;
● The continued effects of COVID-19, governmental responses thereto, economic downturns and possible recessions caused thereby;
● Inflation, rising interest rates, governmental responses thereto and possible recessions caused thereby.
● Changes in laws or regulations relating to our operations;
● Privacy laws;
● System errors;
● Dependence on current management;
● Our growth strategy; and
● Other risks disclosed below under, and incorporated by reference in, “Summary Risk Factors” and “Risk Factors”.
You should read the matters described and incorporated by reference in “Summary Risk Factors” and “Risk Factors” the other cautionary statements made in this Report, and incorporated by reference herein, as being applicable to all related forward-looking statements wherever they appear in this Report. We cannot assure you that the forward-looking statements in this Report will prove to be accurate and therefore prospective investors are encouraged not to place undue reliance on forward-looking statements.
Forward-looking statements speak only as of the date of this Report or the date of any document incorporated by reference in this Report, as applicable. Except to the extent required by applicable law or regulation, we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date of this Report or to reflect the occurrence of unanticipated events.
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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:
● Our cash is limited, and we either need to raise additional financing or secure a strategic transaction that will be beneficial to our shareholders, neither of which may be available on favorable terms, if at all;
● There is substantial doubt regarding our ability to continue as a going concern;
● We are currently unprofitable, have generated net losses, and we may incur losses in the future;
● We have in the past been adversely affected by COVID-19 and may continue to be adversely affected by COVID-19 and/or governmental responses thereto, as well as supply chain issues relating thereto;
● 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 from the Office of Inspector General, U.S. Department of Health and Human Services (OIG) and the United States Department of Justice (DOJ) around the practice of telehealth and expiring COVID-19 waivers;
● We are not currently in compliance with NASDAQ’s continued listing requirements and may not be able to maintain the listing of our common stock on the NASDAQ Capital Market;
● We have identified material weaknesses in our internal control over financial reporting and controls and procedures that we have not corrected;
● Many of our competitors are better established and have resources significantly greater than ours;
● We face risks associated with our operations within the pharmaceutical distribution market;
● We depend 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 and certain of our other assets which may have a material adverse effect on our balance sheet;
● We have in the past, and may in the future, not receive products or receive refunds for deposited amounts and have experienced 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;
● Our certificate of incorporation limits the liability of our officers and directors and provides for indemnification rights, mandatory forum selection provisions and limits the ability of stockholders to call special meetings of stockholders;
● We incur significant costs to ensure compliance with U.S. and NASDAQ Capital Market reporting and corporate governance requirements;
● 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;
● 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 common 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 results of operations are subject to rising inflation, rising interest rates, governmental responses thereto and possible recessions caused thereby;
● Our Chief Executive Officer and President are our two largest stockholders and, as a result, they can exert significant control over us and have actual or potential interests that may differ from yours;
● Risks associated with future acquisitions, including unknown liabilities and difficulty integrating such acquisitions;
● Cyber security attacks and website problems;
● We may see a plateau in our Tele-Vet services offering due to a lack of providers as we are not marketing the service;
● There may be changes in state law concerning the definition of “Tele-Vet” services which may hinder our ability to provide services without an in-person visit to establish care;
● Claims, litigation, government investigations, and other proceedings that may adversely affect our business and results of operations; and
● Other risk factors included under “Risk Factors” in our latest Annual Report on Form 10-K and set forth below under “Risk Factors”.
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRxADE HEALTH, INC.
Consolidated Balance Sheets
March 31, 2023 and December 31, 2022
(Unaudited)
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory | ||||||||
| Prepaid assets | ||||||||
| Current assets of discontinued operations | ||||||||
| Total Current Assets | ||||||||
| Property plant and equipment, net | ||||||||
| Intangible assets and capitalized software, net | ||||||||
| Deposits | ||||||||
| Operating lease right-of-use assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Shareholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | ||||||||
| Accrued liabilities | ||||||||
| Other current liabilities | ||||||||
| Contingent funding liabilities | ||||||||
| Current portion lease liabilities | ||||||||
| Warrant liability | ||||||||
| Notes payable— related party | ||||||||
| Current liabilities of discontinued operations | ||||||||
| Total Current liabilities | ||||||||
| Long Term Liabilities | ||||||||
| Other long-term liabilities — leases | ||||||||
| Notes payable- related party | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Equity | ||||||||
| Series A preferred stock, $ par value; shares authorized; issued and outstanding, as of March 31, 2023 and December 31, 2022. | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding, as of March 31, 2023 and December 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Retained deficit | ( | ) | ( | ) | ||||
| Total | ||||||||
| Non-controlling interest in subsidiary | ( | ) | ||||||
| Total stockholders’ equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited consolidated financial statements.
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TRxADE HEALTH, INC.
Consolidated Statements Of Operations
(Unaudited)
| For the Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenues | $ | $ | ||||||
| Cost of sales | ||||||||
| Gross Profit | ||||||||
| Operating Expenses: | ||||||||
| Wage and salary expense | ||||||||
| Professional fees | ||||||||
| Accounting and legal expense | ||||||||
| Technology expense | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Operating Loss | ( | ) | ( | ) | ||||
| Nonoperating income (expense) | ||||||||
| Change in fair value of warrant liability | ||||||||
| Interest income | ||||||||
| Gain on disposal of asset | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Total nonoperating expense | ||||||||
| Net Loss from continuing operations | ( | ) | ( | ) | ||||
| Net Loss from discontinued operations, net of tax | ( | ) | ||||||
| Net loss attributable to TRxADE Health, Inc. | $ | ( | ) | $ | ( | ) | ||
| Net loss attributable to non-controlling interests | ( | ) | ||||||
| Basic and diluted net loss per common share: | ||||||||
| Continuing operations | $ | ( | ) | $ | ( | ) | ||
| Discontinued operations | $ | ( | ) | $ | ||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | ||
| Weighted average common shares outstanding - basic and diluted | ||||||||
The accompanying notes are an integral part of the unaudited consolidated financial statements.
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TRxADE HEALTH, INC.
Consolidated Statements Of Changes In Stockholders’ Equity
Three Months Ended March 31, 2023, and 2022
(Unaudited)
| Preferred stock | Common Stock | Additional Paid-in | Accumulated | Non-Controlling Interest in | Total Stockholders’ | |||||||||||||||||||||||||||
| Shares | $ Amount | Shares | $ Amount | Capital | Deficit | Subsidiaries | Equity | |||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Common stock issued for services | ||||||||||||||||||||||||||||||||
| Disposition of assets, related party | ||||||||||||||||||||||||||||||||
| Warrants exercised for cash | ||||||||||||||||||||||||||||||||
| Options expense | - | |||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Capital Contributions | - | |||||||||||||||||||||||||||||||
| Common stock issued for services | - | |||||||||||||||||||||||||||||||
| Warrants exercised for cash | ||||||||||||||||||||||||||||||||
| Options expense | - | |||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
The accompanying notes are an integral part of the unaudited consolidated financial statements
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TRxADE HEALTH, INC.
Consolidated Statements of Cash Flows
For The Three Months Ended March 31, 2023 and 2022
(Unaudited)
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation expense | ||||||||
| Options expense | ||||||||
| Common stock issued for services | ||||||||
| Bad debt expense | ( | ) | ||||||
| Gain on sale of asset | ( | ) | ||||||
| Amortization of right of use assets | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Other assets | ( | ) | ||||||
| Accounts receivable, net | ( | ) | ||||||
| Prepaid assets and deposits | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ( | ) | ||||
| Lease liability | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Accrued liabilities | ( | ) | ||||||
| Undeposited customer funds | ( | ) | ||||||
| Current liabilities | ||||||||
| Warrant liability | ( | ) | ||||||
| Customer Deposits | ||||||||
| Net cash used in operating activities from continuing operations | ( | ) | ( | ) | ||||
| Net cash used in operating activities from discontinued operations | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Sale of fixed assets | ||||||||
| Investment in capitalized software | ( | ) | ||||||
| Net cash provided by investing activities from continuing operations | ( | ) | ||||||
| Net cash provided by investing activities from discontinued operations | ||||||||
| Net cash provided by investing activities | ||||||||
| Cash flows from financing activities: | ||||||||
| Repayment of contingent liability | ( | ) | ||||||
| Proceeds from sale of future revenue | ||||||||
| Distributions to non-controlling interest | ( | ) | ||||||
| Proceeds from exercise of warrants | ||||||||
| Net cash provided by financing activities from continuing operations | ||||||||
| Net cash provided by (used in) financing activities from discontinued operations | ( | ) | ||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net change in cash | ( | ) | ||||||
| Cash at beginning of the year | ||||||||
| Cash at end of the period | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Non-Cash Transactions | ||||||||
| Insurance premium financed | $ | $ | ||||||
| Note Cancelled from SOSRx withdrawal | $ | $ | ||||||
| Disposition of assets, related party | $ | $ | ||||||
| Note issued as SOSRx Contribution | $ | $ | ||||||
| Intangible Asset Contribution from non-controlling interest | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited consolidated financial statements.
| 8 |
NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION
TRxADE
HEALTH, INC. (“we”, “our”, “Trxade”, and the “Company”) owns
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 (d.b.a. Trxade Prime), is a licensed pharmaceutical wholesaler and sells brand, generic and non-drug products to customers. Trxade Prime customers include all healthcare markets including government organizations, hospitals, clinics and independent pharmacies nationwide.
Alliance Pharma Solutions, LLC (d.b.a. DelivMeds) invested in SyncHealth MSO, LLC, a managed services organization, in January 2019, which investment was divested in February 2020. DelivMeds is currently being rebranded and the consumer-based app is still being developed. To date, we have not generated any revenue from this product.
Community Specialty Pharmacy, LLC, is an accredited independent retail pharmacy with a focus on a community-based model offering home delivery services to patients.
On January 20, 2023, the Company entered into Membership Interest Purchase Agreements to sell 100% of the outstanding membership interests of the Company’s subsidiaries, Alliance Pharma Solutions, LLC and Community Specialty Pharmacy, LLC. The Company will receive consideration in the amount of $125,000 for Alliance Pharma Solutions, LLC and $100,000 for Community Specialty Pharmacy, LLC. The Company also agreed to enter into a Master Service Agreement to operate the businesses prior to closing, additional amounts owed to the Company as a result of this Master Service Agreement are estimated to total approximately an aggregate of $266,000 as of the closing date, currently expected to occur on April 30, 2023.
Bonum Health, LLC, was formed to hold certain telehealth assets acquired in October 2019. The “Bonum Health Hub” was launched in February 2020; however, due to the COVID-19 pandemic, the Company does not anticipate installations moving forward. The Bonum Health mobile application is 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.
SOSRx,
LLC was formed on February 15, 2022. The Company entered into a relationship with Exchange Health, LLC, a technology company
providing an online platform for manufacturers and suppliers to sell and purchase pharmaceuticals (“Exchange Health”).
SOSRx LLC, a Delaware limited liability company (“SOSRx”), was formed, which was owned
Basis of Presentation - The accompanying unaudited interim consolidated financial statements of TRxADE HEALTH, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the SEC 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, 2022, as filed with the SEC on March 27, 2023.
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, 2022, as reported in the Company’s Annual Report on Form 10-K have been omitted.
Recently Issued Accounting Pronouncements - In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted ASU 2016-13 effective January 1, 2023. The Company determined that the update applied to trade receivables, but that there was no material impact to the consolidated financial statements from the adoption of ASU 2016-13.
From time to time, new accounting pronouncements are issued by the Financial Accounting Standard Board or other standard setting bodies that the Company adopts as of the specified effective date. The Company does not believe that the impact of recently issued standards that are not yet effective will have a material impact on the Company’s financial position or results of operations upon adoption.
Accounts
Receivable – The Company’s receivables are from customers and are typically collected within 90 days. The Company
determines the allowance based on known troubled accounts, historical experience, and other currently available evidence. During the
three months ended March 31, 2023, and 2022, bad debt expense was a recovery of $
The
Company had an Account Receivable with a single customer, GSG PPE, LLC (“GSG”), for the amount of $
| 9 |
Other
Receivables – The Company’s other receivables balance is from one vendor. On May 20, 2022, effective as of May 18, 2022,
Community Specialty Pharmacy, LLC (“CSP”) entered into an agreement to acquire COVID-19 testing kits from a third-party vendor for an aggregate of $
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. As of March 31, 2023, we
had
| For the Three Months Ended, | ||||||||
| March 31, 2023 | March 31, 2022 | |||||||
| Numerator: | ||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Net loss from discontinued operations | ( | ) | $ | |||||
| Numerator for basic and diluted EPS - income available to common stockholders | ( | ) | $ | ( | ) | |||
| Denominator: | ||||||||
| Denominator for basic and diluted EPS – weighted average shares | ||||||||
| Basic and diluted loss per common share | $ | ( | ) | $ | ( | ) | ||
| Continuing operations | $ | ( | ) | $ | ( | ) | ||
| Discontinued operations | $ | ( | ) | $ | ||||
NOTE 2 – GOING CONCERN
The accompanying interim consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business within one year after the date the consolidated financial statements are issued. In accordance with Financial Accounting Standards Board, or the FASB, Accounting Standards Update No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40), our management evaluates whether there are conditions or events, considered in aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued.
As
of March 31, 2023 the Company had an accumulated deficit of $
NOTE 3- DISPOSITION OF BUSINESS
On and effective on, February 1, 2023, the Company, Exchange Health and SOSRx, entered into a Voluntary Withdrawal and Release Agreement, which was replaced in its entirety and corrected on February 4, 2023 and effective February 4, 2023 (as replaced and corrected, the “Release Agreement”).
As
part of the withdrawal agreement, a note payable to Exchange Health was forgiven in the amount of $
| March 31, 2023 | December 31, 2022 | |||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Total assets of discontinued operations | $ | $ | ||||||
| Accounts payable | $ | $ | ||||||
| Total liabilities of discontinued operations | $ | $ | ||||||
| 10 |
The Agreement qualifies as a discontinued operation in accordance with U.S. GAAP. As a result, operating results and cash flows related to the SOSRx operations have been reflected as discontinued operations in the Company’s consolidated statements of operations, consolidated statements of cash flows and consolidated statements of shareholders’ equity.
| March 31, 2023 | March 31, 2022 | |||||||
| Revenue | ||||||||
| Cost of sales | ||||||||
| General and administrative expense | ( | ) | ( | ) | ||||
| Operating loss | ( | ) | ( | ) | ||||
| Net loss from discontinued operations | ( | ) | ( | ) | ||||
NOTE 4- RELATED PARTY TRANSACTIONS
On
February 15, 2022, the Company entered into a relationship with Exchange Health, a technology company providing an online platform for
manufacturers and suppliers to sell and purchase pharmaceuticals. In connection therewith, SOSRx LLC (“SOSRx”), was formed
in February 2022, which is owned
At March 31, 2023, total related party debt was $.
On and effective on, February 1, 2023, the Company, Exchange Health and SOSRx, entered into a Voluntary Withdrawal and Release Agreement, which was replaced in its entirety and corrected on February 4, 2023 and effective February 4, 2023 (as replaced and corrected, the “Release Agreement”). Pursuant to the Release Agreement, the Company voluntarily withdrew as a member of SOSRx pursuant to the terms of the Operating Agreement of SOSRx, which provided that the Company would withdraw from SOSRx if certain revenue targets were not met, which targets have not been met.
Also pursuant to the Withdrawal Agreement, (a) the Company agreed to the termination of its interests in SOSRx and its withdrawal as a member thereof for no consideration (the “Withdrawal”); (b) the Promissory Note, and all of the Company’s obligations under such Promissory Note were terminated; and (c) the parties agreed that no Earn Out Payments will be due. The Release Agreement also (i) provides that all accumulated losses of SOSRx through December 20, 2022, will be allocated 51%/49% between the Company and Exchange Health; (ii) provides for a total of approximately $15,000 in outstanding invoices owed by the Company to SOSRx to be waived; (iii) includes certain indemnification obligations of SOSRx and Exchange Health; (iv) requires SOSRx to pay certain pre-agreed outstanding invoices of SOSRx; (v) includes mutual releases of the Company and SOSRx and Exchange Health; and (vi) includes customary representations and warranties of the parties.
NOTE 5 – CONTINGENT FUNDING LIABILITIES
On
March 14, 2023, the Company entered into a non-recourse funding agreement with a third-party for the purchase and sale of future receivables
(the “Receivables Agreement”). Pursuant to the Receivables Agreement, the third-party agreed to fund the Company $
On
September 14, 2022, the Company entered into a non-recourse funding agreement with a third-party for the purchase and sale of future
receivables (the “Receivables Agreement”). Pursuant to the Receivables Agreement, the third-party agreed to fund the Company
$
On
June 27, 2022, the Company entered into a non-recourse funding agreement with a third-party funder for the purchase and sale of future
receivables. Pursuant to the Receivables Agreement, the third-party agreed to fund the Company $
The Company’s relationship with the funding source meets the criteria in ASC 470-10-25 – Sales of Future Revenues or Various Other Measures of Income (“ASC 470”), which relates to cash received from a funding source in exchange for a specified percentage or amount of revenue or other measure of income of a particular product line, business segment, trademark, patent or contractual right for a defined period. Under this guidance, the Company recognized the fair value of its contingent obligation to the funding source, as of the acquisition date, as a current liability in its consolidated balance sheet.
Under
ASC 470, amounts recorded as debt are to be amortized under the interest method. The Company made an accounting policy election to utilize
the prospective method when there is a change in the estimated future cash flows, whereby a new effective interest rate is determined
based on the revised estimate of remaining cash flows. The new rate is the discount rate that equates the present value of the revised
estimate of remaining cash flows with the carrying amount of the debt, and it will be used to recognize interest expense for the remaining
period. Under this method, the effective interest rate is not constant, and any change in expected cash flows is recognized prospectively
as an adjustment to the effective yield. As of March 31, 2023 the total contingent funding liability was $
NOTE 6 – STOCKHOLDERS’ EQUITY
2022 Equity Compensation Awards
Effective September 1, 2022, the Board of Directors and Compensation Committee of the Company, with the approval of each of the following officers, agreed to reduce the annual cash compensation payable to Suren Ajjarapu, the Company’s Chief Executive Officer; Prashant Patel, the Company’s President and Chief Operating Officer and Janet Huffman, the Company’s Chief Financial Officer, in an effort to conserve cash.
| 11 |
In lieu of the reduced cash salary payable to each officer, the Board and Compensation Committee agreed to issue such officers shares of the Company’s common stock equal to the amount of reduced cash salary, divided by the closing sales price of the Company’s common stock on the NASDAQ Capital Market on August 31, 2022, the date approved by the Board of Directors. The total amount of shares of common stock issued on August 31, 2022 to the officers was .
The shares of common stock issuable to the officers vest at the rate of 1/4th of such shares on each of September 30, 2022, October 31, 2022, November 30, 2022, and December 31, 2022, subject to each applicable Officer’s continued service to the Company on such dates and subject to the restricted stock award agreements entered into to evidence such awards.
Separately, certain employees of the Company agreed to reduce their cash salaries by an aggregate of $ in consideration for an aggregate of shares of the Company’s restricted common stock, with the same vesting terms as the officer shares discussed above.
Effective
on August 31, 2022, the Board of Directors approved the issuance of shares of common stock of the Company to each independent
member of the Board of Directors, for services rendered to the Company during fiscal 2022, which shares were valued at $
All of the awards discussed above were issued under the Company’s Second Amended and Restated 2019 Equity Incentive Plan (the “Plan”) and all restricted stock awards discussed above were evidenced by Restricted Stock Grant Agreements.
| 12 |
NOTE 7 – PREFUNDED AND PRIVATE PLACEMENT WARRANTS
Simultaneously
with the closing of the stock placement, the investor pre-purchased
NOTE 8 – WARRANTS
For
the three-month period ended March 31, 2023,
warrants were granted, and
expired. For the three-month period ended March 31, 2023, warrants to purchase shares of common stock were exercised for a total purchase price of $
The Company uses the Black-Scholes pricing model to estimate the fair value of stock-based awards on the date of the grant.
There was compensation cost related to the warrants for the three months ended March 31, 2023, and 2022, respectively.
The Company’s outstanding and exercisable warrants as of March 31, 2023, are presented below:
| Number Outstanding | Weighted Average Exercise Price | Contractual Life In Years | Intrinsic Value | |||||||||||||
| Warrants outstanding as of December 31, 2022 | ||||||||||||||||
| Warrants granted | - | - | ||||||||||||||
| Warrants forfeited, expired, cancelled | - | - | ||||||||||||||
| Warrants exercised | - | - | ||||||||||||||
| Warrants outstanding as of March 31, 2023 | ||||||||||||||||
| Warrants exercisable as of March 31, 2023 | ||||||||||||||||
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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 shares, and the Company’s Second Amended and Restated 2019 Equity Incentive Plan provides for automatic increases in the number of shares available under such plan (currently shares) on April 1st of each calendar year, .
For the three-month period ended March 31, 2023, options to purchase shares were granted, were forfeited, and expired. For the three-month period ended March 31, 2023, options to purchase shares of common stock were exercised.
Total compensation cost related to stock options granted was $ and $ for the three-months ended March 31, 2023, and 2022, respectively.
| Number Outstanding | Weighted-Average Exercise Price | Weighted-Average Contractual Life in Years | Intrinsic Value | |||||||||||||
| Options outstanding as of December 31, 2022 | $ | $ | ||||||||||||||
| Options exercisable as of December 31, 2022 | ||||||||||||||||
| Options granted | - | |||||||||||||||
| Options forfeited | - | - | ||||||||||||||
| Options expired | - | - | ||||||||||||||
| Options exercised | - | - | ||||||||||||||
| Options outstanding as of March 31, 2023 | ||||||||||||||||
| Options exercisable as of March 31, 2023 | ||||||||||||||||
| 14 |
NOTE 10 – CONTINGENCIES
Studebaker Defense Group, LLC
In
July 2020, the Company’s wholly-owned subsidiary, Integra Pharma Solutions, LLC (“Integra”), entered into an agreement
with Studebaker Defense Group, LLC (“Studebaker”) wherein Integra would pay Studebaker a down payment of $
Sandwave Group Dsn Bhd and Crecom Burj Group SDN BHD
In
August 2020, Integra, entered into an agreement with Sandwave Group Dsn Bhd (“Sandwave”), wherein Integra would pay Sandwave
a down payment of $
GSG PPE, LLC
On
November 19, 2021, Integra filed a complaint against GSG PPE, LLC (“GSG”) and Gary Waxman (“Waxman”), the owner,
alleging three counts of breach of contract for a purchase agreement, a promissory note, and a personal guaranty. Collectively, the company
alleges that GSG and Waxman have materially breached all three contracts. In late 2020, GSG and Integra executed a valid initial contract
setting the terms of a business transaction. GSG failed to pay Integra approximately 75% of the amount owed to Integra. GSG acknowledged
it owed the money and executed a promissory note in favor of Integra in the amount of $
Jain, et al., v. Memantine, et al.
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.
On
May 14, 2021, Plaintiffs filed a second amended complaint against the defendants. The second amended complaint alleges causes of action
against the defendants including securities fraud, breach of fiduciary duty, violation of the Florida RICO Act, and breach of contract.
The operative complaint relates to certain investments alleged to have been made by the plaintiffs in Nexgen Memantine and certain alleged
transfers of assets and funds alleged to have been taken by the defendants which are unrelated to the Company. The amended complaint
seeks injunctive relief, $
In
February 2022, a settlement as to Suren Ajjarapu, Annapurna Gundlapalli and the Company was reached and signed. This settlement involved
no admission of liability and a full and complete release of all actions after a lump-sum payment of $
| 15 |
NOTE 11 – 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 | ||||||||
| Renewal Term | ||||||||
| Initial Recognition of right-of-use assets at January 1, 2019 | $ | $ | ||||||
| Incremental Borrowing Rate | % | % | ||||||
The
Company entered into a new corporate office lease (Lease 1) on January 1, 2022. The Company determined that entering into a new lease
required remeasurement of the lease liability resulting in the increase of the right-of-use asset and the associated lease liability
by $
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, 2023.
| Amounts due within twelve months of March 31, | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total minimum lease payments | ||||
| Less: effect of discounting | ( | ) | ||
| Present value of future minimum lease payments | ||||
| Less: current obligations under leases | ||||
| Long-term lease obligations | $ | |||
The
difference to the balance sheet above is due to the current and long-term remaining lease obligations of the copier operating lease not
included in the amount of $
For
the three-months ended March 31, 2023, and 2022, amortization of Right of Use Assets was $
| 16 |
NOTE 12 – SEGMENT REPORTING
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.
The Company classifies its business interests into reportable segments which are:
| ● | Trxade, Inc. - Web based pharmaceutical marketplace platform – B2B sales | |
| ● | CSP - Community Specialty Pharmacy, LLC – Licensed retail pharmacy – B2C sales | |
| ● | Integra - Integra Pharma, LLC - Licensed wholesaler of brand, generic and non-drug products – B2B sales | |
| ● | Unallocated - Other – corporate overhead expense, Alliance Pharma Solutions, LLC and Bonum Health, LLC |
| Three Months Ended March 31, 2023 | Trxade, Inc. | CSP | Integra | Unallocated | Total | |||||||||||||||
| Revenue | $ | $ | $ | $ | $ | |||||||||||||||
| Gross Profit | ||||||||||||||||||||
| Segment Assets | ( | ) | ||||||||||||||||||
| Segment Profit/Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Cost of Sales | $ | $ | $ | $ | $ | |||||||||||||||
| Three Months Ended March 31, 2022 | Trxade, Inc. | CSP | Integra | Unallocated | Total | |||||||||||||||
| Revenue | $ | $ | $ | $ | $ | |||||||||||||||
| Gross Profit | ( | ) | ||||||||||||||||||
| Segment Assets | ( | ) | ||||||||||||||||||
| Segment Profit/Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Cost of Sales | $ | $ | $ | $ | $ | |||||||||||||||
NOTE 13 – SUBSEQUENT EVENTS
As
previously disclosed in a Current Report on Form 8-K, filed by the Company with the Securities and Exchange Commission (the “SEC”)
on August 1, 2022, on July 29, 2022, the Company received a letter from The Nasdaq Stock Market LLC (“Nasdaq”) notifying
the Company that it was not in compliance with the minimum $
A
hearing before the Panel was held on March 23, 2023, at which the Company presented a plan to regain compliance with the Rule that included
an underwritten public offering of Company securities of up to $
On April 13, 2023, a settlement
was reached in the Studebaker Defense Group LLC. and Integra Pharma Solutions, LLC. legal case. The court found in favor of Integra Pharma
Solutions and ordered Studebaker Defense Group, LLC. to pay $
| 17 |
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 Information – Item 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, 2022, filed with the SEC on March 27, 2023 (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.
Unless the context requires otherwise, references to the “Company,” “we,” “us,” “our,” and “Trxade”, refer specifically to TRxADE HEALTH, INC. and its consolidated subsidiaries. References to “Q1”, “Q2”, “Q3”, and “Q4” refer to the first, second, third, and fourth quarter, respectively, of the applicable year. Unless otherwise stated or the context otherwise requires, comparisons from one period to another are to the same period of the prior fiscal year.
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; | |
| ● | “Securities Act” refers to the Securities Act of 1933, as amended. |
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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:
| ● | Company Overview. Discussion of our business and overall analysis of financial and other highlights affecting us, to provide context for the remainder of MD&A. | |
| ● | Recent Events. Summary of material transactions occurring during the three months ended March 31, 2023. | |
| ● | 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, 2023, and 2022. | |
| ● | 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
TRxADE HEALTH is a technology-enabled health services platform. Through our subsidiary companies we focus on digitalizing the retail pharmacy and health services experience by optimizing drug procurement, the prescription journey, access to physicians in the patient’s home and patient engagement in the U.S.
Our services provide pricing transparency, purchasing capabilities and other value-added services on a single platform focused on serving the nation’s approximately 19,397 independent pharmacies with annual purchasing power of $67.1 billion (according to the National Community of Pharmacists Association’s 2021 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 14,100+ registered members on our sales platform.
The Company changed its name on June 1, 2021, from “Trxade Group, Inc” to “TRxADE HEALTH, INC.”. TRxADE HEALTH, INC. owns 100% of Trxade, Inc., Integra Pharma Solutions, LLC (formerly Pinnacle Tek, Inc.), Alliance Pharma Solutions, LLC, Community Specialty Pharmacy, LLC, and Bonum Health, LLC. Trxade, Inc. is a web-based market platform that enables commerce among healthcare buyers and sellers of pharmaceuticals, accessories and services.
On January 20, 2023, the Company entered into Membership Interest Purchase Agreements to sell 100% of the outstanding membership interests of Alliance Pharma Solutions, LLC and Community Specialty Pharmacy, LLC.
On February 15, 2022, the Company entered into a relationship with Exchange Health, LLC, a technology company providing an online platform for manufacturers and suppliers to sell and purchase pharmaceuticals (“Exchange Health”). SOSRx LLC, the created entity relating to the relationship, a Delaware limited liability company, was formed in February 2022, and was owned 51% by the Company and 49% by Exchange Health (“SOSRx”).
On February 4, 2023, and effective as of February 1, 2023, the Company entered into a Voluntary Withdrawal and Release Agreement, (the “Release Agreement”). Pursuant to the Release Agreement, (a) the Company voluntarily withdrew as a member of SOSRx pursuant to the terms of the Operating Agreement of SOSRx, (b) the Company’s interests in SOSRx were terminated; (c) the Company’s promissory note in favor of SOSRx was canceled; and (d) the parties agreed that no earn out payments will be due.
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TRxADE Inc
Trxade.com is a web-based pharmaceutical marketplace engaged in promoting and enabling commerce among independent pharmacies, small chains, hospitals, clinics and alternate dispensing sites with large pharmaceutical suppliers nationally. Our marketplace has over 72 national and regional pharmaceutical suppliers providing over 120,000 branded and generic drugs, including over the counter drugs and drugs available for purchase by pharmacists. We generate revenue from these services by charging a transaction fee to the seller of the products for sales conducted on the Trxade platform. The buyers do not bear the cost of transaction fees for the purchases that they make, nor do they pay a fee to join or register with our platform. Our core service has the goal of bringing the nation’s independent pharmacies and accredited national suppliers of pharmaceuticals together to provide efficient and transparent buying and selling opportunities.
As of March 31, 2023, the TRxADE platform increased its registered users by 1,149 or 9% compared to March 31, 2022. For the three months ended March 31, 2023, new registrations were 291 compared to 339 for the same period in 2022. As of March 31, 2023, total registered users were approximately 14,100+ compared to 12,962 at March 31, 2022.
The table below summarizes the key metrics that management evaluated in relation to the activity on the Trxade platform for the three-month period ended March 31, 2023 compared to the same period in 2022:
| Processed Sales Volume | 7 | % |  | ||
| Total Revenue | 4 | % | | ||
| Registered Users | 8 | % | |
Integra Pharma Solutions, LLC
Integra Pharma Solutions, LLC (“Trxade Prime”) is a licensed wholesaler of brand, generic and non-drug products to customers. Trxade Prime takes orders for products, creates invoices for each order and recognizes revenue at the time the customer receives the product. We utilize “just in time” inventory and drop ship partnerships to ship orders to customers. The focus of Trxade Prime is to be the pharmaceutical supplier of choice for healthcare organizations of all sizes. Our expertise in the distribution of products extends to all healthcare markets including government organizations, hospitals, clinics, and independent pharmacies nationwide.
| 20 |
Community Specialty Pharmacy, LLC
Community Specialty Pharmacy, LLC (“CSP”) is a licensed retail pharmacy. CSP was founded in 2010 with a goal of providing customer care at a level above and beyond anything the market had experienced before. CSP has carved a niche in the competitive independent pharmacy industry with its patient-driven approach. As discussed below, we have started a process to explore strategic alternatives for CSP, as well as our other business-to-consumer (B2C) subsidiaries.
Alliance Pharma Solutions, LLC
Alliance Pharma Solutions, LLC, a.k.a. DelivMeds, (“DelivMeds”) was established in 2018 as a digital option to traditional prescription delivery. DelivMeds is currently being rebranded and the digital technology continues to be developed. DelivMeds has generated no revenue and we continue to incur significant technology expenses. For fiscal 2022 we incurred approximately $450,845 of research and development expense which was capitalized beginning January 2022 in line with GAAP guidance. For the three-month period ended March 31, 2023 there was $87,072 research and development expense capitalized. As discussed above, we entered into a Membership Purchase Agreement in January of 2023 to sell 100% of the outstanding membership interests of Alliance Pharma Solutions, LLC and Community Specialty Pharmacy, LLC.
Bonum Health, LLC
Our Bonum Health, LLC (“Bonum”) operations were acquired in October of 2019. Bonum is a digital healthcare technology platform focused on making healthcare affordable, accessible and convenient through Telehealth services. Patients can use the Bonum Health mobile app or website to access board-certified medical providers, for non-emergent services. As of May 2022, Bonum also announced agreements to offer telehealth veterinary services. Additional services also available include Men’s and Women’s Health, Dermatology, Pediatrics and Ophthalmology in the comfort of their home or from anywhere. These services can be affordably accessed by the under-insured, non-insured and under-served communities seeking access to essential healthcare services. For employers, Bonum provides Telehealth solutions allowing employers to provide convenient and affordable health coverage to their employees without requiring health insurance. Our Bonum health subsidiary provides affordable access to medical professionals in the patient’s home. As discussed below, we have started a process to explore strategic alternatives for Bonum, as well as our other business-to-consumer (B2C) subsidiaries.
SOSRx, LLC
On February 15, 2022, the Company entered into a relationship with Exchange Health, LLC. On February 4, 2023, a voluntary withdrawal agreement was signed by both parties.
| 21 |
As shown in our results of operations below, to date we have 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, certain technology outsourcing in India and the Philippines and finding qualified staff 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 challenges. 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 continued 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 was closed through December 31, 2021. The office reopened for our management team on January 3, 2022, while our remaining employees will continue to work remotely until further notice.
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. We may also raise additional funding in the future through sales of debt or equity, similar to our recently completed offering.
Recent Events
As previously disclosed in the Current Report on Form 8-K, filed by the Company with the SEC on August 1, 2022, on July 29, 2022, the Company received a letter from Nasdaq notifying the Company that it was not in compliance with the minimum $2,500,000 stockholders’ equity requirement in Nasdaq Listing Rule 5550(b)(1) (the “Rule”) for continued listing on the Nasdaq Capital Market, and did not meet the alternative listing requirements under Nasdaq Listing Rule 5550(b). On October 17, 2022, Nasdaq granted the Company’s request for an extension until January 25, 2023, to regain compliance with this requirement.
On January 30, 2023, the Company received a delist determination letter from Nasdaq advising the Company that Nasdaq had determined that the Company did not meet the terms of the extension. Specifically, the Company did not complete its proposed transactions and was unable to file a Current Report on Form 8-K by January 25, 2023, evidencing compliance with the Rule.
On February 6, 2023, the Company submitted a hearing request to the Nasdaq Hearings Panel (the “Panel”), which request stayed any delisting action by Nasdaq at least until the hearing process concludes and any extension granted by the Panel expires.
A hearing before the Panel was held on March 23, 2023, at which the Company presented a plan to regain compliance with the Rule that included an underwritten public offering of Company securities of up to $15,000,000 and expense reductions. On April 5, 2023, the Company received a letter from Nasdaq advising the Company that the Panel was granting the Company’s request for an exception to permit the continued listing of the Company’s stock on the Nasdaq Capital Market while it completes a public offering of its Company securities up to $15,000,000. The Panel’s grant of the Company’s request for continued listing is subject to the conditions that (i) on or before April 15, 2023, the Company must advise the Panel on the status of the filing of an S-1 registration statement for the offering, and (ii) on or before June 21, 2023, the Company must demonstrate compliance with the Rule.
Plans For B2C Subsidiaries Moving Forward
In April of 2022 the Board of Directors and the Chief Executive Officer of the Company authorized the exploration of strategic alternatives for the Company’s Bonum Health, LLC subsidiary. The Board will consider a wide range of options for these B2C subsidiaries including, among other things, a potential sale, spin-off, fund raising, combination or other strategic transaction which may also include the winding down. No final determinations regarding potential strategic alternatives for these have been made to date.
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Liquidity and Capital Resources
Cash
Cash was $1,194,079 at March 31, 2023, compared to $1,133,633 as of December 31, 2022. The increase in cash was mainly due to an advance on future accounts receivable in the amount of $875,000, 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, 2023 | December 31, 2022 | Change | Percent Change | |||||||||||||
| Cash | $ | 1,194,079 | $ | 1,133,633 | $ | 60,446 | 5 | % | ||||||||
| Current assets (excluding cash) | 1,192,034 | 959,490 | 232,544 | 24 | % | |||||||||||
| Current liabilities (excluding short term debt) | 2,550,148 | 1,980,124 | 570,024 | 29 | % | |||||||||||
| Short term debt (notes payable related party) | - | 166,667 | (166,667 | ) | (100 | )% | ||||||||||
| Working capital | (164,035 | ) | (53,668 | ) | (110,367 | ) | 206 | % | ||||||||
Our principal sources of liquidity have historically been cash provided by operations, sales of equity, and borrowings under various debt arrangements. Our principal uses of cash have been for operating expenses, technology development, and acquisitions. We anticipate these uses will continue to be our principal sources of, and uses of, cash in the future.
The increase in cash as of March 31, 2023, compared to December 31, 2022, was primarily due to the sale of future receivables that increased cash by approximately $875,000, see NOTE 5 – CONTINGENT FUNDING LIABILITIES, and increased revenues that were partially offset by expenses as noted below:
| ● | Salaries and Wages of $906,000; | |
| ● | Professional Fees of $0.14 million; |
Liquidity Outlook cash explanation
Cash Requirements
Our primary objectives for the remainder of 2023 are to take steps in an effort to increase our client base and operational revenue on our Trxade Inc. and Trxade Prime platforms, and to complete potential strategic transactions of our business-to-consumer subsidiaries, which may include a potential sale, spin-off, fund raising, combination or other strategic transaction, and also include the winding down of such entities. 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 may also raise additional funding in the future through the sale of equity.
We estimate our operating expenses and working capital requirements for the next 12 months to be approximately as follows:
| Projected Expenses from April 2023 to March 2024 | Amount | |||
| General and administrative (1) | $ | 8,000,000 | ||
| Total | $ | 8,000,000 | ||
(1) Includes estimated wages and payroll, legal and accounting, marketing, rent and web development.
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We will still require additional funding in the future to support our operations.
Cash Flows
The following table summarizes our Consolidated Statements of Cash Flows for the following periods:
| Three Months Ended, | ||||||||||||||||
| March 31, 2023 | March 31, 2022 | Change | Percent Change | |||||||||||||
| Net loss | $ | (677,953 | ) | $ | (965,836 | ) | $ | 287,883 | (30 | )% | ||||||
| Net cash provided by (used in): | ||||||||||||||||
| Net cash used in operating activities from continuing operations | (899,898 | ) | (1,002,381 | ) | 102,483 | 10 | % | |||||||||
| Net cash used in operating activities from discontinued operations | (31,633 | ) | 1,610 | (33,243 | ) | (2,065 | )% | |||||||||
| Operating Activities | (931,531 | ) | (1,000,771 | ) | 69,240 | 7 | % | |||||||||
| Net cash used in investing activities from continuing operations | (87,072 | ) | 23,000 | (110,072 | ) | 479 | % | |||||||||
| Net cash provided by investing activities from discontinued operations | 420,269 | - | 420,269 | 100 | % | |||||||||||
| Investing Activities | 333,197 | 23,000 | 310,197 | 1,349 | % | |||||||||||
| Net cash provided by financing activities from continuing operations | 681,257 | 875 | 680,382 | 77,758 | % | |||||||||||
| Net cash used in financing activities from discontinued operations | - | (275,000 | ) | 275,000 | 100 | % | ||||||||||
| Financing Activities | 681,257 | (274,125 | ) | 955,382 | (349 | )% | ||||||||||
| Net change in cash | $ | 82,923 | $ | (1,251,896 | ) | $ | 1,334,189 | 107 | % | |||||||
Cash used in operations for the three months ended March 31, 2023, was $931,531, compared to cash used in operations for the three months ended March 31, 2022, of $1,000,771. The decrease in cash used in operations for the three months ended March 31, 2023, compared to March 31, 2022, was mainly due to decreased salaries and wages and accounting and legal expenses for the comparable periods.
Cash provided by investing activities for the three months ended March 31, 2023, was $333,197 and $23,000 for the three months ended March 31, 2022. The increase in cash provided by investing activities is related to the capitalization of software and development costs and the discontinuation of SOSRx.
Cash provided by financing activities for the three months ended March 31, 2023, was $681,257 compared to cash used for financing activities for the three months ended March 31, 2022, which was $274,125. The difference was due to the $825,000 receivables funding obtained in March 2023; offset by repayments of $143,750 on the advance and the termination of the agreement with SOSRx.
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.
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Three Month Period Ended March 31, 2023, compared to Three Month Period Ended March 31, 2022
| Three Months Ended March 31, | Percentage | |||||||||||||||
| 2023 | 2022 | Change | Change | |||||||||||||
| Revenues | $ | 2,247,750 | $ | 3,240,272 | (992,522 | ) | (30.6 | )% | ||||||||
| Cost of sales | 690,670 | 1,904,569 | (1,213,899 | ) | (63.7 | )% | ||||||||||
| Gross profit | 1,557,080 | 1,335,703 | 221,377 | 16.6 | % | |||||||||||
| Operating expenses: | ||||||||||||||||
| Technology, research & development | 233,286 | 245,785 | (12,499 | ) | (5.1 | )% | ||||||||||
| Wages and salary | 905,901 | 1,069,958 | (164,057 | ) | (15.3 | )% | ||||||||||
| Accounting and legal | 248,217 | 236,221 | 11,996 | 5.1 | % | |||||||||||
| Professional fees | 139,661 | 101,009 | 38,652 | 38.3 | % | |||||||||||
| Other general and administrative (less stock-based compensation expense) | 299,500 | 586,436 | (286,936 | ) | (48.9 | )% | ||||||||||
| Warrants and options expense | 77,921 | 64,866 | 13,055 | 20.1 | % | |||||||||||
| Total operating expenses | 1,904,486 | 2,304,275 | (399,789 | ) | (17.3 | )% | ||||||||||
| Change in fair value of warrant liability | 79,891 | - | 79,891 | 100 | % | |||||||||||
| Interest, net | (58,194 | ) | (1,364 | ) | (56,830 | ) | 4166.4 | % | ||||||||
| Gain on disposal of asset | - | 4,100 | (4,100 | ) | 100 | % | ||||||||||
| Net Loss from operations | $ | (325,709 | ) | $ | (965,836 | ) | $ | 640,127 | 66.28 | % | ||||||
| Loss on discontinued operations | $ | (352,244 | ) | - | 499,306 | 100.00 | % | |||||||||
| Net loss attributable to TRxADE Health, Inc. | (677,953 | ) | (960,147 | ) | 282,194 | (29.4 | )% | |||||||||
| Net loss attributable to non-controlling interests | - | (5,689 | ) | 5,689 | 100.00 | % | ||||||||||
Our revenues for the three months ended March 31, 2023, were from the Trxade platform, Community Specialty Pharmacy, Integra Pharma Solutions and Bonum Health. Revenues decreased by $992,522, compared to the same period ended March 31, 2022. Trxade Inc revenue generated from platform sales increased 6% and revenue generated by Trxade Prime decreased approximately 11% for the three months ended March 31, 2023 compared to the same period ended March 31, 2022. The decrease in revenue for Trxade Prime is related to decreased sales, see “Company Overview - Integra Pharma Solutions”.
For the three-month period ended March 31, 2023, cost of goods sold and gross profit were $690,670 and $1,557,080, respectively, and $1,904,569 and $1,335,703, respectively for the same period in 2022. Gross profit as a percentage of sales was 69% for the three months ended March 31, 2023, compared to 41% for the three months ended March 31, 2022. The increase in gross profit is a result of increased revenue generated by the Trxade platform that has no cost of goods expense and the improved gross margins generated by Trxade Prime in the three-month period ended March 31, 2023.
General and administrative expenses (less stock-based compensation expense) decreased for the three months ended March 31, 2023, to $299,500 compared to $586,436 for the comparable period in 2022. The decrease was mainly due to an additional $630,000 bad debt expense recorded in the three-month period ended September 30, 2021 related to the GSG receivable.
We had interest expense, net of $58,194 for the three months ended March 31, 2023, compared to interest expense of $1,364 for the three months ended March 31, 2022. The reason for the increase was the repayments of the accounts receivable advances taken in 2022, off set by interest income from the GSG legal settlement (see discussion above under “Recent Events”).
Net loss decreased $287,883 to a net loss of $677,953 for the three months ended March 31, 2023, compared to a net loss of $965,836 for the three months ended March 31, 2022. The decrease in net losses is mainly driven by expense reduction initiatives implemented by management starting in July of 2022. For the three-month period ended March 31, 2023, the following expenses were reduced:
| ● | Technology expense of approximately $13,000; | |
| ● | Salary and wages expense of approximately $164,000; | |
| ● | Warrant and Options expense of approximately $13,000. |
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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”). Trxade, Inc. 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 Trxade, Inc. Trxade, Inc. holds no inventory and assumes no responsibility for the shipment or delivery of any products or services from our website. Trxade, Inc. 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 Trxade, Inc. 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 – Trxade, Inc. 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.
SoSRx provides pharmaceutical manufacturers with an efficient platform in which to divest short-dated, overstock, and slow-moving products to direct purchasers. SoSrx’s proprietary method researches the current market, allowing the manufacturer to list the optimal selling price for their products. Manufacturers list their short-dated overstock and slow-moving products by lot with pictures and descriptions. The manufacturer then determines which vetted and registered customers can bid on or outright purchase their products.
Once products from a manufacturer have been entered into SoSRx’s platform, a bid cycle begins. Each bid cycle is 3 days. Each buyer (wholesaler, distributor or chain) will have 3 options. The options are buy now, bid, or pass. In the buy now option the manufacturer has an established price in which they would sell the product. The bid option allows the buyers to put in a price if they value the product and at the end of the bid cycle the manufacturer has several options. The manufacturer can accept the highest bidder if the buyer has met the minimum bid requirement, counter if the bid is below the minimum bid requirement or begin a negotiation to an agreed upon price or accepted bid, regardless of minimum bid requirement. The fourth option is to decline.
If one of the four options described above, except decline, have been selected a committed offer is generated in the system. The buyer then submits a purchase order to the manufacturer. The manufacturer then processes the purchase order and sends the product directly to the buyer. This is when revenue is recognized as a transaction fee. At no point does SoSRx take possession of the inventory. SoSRx bills the manufacturer per committed offer at a fee percentage of total offer value.
Integra Pharma Solutions, LLC (“Trxade Prime”) is a licensed wholesaler of brand, generic and non-drug products to Customers. Integra LLC 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 – Integra LLC 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 Integra LLC. 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 (“CSP”) is a licensed retail pharmacy. CSP 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 CSP. The prescription identifies the performance obligations in the contract. CSP 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 CSP prior to filling 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.
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Bonum, LLC is a telehealth company that provides services to its subscribers. We derive our revenues from subscription-based services through our mobile application on a business-to-business or business-to-customer models. Business-to-business – Organizations contract with Bonum to provide tele-health services to their members on a per-member basis. Organizations are invoiced by Bonum, and revenue is recognized as services are provided each month. Bonum also generates revenues through business-to-customer relationships, where customers can download and subscribe to the Bonum mobile application on their digital device. Subscriptions can be monthly, annual or per encounter. Revenue is recognized as it is earned. Deferred revenue is recorded for unearned subscriptions income and recognized in the financial statements in the period earned.
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 I. - ITEM 1. FINANCIAL STATEMENTS”.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Because we are a smaller reporting company, we are not required to provide the information required by this Item.
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 Patel, 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, 2023, 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.
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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 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.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
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, 2023, 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 Quarterly Report on Form 10-Q from, “PART I – ITEM 1. FINANCIAL STATEMENTS” in the Notes to Consolidated Financial Statements in “NOTE 8 – CONTINGENCIES”. 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, 2022, filed with the SEC on March 27, 2023 (the “Form 10-K”), under the heading “Risk Factors”, 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, 2022, 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.
Risks Relating to Our Business:
We need additional capital which may not be available on commercially acceptable terms, if at all, which creates substantial doubt about our ability to continue as a going concern.
Our historical financial statements have been prepared under the assumption that we will continue as a going concern. As of March 31, 2023, the Company had an accumulated deficit of $19.9 million. We have limited financial resources, as of March 31, 2023, we had working capital deficit of $0.3 million and a cash balance of $1.2 million. We will need to raise additional capital or secure debt funding to support on-going operations. The sources of this capital are expected to be the sale of equity and debt, 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, our financial position, and liquidity. These matters, when considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time, which is defined as within one year after the date that our condensed financial statements are issued. The financial herein do not contain any adjustments to reflect the possible future effects on the classification of assets or the amounts and classification of liabilities that might result from the outcome of this uncertainty. The doubt regarding our potential ability to continue as a going concern may adversely affect our ability to obtain new financing on reasonable terms or at all. Additionally, if we are unable to continue as a going concern, our stockholders may lose some or all of their investment in the Company.
Additional financing may not be available to us when needed or, if available, it may not be obtained on commercially reasonable terms. If we are not able to obtain the necessary additional financing on a timely or commercially reasonable basis, we will be forced to delay or scale down some or all of our development activities (or perhaps even cease the operation of our business). Our access to additional capital may be negatively affected by future recessions, downturns in the economy or the markets as a whole, or inflation.
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We have no commitments for any additional financing and such commitments may not be obtained on favorable terms, if at all. Any additional equity financing will be dilutive to our stockholders, and debt financing, if available, may involve restrictive covenants with respect to dividends, raising future capital, and other financial and operational matters. If we are unable to obtain additional financing as needed, we may be required to reduce the scope of our operations or our anticipated expansion, which could have a material adverse effect on us.
Our industry and the broader US economy have experienced higher than expected inflationary pressures in 2022 and the first quarter of 2023, related to continued supply chain disruptions, labor shortages and geopolitical instability. Should these conditions persist our business, results of operations and cash flows could be materially and adversely affected.
The first three quarters of 2022 and the first quarter of 2023 have seen significant increases in the costs of certain materials, products and shipping costs, as a result of availability constraints, supply chain disruption, increased demand, labor shortages associated with a fully employed US labor force, high inflation and other factors. Supply and demand fundamentals have been further aggravated by disruptions in global energy supply caused by multiple geopolitical events, including the ongoing conflict between Russia and Ukraine. Service, materials and shipping costs have also increased accordingly with general supply chain and inflation issues seen throughout the United States leading to increased operating costs. Recent supply chain constraints and inflationary pressures may continue to adversely impact our operating costs and may negatively impact our ability to procure and ship products in a timely and cost-effective manner, if at all, which could result in reduced margins and lack of products and, as a result, our business, financial condition, results of operations and cash flows could be materially and adversely affected.
Upon the occurrence of an event of default under our Receivables Agreement, our cash flows may be adversely affected.
On March 4, 2023, June 27, 2022 and September 14, 2022, the Company entered into non-recourse funding agreements with the same third-party funder for the purchase and sale of future receivables (the “Receivables Agreements”), Pursuant to the Receivables Agreements, the third-party agreed to fund the Company on June 27, 2022 $550,000 to purchase $792,000 of future receivables; and fund the Company again on September 14, 2022 $275,000 to purchase $396,000 of future receivables and again on March 4, 2023 $850,000 to purchase $1,224,000. Under the Receivables Agreements, the third-party receives a priority interest in the receivables of Trxade Inc. The Company also paid $42,500, $27,500 and $15,000 as origination fees in connection with the Receivables Agreements. The Receivables Agreements also allows for the third-party funder to file UCCs securing their interest in the receivables and includes customary events of default,
Upon the occurrence of an event of default under the Receivables Agreement, we are required to pay the third-party funder 100% of future receivables equal to the entire purchased amount. While the Receivables Agreement is in place, we are prohibited from selling any other receivables. As a result, if an event of default occurs under the Receivables Agreement, 100% of our sales revenue would be required to be paid until such time as the amount owed under the Receivables Agreement is paid in full. If this were to occur, our cash flows would be adversely affected and we may not have sufficient liquidity to pay our debt obligations and expenses, may be forced to raise additional funds which may not be available on favorable terms, if at all, and may be forced to curtail certain of our business activities, any of which may cause the value of our securities to decline in value.
Risks Relating to our Securities:
The Private Placement Warrants are accounted for as liabilities and the changes in fair value of such Private Placement Warrants may have a material effect on our financial results.
It is the opinion of management and our auditors that because of the terms of such Private Placement Warrants, such Private Placement Warrants should be accounted for as liability instruments.. Under the liability accounting treatment, the Company would be required to measure the fair value of these instruments at the end of each reporting period and recognize changes in the fair value from the prior period in the Company’s operating results for the current period. As a result of the recurring fair value measurement, our financial statements and results of operations may fluctuate quarterly based on factors which are outside our control. The Private Placement Warrants are required to be accounted for under liability accounting treatment, we will recognize noncash gains or losses due to the quarterly fair valuation of these warrants which could be material. The impact of changes in fair value on our earnings may have an adverse effect on the market price of our common stock and/or our stockholders’ equity, which may make it harder for us to, or prevent us from, meeting the continued listing standards of The Nasdaq Capital Market.
We are currently prohibited from filing any new registration statements on Form S-3 and effective upon the date that our Annual Report on Form 10-K for the year ended December 31, 2022 was filed with the SEC, we are prohibited from using our Shelf Form S-3 until at least October 2023.
Due to our inadvertent failure to timely file a Current Report on Form 8-K, we are currently prohibited from using Form S-3 to register securities with the SEC. Separately, effective on March 27,2023, the date that we filed our Annual Report on Form 10-K for the year ended December 31, 2022, our ability to use our previously effective shelf Form S-3, was suspended until at least October 2023. As a result, we will be required to use Form S-1, a longer-form registration statement for future offerings, and are prohibited, until at least October 2023, from undertaking at-the-market offerings.
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Future sales of our common stock could cause our stock price to decline.
If our stockholders sell substantial amounts of our common stock in the public market, the market price of our common stock could decrease significantly. The perception in the public market that our stockholders might sell shares of our common stock could also depress the market price of our common stock. Up to $100,000,000 in total aggregate value of securities have been registered by us on a “shelf” registration statement on Form S-3 (File No. 333-266432) that we filed with the Securities and Exchange Commission on July 29, 2022, and which was declared effective on August 8, 2022. There is an aggregate of over $97 million in securities which are eligible for sale in the public markets from time to time, subject to the requirements of Form S-3, which limits us, until such time, if ever, as our public float exceeds $75 million, from selling securities in a public primary offering under Form S-3 with a value exceeding more than one-third of the aggregate market value of the common stock held by non-affiliates of the Company every twelve months. Additionally, if our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the trading price of our common stock could decline significantly. The market price for shares of our common stock may drop significantly when such securities are sold in the public markets. A decline in the price of shares of our common stock might impede our ability to raise capital through the issuance of additional shares of our common stock or other equity securities.
We are not currently in compliance with Nasdaq’s continued listing standards and may not be able to maintain the listing of our common stock on the Nasdaq Capital Market.
Our common stock was approved for listing on The Nasdaq Capital Market under the symbol “MEDS”, in February 2020. On July 29, 2022, the Company received a letter from The Nasdaq Stock Market LLC (“Nasdaq”) notifying us that we are not in compliance with the minimum stockholders’ equity requirement for continued listing on the Nasdaq Capital Market. Nasdaq Listing Rule 5550(b)(1) requires companies listed on the Nasdaq Capital Market to maintain stockholders’ equity of at least $2,500,000. In the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, we reported stockholders’ equity of $1,804,533, which is below the minimum stockholders’ equity required for continued listing pursuant to Nasdaq Listing Rule 5550(b)(1) (the “Rule”). Nasdaq gave us until September 12, 2022 to submit to Nasdaq a plan to regain compliance, and we submitted a compliance plan prior to that deadline.
We submitted the plan to regain compliance in a timely manner, and on October 17, 2022, Nasdaq advised the Company that it has determined to grant the Company an extension to regain compliance with the Rule.
The terms of the extension are as follows: on or before January 25, 2023, the Company must complete certain contemplated transactions which the Company has advised Nasdaq will allow it to re-meet the requirements of the Rule (including the public sale of $1.75 million of common stock (or pre-funded warrants), which transaction was completed on October 7, 2022), and opt for one of the two following alternatives to evidence compliance with the Rule: Alternative 1, completion of a transaction or event that enabled the Company to satisfy the stockholders’ equity requirement for continued listing, and disclosure of that event, along with certain other information, in a public filing with the SEC, including that as of the date of the report, the Company believes it has regained compliance with the stockholders’ equity requirement and a disclosure stating that Nasdaq will continue to monitor the Company’s ongoing compliance with the stockholders’ equity requirement; or Alternative 2, completion of a transaction or event that enabled the Company to satisfy the stockholders’ equity requirement for continued listing, and disclosure of that event, along with certain other information, in a public filing with the SEC, including pro forma adjustments and a pro forma balance sheet must evidence compliance with the Rule, and disclosure that the Company believes it has regained compliance with the stockholders’ equity requirement and a disclosure stating that Nasdaq will continue to monitor the Company’s ongoing compliance with the stockholders’ equity requirement. Additionally, in either case the Company is required to disclose that if at the time of its next periodic report, the Company does not evidence compliance, that it may be subject to delisting.
Regardless of which alternative the Company chooses, if the Company fails to evidence compliance upon filing its next periodic report with the SEC and Nasdaq, the Company may be subject to delisting. In the event the Company does not satisfy these terms, Nasdaq will provide written notification that its securities will be delisted. At that time, the Company may appeal Nasdaq’s determination to a Hearings Panel.
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There is also no guarantee that we will be able to maintain our listing on The Nasdaq Capital Market for any period of time by perpetually satisfying Nasdaq’s continued listing requirements. Our failure to continue to meet these requirements may result in our securities being delisted from Nasdaq.
Among the conditions required for continued listing on The Nasdaq Capital Market, Nasdaq requires us to maintain at least $2.5 million in stockholders’ equity or $500,000 in net income over the prior two years or two of the prior three years. As discussed above of June 30, 2022, September 30, 2022 and December 31, 2022, our stockholders’ equity was below $2.5 million and we did not otherwise meet the net income requirements described above, and as such, we are not currently in compliance with Nasdaq’s continue listing standards. If we fail to timely remedy our compliance with the applicable requirements, our stock may be delisted.
Additional requirements we must meet to continue our listing on The Nasdaq Capital Market include the requirement that we maintain a stock price over $1.00 per share.
Even if we demonstrate compliance with the requirements of Nasdaq, we will have to continue to meet other objective and subjective listing requirements to continue to be listed on The Nasdaq Capital Market. Delisting from The Nasdaq Capital Market could make trading our common stock more difficult for investors, potentially leading to declines in our share price and liquidity. Without a Nasdaq Capital Market listing, stockholders may have a difficult time getting a quote for the sale or purchase of our stock, the sale or purchase of our stock would likely be made more difficult, and the trading volume and liquidity of our stock could decline. Delisting from The Nasdaq Capital Market could also result in negative publicity and could also make it more difficult for us to raise additional capital. The absence of such a listing may adversely affect the acceptance of our common stock as currency or the value accorded by other parties. Further, if we are delisted, we would also incur additional costs under state blue sky laws in connection with any sales of our securities. These requirements could severely limit the market liquidity of our common stock and the ability of our stockholders to sell our common stock in the secondary market. If our common stock is delisted by Nasdaq, our common stock may be eligible to trade on an over-the-counter quotation system, such as the OTCQB Market or the OTC Pink market, where an investor may find it more difficult to sell our stock or obtain accurate quotations as to the market value of our common stock. In the event our common stock is delisted from The Nasdaq Capital Market, we may not be able to list our common stock on another national securities exchange or obtain quotation on an over-the counter quotation system.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
On January 6, 2023, an investor exercised 601,740 “pre-funded warrants” for an aggregate purchaseprice of $6.02 and was issued 601,740 shares of common stock on that date. The terms of these warrants were previously described in our Current Report on Form 8-K dated October 4, 2022.
On [date], we issued 50,000 shares of common stock to White Lion Capital, LLC as the “commitment shares” pursuant to the terms of a Common Stock Purchase Agreement dated September 7, 2022, as described inour Current Report on Form 8-K dated September 7, 2022.
In each case, the issuance did not involve a public offering and was made without general solicitation or general advertising, and the recipient of the shares was an accredited investor.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The Company repurchased no shares of common stock during the first quarter of 2023.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
On March 4, 2023, the Company entered into Agreement for the Purchase and Sale of Future Receipts Agreements (the “Receivables Agreements”), with Agile Capital Funding LLC (“Agile”). Pursuant to the Receivables Agreements, the Company sold $1,124,000 of receivables for $850,000 (less the origination fee discussed below) which amount will be paid in weekly installments equal to 18% of the proceeds of each future sale made by the Company. We also paid a $42,500 origination fee in connection with each of the Receivables Agreements, respectively. The Receivables Agreements allows for Agile to file UCCs securing the payment of amounts due under the Receivables Agreements and include customary events of default. Upon the occurrence of an event of default under the Receivables Agreements, we are required to pay Agile 100% of the proceeds from future sales until Agile is paid in full, and the entire amount of receivables is payable in full immediately. While the Receivables Agreements are in place, we are prohibited from selling any other receivables.
A copy of the March 4, 2023 Agreement for the Purchase and Sale of Future Receipts are incorporated by reference herein as Exhibit 10.1 and attached hereto as Exhibit 10.9, respectively.
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ITEM 6. EXHIBITS
* Filed herewith.
** Furnished herewith.
+ Certain information has been redacted pursuant to Item 601(a)(6) of Regulation S-K, as the disclosure of such information would constitute a clearly unwarranted invasion of personal privacy.
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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 HEALTH, INC. | ||
| By: | /s/ Suren Ajjarapu | |
| Suren Ajjarapu | ||
Chief Executive Officer (Principal Executive Officer) | ||
| Date: May 15, 2023 | ||
| By: | /s/ Prashant Patel | |
| Prashant Patel | ||
Interim Chief Financial Officer (Principal Accounting/Financial Officer) | ||
| Date: May 15, 2023 | ||
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