UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For
the Quarterly Period Ended
OR
Commission
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(Exact name of registrant as specified in its charter)
| (State
or other jurisdiction of incorporation or organization) |
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| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
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Indicate
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Indicate
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| ☒ | Smaller reporting company | ||
| Emerging growth company |
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There were shares of the registrant’s common stock outstanding on June 26, 2024 and 16,049 shares of preferred stock outstanding.
TRxADE HEALTH, INC.
FORM 10-Q
For the Quarter Ended March 31, 2024
TABLE OF CONTENTS
| 2 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Report”), including without limitation, “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 potential impact of some future pandemic; | |
| ● | 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; | |
| ● | Risks related to the disruption of management’s attention from ongoing business operations due to pursuit of requirements related to being a listed company; and | |
| ● | Other factors discussed in this Quarterly Report on Form 10-Q and in Part I, Item 1A. “Risk Factors” in Part I, Item 1A. “Risk Factors” and Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Form 10-K. |
While forward-looking statements reflect our good faith beliefs, assumptions and expectations, they are not guarantees of future performance. The forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Furthermore, we disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes. Moreover, because we operate in a very competitive and rapidly changing environment, new risk factors are likely to emerge from time to time. We caution investors not to place undue reliance on these forward-looking statements and urge you to carefully review the disclosures we make concerning risks in this Quarterly Report and in Part I, Item 1A. “Risk Factors” and Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K and Part II, Item 1A. “Risk Factors” in the Annual Report for the period ending December 31, 2023, filed with the Securities and Exchange Commission (SEC) on April 22, 2024. Readers of this Quarterly Report on Form 10-Q should also read our other periodic filings made with the SEC and other publicly filed documents for further discussion regarding such factors.
| 3 |
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRxADE HEALTH, INC.
Condensed Consolidated Balance Sheets
March 31, 2024 and December 31, 2023
(Unaudited)
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory | ||||||||
| Prepaid expenses | ||||||||
| Notes receivable | ||||||||
| Other receivables | ||||||||
| Current assets of discontinued operations | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Deposits | ||||||||
| Investments | ||||||||
| Operating lease right-of-use assets | ||||||||
| Noncurrent assets of discontinued operations | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Other current liabilities | ||||||||
| Contingent funding liabilities | ||||||||
| Lease liability - current | ||||||||
| Warrant liability | ||||||||
| Current liabilities of discontinued operations | ||||||||
| Total current liabilities | ||||||||
| Lease liability, net of current portion | ||||||||
| Noncurrent liabilities of discontinued operations | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity (deficit): | ||||||||
| Series A preferred stock, $ par value; shares authorized; issued and outstanding as of both March 31, 2024 and December 31, 2023 | ||||||||
| Series B preferred stock, $ par value; shares authorized; shares issued and outstanding as of both March 31, 2024 and December 31, 2023 | ||||||||
| Series C preferred stock, $ par value; shares authorized; shares issued and outstanding as of both March 31, 2024 and December 31, 2023 | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited consolidated financial statements.
| 4 |
TRxADE HEALTH, INC.
Condensed Consolidated Statements Of Operations
For the Three Months Ended March 31, 2024 and 2023
(Unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2024 | 2023 | |||||||
| 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 | ( | ) | ( | ) | ||||
| Non-operating income (expense): | ||||||||
| Change in fair value of warrant liability | ( | ) | ||||||
| Interest income | ||||||||
| Loss on disposal of asset | ( | ) | ( | ) | ||||
| Interest expense | ( | ) | ( | ) | ||||
| Total non-operating expense | ( | ) | ( | ) | ||||
| Net loss from continuing operations | ( | ) | ( | ) | ||||
| Net income on discontinued operations | ||||||||
| Net income(loss) | $ | $ | ( | ) | ||||
| Net loss per common share from continuing operations | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
| Net income per common share from discontinued operations | ||||||||
| Basic | $ | $ | ||||||
| Diluted | $ | $ | ||||||
| Net income/(loss) | ||||||||
| Basic | $ | $ | ( | ) | ||||
| Diluted | $ | $ | ( | ) | ||||
| Weighted average common shares outstanding | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
The accompanying notes are an integral part of the unaudited consolidated financial statements.
| 5 |
TRxADE HEALTH, INC.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the Three Months Ended March 31, 2024, and 2023
(Unaudited)
| Series B | Series C | Common | Additional | Non-controlling | Total | |||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Stock | Paid-in | Accumulated | Interests in | Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Subsidiaries | Equity | |||||||||||||||||||||||||||||||
| Balances at December 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Common stock issued for services | - | - | ||||||||||||||||||||||||||||||||||||||
| Disposition of assets, related party | - | - | - | |||||||||||||||||||||||||||||||||||||
| Warrants exercised for cash | - | - | ||||||||||||||||||||||||||||||||||||||
| Options expense | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balances at March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||||||||
| Balances at December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||||||||
| Cash dividends paid | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | ||||||||||||||||||||||||||||||||||||||
| Options exercised for cash | - | - | ||||||||||||||||||||||||||||||||||||||
| Warrants exercised for cash | - | - | ||||||||||||||||||||||||||||||||||||||
| Options expense | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||||||||||||||||||||||
| Balances at March 31, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||
The accompanying notes are an integral part of the unaudited consolidated financial statements
| 6 |
TRxADE HEALTH, INC.
Condensed Consolidated Statements of Cash Flows
For The Three Months Ended March 31, 2024 and 2023
(Unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2024 | 2023 | |||||||
| 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 | ||||||||
| Adjustment to allowance for bad debt | ( | ) | ||||||
| Amortization of right of use assets | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses and deposits | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ( | ) | ||||
| Other receivables | ( | ) | ||||||
| Lease liability | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued liabilities | ( | ) | ||||||
| Current liabilities | ( | ) | ||||||
| Warrant liability | ( | ) | ||||||
| Net cash used in operating activities from continuing operations | ( | ) | ( | ) | ||||
| Net cash (used in) provided by operating activities from discontinued operations | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Investment in securities | ( | ) | ( | ) | ||||
| Net cash used in 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 | ( | ) | ( | ) | ||||
| Cash dividends paid | ( | ) | ||||||
| Proceeds from sale of future revenue | ||||||||
| Proceeds from exercise of warrants | ||||||||
| Proceeds from exercise of options | ||||||||
| Net cash (used in) provided by financing activities from continuing operations | ( | ) | ||||||
| Net cash used in financing activities from discontinued operations | ( | ) | ||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Net change in cash | ||||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes | $ | $ | ||||||
| Non-Cash Transactions | ||||||||
| Other receivable pursuant to disposition | $ | $ | ||||||
| Insurance premium financed | $ | $ | ||||||
| Note issued as SOSRx contribution | $ | $ | ||||||
| Disposition of assets, related party | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited consolidated financial statements.
| 7 |
NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION
Overview
TRxADE
HEALTH, INC. (“we”, “our”, “Trxade”, and the “Company”)
owns, as of March 31, 2024,
During the year ended December 31, 2023 and a portion of the quarter ended March 31, 2024, Trxade, Inc., operated a web-based market platform that enables commerce among healthcare buyers and sellers of pharmaceuticals, accessories and services.
Integra Pharma Solutions, LLC (“IPS” d.b.a. Trxade Prime), is a licensed pharmaceutical wholesaler and sells brand, generic and non-drug products to customers. IPS customers include all healthcare markets including government organizations, hospitals, clinics and independent pharmacies nationwide.
On
January 20, 2023, the Company entered into Membership Interest Purchase Agreements to sell
Bonum Health, LLC (“Bonum Health”), was formed to hold certain telehealth assets acquired in October 2019. The “Bonum Health Hub” was launched in February 2020; however, the Company does not anticipate installations moving forward.
SOSRx,
LLC (“SOSRx”) was formed on February 15, 2022. The Company entered into a relationship with Exchange Health, LLC (“Exchange
Health”), a technology company providing an online platform for manufacturers and suppliers to sell and purchase pharmaceuticals.
SOSRx, a Delaware limited liability company, was formed, which was owned
Merger
On July 14, 2023, the Company entered into an Amended and Restated Agreement and Plan of Merger (the “Merger Agreement”) with Superlatus, Inc., a U.S.-based holding company of food products and distribution capabilities (“Superlatus”) and Foods Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”).
| 8 |
Superlatus is a diversified food technology company with distribution capabilities and systems to optimize food security and population health via innovative Consumer Packaged Goods (“CPG”) products, agritech, foodtech, plant-based proteins and alt-protein and includes wholly-owned subsidiary, Sapientia, Inc. (“Sapientia”), a food tech business.
On July 31, 2023 , the Company completed its acquisition of Superlatus in accordance with the terms and conditions of the Merger Agreement (the “Merger”), pursuant to which the Company acquired Superlatus by way of a merger of the Merger Sub with and into Superlatus, with Superlatus being a wholly owned subsidiary of the Company and the surviving entity in the Merger.
Under
the terms of the Merger Agreement, at the closing of the Merger (the “Closing”), shareholders of Superlatus received in aggregate
shares of common stock of the Company, representing
Not
all of the closing conditions of the Merger Agreement were met. As a result, the Company entered into Amendment No. 1 to the Amended
and Restated Agreement and Plan of Merger (the “Amendment”) on January 8, 2024. Under the terms of the Amendment, the merger
consideration to the shareholders of Superlatus was adjusted to the aggregate of shares of common stock of the Company, representing
Dispositions
On
February 16, 2024, the Company, together with Trxade, Inc., and Micro Merchant Systems, Inc. (“MMS”) entered into an
asset purchase agreement (the “APA”) under which MMS agreed to purchase for cash substantially all of the assets of
Trxade, Inc. On February 16, 2024, the parties consummated the closing of the transactions contemplated by the APA. Trxade, Inc.
operated a web-based market platform designed to enable trading among healthcare buyers and sellers of pharmaceuticals, accessories
and services. The purchase price paid at closing was $
On
March 5, 2024, the Company entered in a Stock Purchase Agreement (“SPA”) with Superlatus Foods Inc. (the “Buyer”).
Pursuant to the SPA, the Company sold all of the issued and outstanding stock of Superlatus Inc., to the Buyer. The $
See Note 3 for further detail on the dispositions.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited interim condensed consolidated financial statements of TRxADE HEALTH, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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, 2023, as filed with the SEC on April 22, 2024.
| 9 |
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. All significant intercompany balances and transactions have been eliminated in consolidation. 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, 2023, as reported in the Company’s Annual Report on Form 10-K have been omitted.
Use of Estimates
The preparation of condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from its estimates. To the extent there are material differences between estimates and the actual results, future results of operations will be affected. Significant estimates for the three months ended March 31, 2024 and 2023 include the valuation of intangible assets, including goodwill, and gain (losses) on dispositions.
Fair value of financial instruments
The carrying amounts for cash, accounts receivable, accounts payable, accrued liabilities, and other current liabilities approximate their fair value because of their short-term maturity.
Stock Split
Recently Issued Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The new guidance requires enhanced disclosure of significant expenses that are regularly reported to the chief operating decision maker and the nature of segment expense information used to manage operations. The new guidance is effective for all public companies for annual reporting periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company will adopt the new standard in annual reporting period beginning after December 15, 2023 and is currently evaluating the impacts of the new guidance on its disclosure within the financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The new guidance requires disaggregated information about the effective tax rate reconciliation and additional information on taxes paid that meet a quantitative threshold. The new guidance is effective for public companies for annual reporting periods beginning after December 15, 2024, and for non-public companies for annual reporting periods beginning after December 15, 2025, with early adoption permitted for both. The Company will adopt the new standard in annual reporting period beginning after December 15, 2025, and is currently evaluating the impacts of the new guidance on its disclosures within the consolidated financial statements.
Accounts Receivable, net
On January 1, 2023, the Company adopted ASU 2016-13 “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” and its related amendments using the prospective method. The new standard requires the use of a current expected credit loss impairment model to develop and recognize credit losses for financial instruments at amortized cost when the asset is first originated or acquired, and each subsequent reporting period.
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.
Other Receivables
As
of March 31, 2024 and December 31, 2023, other receivables are $
| 10 |
Acquisitions
The Company accounts for acquisitions and investments in businesses as business combinations if the target meets the definition of a business and (a) the target is a variable interest entity (“VIE”) and the Company is the target’s primary beneficiary, and therefore the Company must consolidate its financial statements, or (b) the Company acquires more than 50% of the voting interest of the target and it was not previously consolidated. The Company records business combinations using the acquisition method of accounting, which requires all the assets acquired and liabilities assumed to be recorded at fair value as of the acquisition date. The excess of the purchase price over the estimated fair values of the net tangible and intangible assets acquired is recorded as goodwill.
The application of the acquisition method of accounting for business combinations requires management to make significant estimates and assumptions in the determination of the fair value of assets acquired and liabilities assumed in order to properly allocate purchase price consideration between assets that are depreciated and amortized from goodwill. The fair value assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. Significant assumptions and estimates include, but are not limited to, the cash flows that an asset is expected to generate in the future, the appropriate weighted-average cost of capital, and the cost savings expected to be derived from acquiring an asset, if applicable.
If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the Company’s financial statements may be exposed to potential impairment of the intangible assets and goodwill.
If the Company’s investment involves the acquisition of an asset or group of assets that does not meet the definition of a business, the transaction is accounted for as an asset acquisition. An asset acquisition is recorded at cost, which includes capitalizing transaction costs, and does not result in the recognition of goodwill.
Intangible Assets and Goodwill
The Company tests indefinite-lived intangible assets for impairment on an annual basis or whenever events or changes occur that would more-likely-than not reduce the fair value of the indefinite-lived intangible asset below its carrying value between annual impairment tests. Any indefinite-lived intangible asset assessment is performed at the Company level.
The Company did not record an indefinite-lived intangible asset impairment charge for the three months ended March 31, 2024 and 2023.
Investments
The Company accounts for investments that it does not control using the cost method, equity method or fair value method, as applicable. Investments in companies in which the Company owns less than a 20% equity interest and where it does not exercise significant influence over the operating and financial policies of the investee are accounted for using the cost method of accounting. The Company periodically reviews the carrying value of these investments to determine if there has been an other-than-temporary decline in fair value below carrying value. A variety of factors are considered when determining if a decline in fair value below carrying value is other-than-temporary, including, among others, the financial condition and business prospects of the investee, as well as the Company’s investment intent. Cost method investments are carried at cost, which approximates or is less than fair value. Dividends received by the Company are recognized in equity (losses) earnings of affiliates, net of tax on the consolidated statements of operations.
On
February 29, 2024, the Company’s wholly owned subsidiary Trxade, Inc. entered into a Subscription Agreement (the “Subscription
Agreement”) with Lafayette Energy Corp., a Delaware corporation (“Lafayette”). Pursuant to the Subscription Agreement,
Trxade, Inc. will, in two equal tranches, invest a total of up to $
As
of March 31, 2024, the Company’s investment in Lafayette was $
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, 2024, we had
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2024 | 2023 | |||||||
| Numerator: | ||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Net income on discontinued operations | ||||||||
| Net income/(loss) | $ | $ | ( | ) | ||||
| Denominator: | ||||||||
| Denominator for EPS – weighted average shares | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
| Net loss per common share from continuing operations | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
| Net income per common share from discontinued operations | ||||||||
| Basic | $ | $ | ||||||
| Diluted | $ | $ | ||||||
| Net income/(loss) | ||||||||
| Basic | $ | $ | ( | ) | ||||
| Diluted | $ | $ | ( | ) | ||||
| 11 |
Income taxes
The Company’s provision for income taxes was $ for the three months ended March 31, 2024, and $ for the three and months ended March 31, 2023, respectively. The income tax provisions for these three-month periods are based upon estimates of annual income (loss), annual permanent differences and statutory tax rates in the various jurisdictions in which the Company operates. For all periods presented, the Company utilized net operating loss carryforwards to offset the impact of any taxable income. The Company’s tax rate differs from the applicable statutory rates due primarily to the establishment of a valuation allowance, utilization of deferred and the effect of permanent differences and adjustments.
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, 2024, the Company had an accumulated deficit of $
NOTE 3 – ACQUISITIONS AND DISPOSITIONS
Acquisitions
Superlatus, Inc.
On
July 31, 2023, the Company entered into the Merger Agreement (see Note 1) with Superlatus (“Seller”) whereby the Company
acquired
The acquisition of Superlatus was accounted for as a business combination using the acquisition method pursuant to FASB ASC Topic 805. As the acquirer for accounting purposes, the Company had estimated the Purchase Price, assets acquired and liabilities assumed as of the acquisition date, with the excess of the Purchase Price over the fair value of net assets acquired recognized as goodwill. An independent valuation expert assisted the Company in determining these fair values.
Accounting guidance provides that an acquirer must recognize adjustments to provisional amounts that are identified during the measurement period, which runs through July 31, 2024, in the measurement period in which the adjustment amounts are determined. The acquirer must record in the financial statements, the effect on earnings of changes in depreciation, amortization or other income effects, if any, as a result of the changes to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. Items that could be subject to adjustment include credit fair value adjustments on loans, core deposit intangible and the deferred income tax assets resulting from the acquisition.
The Amended Purchase Price allocation as of the acquisition date is presented as follows:
| July 31, 2023 | ||||
| Purchase consideration: | ||||
| Common Stock, at fair value | $ | |||
| Series B Preferred Stock, at fair value | ||||
| Total purchase consideration | $ | |||
| Purchase price allocation: | ||||
| Cash | $ | |||
| Prepaid expenses | ||||
| Inventory | ||||
| Intangible assets, net | ||||
| Goodwill | ||||
| Assets acquired | ||||
| Accounts payable and other current liabilities | ( | ) | ||
| Purchase price payable | ( | ) | ||
| Notes payable | ( | ) | ||
| Liabilities assumed | ( | ) | ||
| Net assets acquired | $ | |||
| 12 |
The Urgent Company, Inc.
On
September 27, 2023, the Company entered into an Asset Purchase Agreement (“APA”) with The Urgent Company, Inc. (“TUC”)
and its wholly owned subsidiaries, pursuant to which, the Company was assigned certain inventory and property and equipment and assumed
certain operating leases for consideration of $
The transaction was accounted for as an asset acquisition pursuant to FASB ASC Topic 805. As the acquirer for accounting purposes, the Company allocated the cost of the asset acquisition to the assets acquired and liabilities assumed as of the acquisition date based on their respective relative fair value as of the date of the transaction.
The following summarizes the provisional relative fair values of the assets acquired as of the acquisition date based on the allocation of the cost of the asset acquisition:
| September 27, 2023 | ||||
| Purchase consideration: | ||||
| Promissory note | $ | |||
| Total purchase consideration | $ | |||
| Allocation of cost of assets acquired: | ||||
| Inventory | $ | |||
| Property and equipment | ||||
| Assets acquired | ||||
| Net assets acquired | $ | |||
| 13 |
Dispositions and Divestitures
Alliance Pharma Solutions, LLC and Community Specialty Pharmacy, LLC
On
August 22, 2023, the Company and Wood Sage, LLC (“Wood Sage”) entered into a Membership Interest Purchase Agreement,
pursuant to which the Company sold
As
part of recognizing the business as held for sale in accordance with U.S. GAAP, the Company was required to measure APS and CSP at the
lower of its carrying amount or fair value less cost to sell. As a result of this analysis, during the year ended December 31, 2023,
the Company recognized a non-cash, pre-tax loss on disposal of $
As a result of the transactions, the following assets and liabilities of APS and CSP were transferred to Wood Sage as of August 22, 2023:
| Alliance
Pharma Solutions, LLC |
Community Specialty Pharmacy, LLC |
|||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory | ||||||||
| Prepaid assets | ||||||||
| Intangible assets and capitalized software, net | ||||||||
| Accounts payable | ( |
) | ( |
) | ||||
| Accrued liabilities | ( |
) | ||||||
| Net assets sold | $ | $ | ||||||
Trxade, Inc.
On
February 16, 2024, the Company, together with Trxade, Inc., a wholly owned subsidiary of the Company, and Micro Merchant Systems, Inc.
(“MMS”) entered into an asset purchase agreement (the “APA”) under which MMS agreed to purchase for cash substantially
all of the assets of Trxade, Inc. On February 16, 2024, the parties consummated the closing of the transactions contemplated by the APA.
Trxade, Inc. The purchase price paid at closing was $
The Trxade, Inc. APA was accounted for a business disposition in accordance with ASC 810-40-40-3A. As of February 16, 2024, the Company no longer consolidated the assets, liabilities, revenues and expenses of Trxade, Inc. The components of the disposition are as follows:
| Cash received from MMS | $ | |||
| Other receivable from MMS | ||||
| Total fair value of consideration received | $ | |||
| Carrying amount of assets and liabilities | ||||
| Cash | $ | |||
| Accounts receivable, net | ||||
| Prepaid expenses | ||||
| Property, plant and equipment, net | ||||
| Operating lease right-of-use assets | ||||
| Accounts payable | ( | ) | ||
| Accrued liabilities | ( | ) | ||
| Other current liabilities | ( | ) | ||
| Lease liability - current | ( | ) | ||
| Notes payable, current portion | ( | ) | ||
| Lease liability, net of current portion | ( | ) | ||
| Total carrying amount of assets and liabilities | ||||
| Gain on disposition of business | $ |
The
gain on disposition of business of $
Superlatus Inc.
On
March 5, 2024, the Company entered in a Stock Purchase Agreement (“SPA”) with Superlatus Foods Inc. (the “Buyer”).
Pursuant to the SPA, the Company sold all of the issued and outstanding stock (the “Stock”) of Superlatus Inc., a Delaware
corporation and wholly-owned subsidiary of the Company (“Superlatus”), to the Buyer. The purchase price for the Stock was
$
The Superlatus Inc. SPA was accounted for a business disposition in accordance with ASC 810-40-40-3A. As of March 5, 2024, the Company no longer consolidated the assets, liabilities, revenues and expenses of Superlatus Inc.. The components of the disposition are as follows:
| Fair value of consideration received | $ | |||
| Total fair value of consideration received | $ | |||
| Carrying amount of assets and liabilities | ||||
| Cash | $ | |||
| Property, plant and equipment, net | ||||
| Intangible assets, net | ||||
| Operating lease right-of-use assets | ||||
| Purchase price payable | ( | ) | ||
| Accounts payable | ( | ) | ||
| Accrued liabilities | ( | ) | ||
| Notes payable, current portion | ( | ) | ||
| Lease liability - current | ( | ) | ||
| Lease liability, net of current portion | ( | ) | ||
| Notes payable | ( | ) | ||
| Total carrying amount of assets and liabilities | ||||
| Loss on disposition of business | $ | ( | ) |
The
loss of disposition of business of $
| 14 |
Discontinued Operations
In accordance with the provisions of ASC 205-20, the Company has excluded the results of discontinued operations from its results of continuing operations in the accompanying consolidated statements of operations for the three months ended March 31, 2024 and 2023. The results of the discontinued operations for the three months ended March 31, 2024 and 2023 consist of the following:
| TRX | Superlatus | SOSRx | CSP | APS | Total | |||||||||||||||||||||||||||||||||||||||||||
| Three
Months Ended | Three
Months Ended | Three
Months Ended | Three
Months Ended | Three
Months Ended | Three
Months Ended | |||||||||||||||||||||||||||||||||||||||||||
| March 31, | March 31, | March 31, | March 31, | March 31, | March 31, | |||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
| Cost of sales | ||||||||||||||||||||||||||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||||||||||||||||||||||||
| - | - | |||||||||||||||||||||||||||||||||||||||||||||||
| Operating expenses: | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Wage and salary expense | ||||||||||||||||||||||||||||||||||||||||||||||||
| Professional fees | ||||||||||||||||||||||||||||||||||||||||||||||||
| Technology expense | ||||||||||||||||||||||||||||||||||||||||||||||||
| General and administrative | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total operating expenses | ||||||||||||||||||||||||||||||||||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| - | - | |||||||||||||||||||||||||||||||||||||||||||||||
| Non-operating income (expense): | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Gain (loss) on dispositions | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Total non-operating income (expense) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) on discontinued operations | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||||
NOTE 4- RELATED PARTY TRANSACTIONS
On November 21, 2023, but effective
September 14, 2023, the Company issued a promissory note to Danam Health, Inc. (the “Danam Note”) in the amount of $
On February 29, 2024, the Company’s wholly owned subsidiary Trxade, Inc. entered into a Subscription Agreement
(the “Subscription Agreement”) with Lafayette Energy Corp., a Delaware corporation (“Lafayette”). Pursuant to
the Subscription Agreement, Trxade, Inc. will, in two equal tranches, invest a total of up to $
| 15 |
At
March 31, 2024, total related party debt was $
NOTE 5 – REVENUE RECOGNITION
The Company derives revenue from two primary sources—product revenue and service revenue.
Product revenue consists of shipments of:
| ● | Resale of pharmaceutical products to pharmacies; and | |
| ● | Revenues for our products are recognized and invoiced when the product is shipped to the customer. |
Service revenue consists primarily of:
| ● | Transaction fees from the facilitation of buyer generated purchase orders to suppliers, billed monthly; | |
| ● | Data service fees associated with providing vendors of pharmaceutical products with data analysis of their catalogues and branding of their products or company to the Company’s registered buyers, billed monthly or as a one-time fee; and | |
| ● | Software-as-a-Service (“SaaS”) fees for a platform for virtual healthcare provider visits, billed monthly. |
Revenues for the Company’s services that are billed monthly are recognized and invoiced at the beginning of the month. Revenues for one-time services are recognized at the point in time when services are rendered.
Payment terms for products and services are generally 0 to 60 days and the Company has no contract assets or liabilities.
The following table presents disaggregated revenue by major product and service categories during the three months ended March 31, 2024 and 2023:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2024 | 2023 | |||||||
| Product revenues | ||||||||
| Pharmaceutical product resale | $ | $ | ||||||
| Packaged food resale | ||||||||
| Total product revenue | $ | $ | ||||||
| Service revenue | ||||||||
| Transaction fee income | ||||||||
| Data service fee income | ||||||||
| SaaS fee income | ||||||||
| Total service revenue | $ | $ | ||||||
| Total revenue | $ | $ | ||||||
NOTE 6 – INVENTORY
Inventory value is determined using the weighted average cost method and is stated at the lower of cost or net realizable value. As of March 31, 2024 and December 31, 2023, inventory was comprised of the following:
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Inventory | $ | $ | ||||||
NOTE 7 – NOTES RECEIVABLE
On
August 22, 2023, the Company received a Promissory Note (the “Wood Sage Note”) in the amount of $
| 16 |
NOTE 8 – INTANGIBLE ASSETS
As of March 31, 2024 and December 31, 2023, intangible assets, net consisted of the following:
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Developed technology | $ | $ | ||||||
| Total Costs | ||||||||
| Accumulated amortization | ( | ) | ||||||
| Net | $ | $ | ||||||
| Weighted
average useful life (years) - | ||||||||
The intangible assets were sold to Superlatus Foods Inc. on March 5, 2024 per a Stock Purchase Agreement (see Note 3).
NOTE 9 – OTHER CURRENT LIABILITIES
As of March 31, 2024 and December 31, 2023, other current liabilities consisted of the following:
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Insurance refunds payable | $ | $ | ||||||
| Other payables | ||||||||
| Other current liabilities | $ | $ | ||||||
NOTE 10 – CONTINGENT FUNDING LIABILITIES
On
December 13, 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
November 22, 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
October 25, 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 $
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, 2024, and December 31, 2023, the total contingent funding liability was $
| 17 |
NOTE 11 – NOTES PAYABLE
On
November 17, 2023, the Company issued promissory notes to Moku Foods, Inc. (the “Moku Foods November 2023 Note”) in the
amount of $
On
October 16, 2023, the Company issued promissory notes to Moku Foods, Inc. (the “Moku Foods October 2023 Note”) in the
amount of $
On
September 27, 2023, the Company issued promissory notes to Perfect Day, Inc. (the “Perfect Day Note”) in the amount of $
On
November 21, 2023, but effective September 14, 2023, the Company issued a promissory note to Danam Health, Inc. (the “Danam Note”)
in the amount of $
On
June 16, 2023, the Company issued a secured debenture to Eat Well Investment Group, Inc. (the “Eat Well June 2023 Note”)
in the amount of $
On
February 8, 2023, Sapientia, a wholly-owned subsidiary of Superlatus, entered into a Loan Agreement with Eat Well Investment Group,
Inc. (the “Eat Well February 2023 Note”) in the amount of $
On
September 14, 2022, Sapientia entered into a Loan Agreement with Eat Well Investment Group, Inc. (the “Eat Well September 2022
Note”) in the amount of $
On
July 26, 2022, Sapientia entered into a Loan Agreement with Eat Well Investment Group, Inc. (the “Eat Well July 26, 2022 Note”)
in the amount of $
On
July 12, 2022, Sapientia entered into a Loan Agreement with Eat Well Investment Group, Inc. (the “Eat Well July 12, 2022 Note”)
in the amount of $
On
March 15, 2022, Sapientia entered into a Loan Agreement with Eat Well Investment Group, Inc. (the “Eat Well March 2022 Note”)
in the amount of $
On
February 1, 2022, Sapientia entered into a Loan Agreement with Eat Well Investment Group, Inc. (the “Eat Well February 2022 Note”)
in the amount of $
On
January 20, 2022, Sapientia entered into a Loan Agreement with Eat Well Investment Group, Inc. (the “Eat Well January 2022 Note”)
in the amount of $
On
December 24, 2021, Sapientia entered into a Loan Agreement with Eat Well Investment Group, Inc. (the “Eat Well December 2021 Note”)
in the amount of $
On
November 10, 2021, Sapientia entered into a Loan Agreement with Eat Well Investment Group, Inc. (the “Eat Well November 2021 Note”)
in the amount of $
On
August 18, 2021, Sapientia entered into a Loan Agreement with Eat Well Investment Group, Inc. (the “Eat Well August 2021 Note”)
in the amount of $
| 18 |
NOTE 12 – STOCKHOLDERS’ EQUITY
Designation of Series C Preferred Stock
Effective October 4, 2023, the Company filed a Certificate of Designation, Preferences, Rights and Limitations of the Series C Preferred Stock with the Secretary of the State of Delaware which designated shares of the Company’s authorized and unissued preferred stock as convertible Series C Preferred Stock at a par value of $ per share.
Hudson Global Ventures Stock Purchase Agreement
On
October 4, 2023, the Company entered into a Securities Purchase Agreement (“Agreement”, or “SPA”) with Hudson
Global Ventures, LLC (“Hudson”). Under the terms of the Agreement, the Company agreed to sell, and Hudson agreed to purchase,
Two Hundred Ninety () shares of Series C Preferred Stock (the “Purchased Shares”) at a price of $ per share and a
Warrant to purchase up to
Designation of Series B Preferred Stock
Effective June 26, 2023, the Company filed a Certificate of Designation, Preferences, Rights and Limitations of the Series B Preferred Stock with the Secretary of the State of Delaware which designated shares of the Company’s authorized and unissued preferred stock as convertible Series B Preferred Stock at a par value of $ per share.
2023 1:15 Stock Split
Common Stock
During
the three months ended March 31, 2024, the Company issued
shares of common stock for services. The fair value of shares issued for services was $
During
the three months ended March 31, 2024, a warrants holder exercised shares of common stock for $
During
the three months ended March 31, 2024, an options holder exercised shares of common stock for $
Special Cash Dividend
On March 6, 2024, the Company announced the declaration of a special cash
dividend of eight dollars ($
Equity Compensation Awards
Each independent member of the Board is to receive an annual grant of restricted
common stock of the Company equal to $
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 $
Effective on August 13, 2023, the Board approved the issuance of
shares of common stock of the Company to each of Mr. Fell and Mr. Peterson for services rendered to the Company during fiscal 2023, 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.
| 19 |
NOTE 13 – PREFUNDED AND PRIVATE PLACEMENT WARRANTS
On October 4, 2022 the Company entered into a securities purchase agreement (the “Purchase Agreement”) with a certain institutional investor (the “Purchaser”) which provided for the sale and issuance by the Company of (i) the Company’s common stock (the “Common Stock”), (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to shares of Common Stock and (iii) warrants (the “Private Placement Warrants” and, together with the Shares and the Pre-Funded Warrants, the “Securities”) to purchase up to shares of Common Stock. The Private Placement Warrants were sold in a concurrent private placement (the “Private Placement”), exempt from registration pursuant to Section 4(a)(2) and/or Rule 506 of the Securities Act of 1933, as amended (the “Securities Act”).
On
January 4, 2023, the investor exercised the Pre-Funded Warrants for a purchase price of $
NOTE 14 – WARRANTS
During
the three months ended March 31, 2024, 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, 2024, and 2023, respectively.
As of March 31, 2024, the Company remeasured the fair value of warrants
outstanding at $
The Company’s outstanding and exercisable warrants As of March 31, 2024, are presented below:
| Number Outstanding | Weighted Average Exercise Price | Contractual Life In Years | Intrinsic Value | |||||||||||||
| Warrants outstanding as of December 31, 2023 | ||||||||||||||||
| Warrants granted | - | - | ||||||||||||||
| Warrants forfeited, expired, cancelled | - | - | ||||||||||||||
| Warrants exercised | ( | ) | - | - | ||||||||||||
| Warrants outstanding as of March 31, 2024 | $ | |||||||||||||||
| Warrants exercisable as of March 31, 2024 | $ | |||||||||||||||
| 20 |
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, 2024, no options to purchase shares were granted. For the three-month period ended March 31,
2024, options
to purchase shares of common stock were exercised for $
Total compensation cost related to stock options granted was $ and $ for the three-months ended March 31, 2024, and 2023, respectively.
| Number Outstanding | Weighted-Average Exercise Price | Weighted-Average Contractual Life in Years | Intrinsic Value | |||||||||||||
| Options outstanding as of December 31, 2023 | $ | | $ | |||||||||||||
| Options exercisable as of December 31, 2023 | ||||||||||||||||
| Options granted | - | - | ||||||||||||||
| Options adjusted | - | - | ||||||||||||||
| Options expired | - | - | ||||||||||||||
| Options exercised | ( | ) | - | |||||||||||||
| Options outstanding as of March 31, 2024 | ||||||||||||||||
| Options exercisable as of March 31, 2024 | ||||||||||||||||
NOTE 16 – CONTINGENCIES
Studebaker Defense Group, LLC
In
July 2020, the Company’s wholly-owned subsidiary, IPS, entered into an agreement with Studebaker Defense Group, LLC (“Studebaker”)
wherein IPS would pay Studebaker a down payment of $
| 21 |
On
April 13, 2023, a settlement was reached in the Studebaker and IPS legal case. The court found in favor of IPS and ordered
Studebaker to pay $
GSG PPE, LLC
On
November 19, 2021, IPS 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 IPS executed a valid initial contract
setting the terms of a business transaction. GSG failed to pay IPS approximately 75% of the amount owed to IPS. GSG acknowledged it owed
the money and executed a promissory note in favor of IPS in the amount of $
NOTE 17 – LEASES
The Company has one operating lease for corporate office as of March 31, 2024. The following table outlines the details of the leases:
| Lease 1 | Lease 2 | Lease 3 | ||||||||||
| Initial lease term | ||||||||||||
| New initial lease term | ||||||||||||
| Initial recognition of right of use assets at January 1, 2019 | $ | $ | $ | |||||||||
| New initial recognition of right of use assets at December 31, 2021 | $ | $ | $ | |||||||||
| New initial recognition of right of use assets at December 31, 2023 | $ | $ | $ | |||||||||
| Incremental borrowing rate | % | % | % | |||||||||
The Company
entered into a new corporate office lease (Lease 1) in January 2022. At inception, the Company determined that the new lease required
remeasurement of the lease liability resulting in the increase of the right-of-use asset and the associated lease liability by $
| 22 |
The Company
entered into a lease agreement (Lease 2) for the period of October 2018 to November 2023. At inception, management had included the renewal
period from November 2023 to November 2028 within the initial recognition of the related right of use assets and lease liabilities, as
it was reasonably expected, at the time, that the renewal option would be exercised. The Company determined that the new lease required
measurement and recognition of the lease liability and right-of-use assets of $
The Company
entered into a new warehouse lease (Lease 3) October 2023. The Company determined that the new lease required measurement and recognition
of the lease liability and right-of-use assets of $
In the first quarter of 2024, the Company sold assets and liabilities of Trxade, Inc. and Superlatus, Inc. including the related right of use assets and liabilities. The Company has only Lease 2 active and continuing in the condensed consolidated balance sheet as of March 31, 2024.
The table below reconciles the fixed component of the undiscounted cash flows for Lease 2 of the first five years and the total remaining years to the lease liabilities recorded in the Consolidated Balance Sheet as of March 31, 2024.
| Future lease obligations | ||||
| 2024 remaining | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Total minimum lease payments | ||||
| Less: effect of discounting | ( | ) | ||
| Present value of future minimum lease payments | ||||
| Less: current obligation under lease | ||||
| Long-term lease obligations | $ | |||
| Weighted average discount rate | % | |||
| Weighted average term remaining |
For the three
months ended March 31, 2024, and 2023, total lease expense was $
NOTE 18 – 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:
| ● | IPS - Integra Pharma, LLC - Licensed wholesaler of brand, generic and non-drug products – B2B sales | |
| ● | Unallocated - Other – corporate overhead expense, discontinued operations and Bonum Health, LLC. |
| Three Months Ended March 31, 2024 | Integra | Unallocated | Total | |||||||||
| Revenue | $ | $ | $ | |||||||||
| Gross Profit | ||||||||||||
| Segment Assets | ||||||||||||
| Segment Profit/Loss | ( | ) | ||||||||||
| Cost of Sales | $ | $ | $ | |||||||||
| Three Months Ended March 31, 2023 | Integra | Unallocated | Total | |||||||||
| Revenue | $ | $ | $ | |||||||||
| Gross Profit | ||||||||||||
| Segment Assets | ||||||||||||
| Segment Profit/Loss | ( | ) | ( | ) | ( | ) | ||||||
| Cost of Sales | $ | $ | $ | |||||||||
NOTE 19 – SUBSEQUENT EVENTS
In May 2024, the Company received $
| 23 |
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, 2023, filed with the SEC on April 22, 2024 (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. |
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, 2024. | |
| ● | 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, 2024, and 2023. | |
| ● | 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
The Company owns, as of March 31, 2024, 100% of Trxade, Inc., Integra Pharma Solutions, LLC Bonum Health, Inc., and Bonum Health, LLC. During the year ended December 31, 2023 and a portion of the quarter ended March 31, 2024, Trxade, Inc., operated a web-based market platform that enables commerce among healthcare buyers and sellers of pharmaceuticals, accessories and services.
Integra Pharma Solutions, LLC (“IPS” d.b.a. Trxade Prime), is a licensed pharmaceutical wholesaler and sells brand, generic and non-drug products to customers. IPS customers include all healthcare markets including government organizations, hospitals, clinics and independent pharmacies nationwide.
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On January 20, 2023, the Company entered into Membership Interest Purchase Agreements to sell 100% of the outstanding membership interests of the Company’s former subsidiaries, Community Specialty Pharmacy, LLC (“CSP”) and Alliance Pharma Solutions, LLC (“APS” d.b.a DelivMeds). The Company will receive consideration in the amount of $125,000 for APS and $100,000 for CSP. 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 totaled $1,075,000 as of the closing date of August 22, 2023 (see Note 3 and Note 7).
Bonum Health, LLC (“Bonum Health”), was formed to hold certain telehealth assets acquired in October 2019. The “Bonum Health Hub” was launched in February 2020; however, the Company does not anticipate installations moving forward.
SOSRx, LLC (“SOSRx”) was formed on February 15, 2022. The Company entered into a relationship with Exchange Health, LLC (“Exchange Health”), a technology company providing an online platform for manufacturers and suppliers to sell and purchase pharmaceuticals. SOSRx, a Delaware limited liability company, was formed, which was owned 51% by the Company and 49% by Exchange Health. SOSRx did not generate material revenue and in February of 2023, the Company voluntarily withdrew from the joint venture agreement. As part of the voluntary withdrawal the Company has recorded a loss of $352,244 from disposal of assets, which is included in net loss on discontinued operations in the audited consolidated statement of operations in the amount of for the year ended December 31, 2023.
Merger
On July 14, 2023, the Company entered into an Amended and Restated Agreement and Plan of Merger (the “Merger Agreement”) with Superlatus, Inc., a U.S.-based holding company of food products and distribution capabilities (“Superlatus”) and Foods Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”).
Superlatus is a diversified food technology company with distribution capabilities and systems to optimize food security and population health via innovative Consumer Packaged Goods (“CPG”) products, agritech, foodtech, plant-based proteins and alt-protein and includes wholly-owned subsidiary, Sapientia, Inc. (“Sapientia”), a food tech business.
On July 31, 2023 , the Company completed its acquisition of Superlatus in accordance with the terms and conditions of the Merger Agreement (the “Merger”), pursuant to which the Company acquired Superlatus by way of a merger of the Merger Sub with and into Superlatus, with Superlatus being a wholly owned subsidiary of the Company and the surviving entity in the Merger.
Under the terms of the Merger Agreement, at the closing of the Merger (the “Closing”), shareholders of Superlatus received in aggregate 136,441 shares of common stock of the Company, representing 19.99% of the then total issued and outstanding common stock of the Company after the consummation of the Merger and 306,855 shares of Company’s Series B Preferred Stock, par value $0.00001 per share (the “Series B Preferred Stock”), with a conversion ratio of 100 shares of Series B Preferred Stock to one share of common stock. At Closing, the value of the common stock was $7.30 per share, resulting in a total value of $225,000,169. Upon consummation of the Merger, the Company continued to trade under the current ticker symbol “MEDS.”
Not all of the closing conditions of the Merger Agreement were met. As a result, the Company entered into Amendment No. 1 to the Amended and Restated Agreement and Plan of Merger (the “Amendment”) on January 8, 2024. Under the terms of the Amendment, the merger consideration to the shareholders of Superlatus was adjusted to the aggregate of 136,441 shares of common stock of the Company, representing 19.99% of the total issued and outstanding common stock of the Company after the consummation of the Merger and 15,759 shares of Company’s Series B Preferred Stock, with a conversion ratio of 100 shares of Series B Preferred Stock to one share of common stock. At Closing, the value of the common stock was $7.30 per share, resulting in a total value of $12,500,089. Additionally, the shareholders of Superlatus agreed to surrender back to the Company 291,096 shares of the Company’s Series B Preferred Stock. As described below, in March 2024 the Company divested of its interest in Superlatus.
Dispositions
On February 16, 2024, the Company, together with Trxade, Inc., and Micro Merchant Systems, Inc. (“MMS”) entered into an asset purchase agreement (the “APA”) under which MMS agreed to purchase for cash substantially all of the assets of Trxade, Inc. On February 16, 2024, the parties consummated the closing of the transactions contemplated by the APA. Trxade, Inc. operated a web-based market platform designed to enable trading among healthcare buyers and sellers of pharmaceuticals, accessories and services. The purchase price paid at closing was $22.6 million. Pursuant to the terms and conditions of the APA, because MMS received $1.6 million or greater in certain collections from third parties resulting from any products or services sold, or provided, by the business assets and operations acquired from Trxade, Inc. during the period ending on the four-month anniversary of the closing date, Trxade, Inc. was due an additional $7.5 million payment from MMS. The Company received the $7.5 million in May 2024.
On March 5, 2024, the Company entered in a Stock Purchase Agreement (“SPA”) with Superlatus Foods Inc. (the “Buyer”). Pursuant to the SPA, the Company sold all of the issued and outstanding stock of Superlatus Inc., to the Buyer. The $1.00 purchase price for the Stock was delivered to the Company at the closing, which occurred simultaneously with the execution of the SPA. As a result of the transaction Superlatus is no longer a subsidiary of the Company, and the rights and assets of Superlatus together with various liabilities and obligations that were specific to Superlatus became rights and obligations of Buyer.
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Recent Events
On May 23, 2024, the Company received a notice (the “Notice”) from the Nasdaq Listing Qualifications Department indicating that the Company was not compliant with the timely filing requirement for continued listing under Nasdaq Listing Rule 5250(c)(1) (the “Listing Rule”), which requires listed companies to timely file all required periodic reports with the SEC. The Notice indicates that the Company must, no later than July 22, 2024, submit a plan to regain compliance with respect to the filing requirement. Following receipt of such plan, Nasdaq may grant an extension of up to 180 calendar days from the due date of the Company’s Quarterly Report on Form 10-Q for the period ending March 31, 2024 (the “Form 10-Q”), or until November 18, 2024, for the Company to regain compliance. However, as a result of filing this Form 10-Q, the Company believes it has fully regained compliance with the Nasdaq Listing Rule.
Liquidity and Capital Resources
Cash
Cash was $3,498,812 as of March 31, 2024, compared to $361 as of December 31, 2023. The increase in cash was mainly due to the proceeds from disposition of assets and liabilities of Trxade, Inc. 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, | December 31, | Percent | ||||||||||||||
| 2024 | 2023 | Change | Change | |||||||||||||
| Cash | 3,498,812 | 361 | 3,498,451 | 968108 | % | |||||||||||
| Current assets (excluding cash) | 10,528,004 | 2,752,702 | 7,775,302 | 282 | % | |||||||||||
| Current liabilities | 2,951,387 | 11,556,355 | (8,604,968 | ) | -74 | % | ||||||||||
| Working capital | 11,075,429 | (8,803,292 | ) | 19,878,721 | -226 | % | ||||||||||
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.
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The increase in cash as of March 31, 2024, compared to December 31, 2023, was primarily due to the proceeds from the disposition of assets and liabilities of Trxade, Inc., from the three months ended March 31, 2024 compared to the three months ended March 31, 2023.
Special Cash Dividend
On March 6, 2024, the Company announced the declaration of a special cash dividend of eight dollars ($8.00) per share of common stock, payable to stockholders of record as of March 18, 2024, with the dividend being paid on March 22, 2024. The special dividend of $12,671,072 was paid using a portion of the proceeds from the closing of the sale of the Company’s Trxade assets.
Liquidity Outlook cash explanation
Cash Requirements
Our primary objectives for the remainder of 2024 are continue development and operational expansions on our 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 2024 to March 2025 | Amount | |||
| General and administrative (1) | $ | 4,800,000 | ||
| Total | $ | 4,800,000 | ||
(1) Includes estimated wages and payroll, legal and accounting, marketing, rent and web development.
We may require additional funding in the future to expand or complete acquisitions. The sources of this capital are expected to be equity investments and notes payable. Our plan for the next twelve months is to continue using the same marketing and management strategies to promote our Integra Pharma Solutions assets and operations, exploring strategic transactions involving our corporate assets, while also seeking to expand our operations organically or through acquisitions, as funding and opportunities arise. As our business continues to grow, customer feedback will be integral in making small adjustments to improve our products and overall customer experience. In the event we require additional funding, we plan to raise that through the sale of debt or equity, which may not be available on favorable terms, if at all, and may, if sold, cause significant dilution to existing stockholders. If we are unable to access additional capital moving forward, it may hurt our ability to grow and to generate future revenues.
We believe that we have adequate cash to implement our plan to operate a business-to-business web-based marketplace focused on the United States pharmaceutical industry. Our core service is designed to bring the nation’s independent pharmacies and accredited national suppliers of pharmaceuticals together to provide efficient and transparent buying and selling opportunities.
Cash Flows
The following table summarizes our Consolidated Statements of Cash Flows for the following periods:
| Three Months Ended | ||||||||||||||||
| March 31, | Percent | |||||||||||||||
| 2024 | 2023 | Change | Change | |||||||||||||
| Net loss from continuing operations | (6,636,922 | ) | (1,136,637 | ) | (5,500,285 | ) | 484 | % | ||||||||
| Net cash provided by (used in): | ||||||||||||||||
| Net cash used in operating activities from continuing operations | (9,662,731 | ) | (1,358,582 | ) | (8,304,149 | ) | 611 | % | ||||||||
| Net cash used in (provided by) operating activities from discontinued operations | (526,942 | ) | 427,051 | (953,993 | ) | -223 | % | |||||||||
| Operating Activities | ||||||||||||||||
| Net cash used in investing activities from continuing operations | (2,500,000 | ) | (87,072 | ) | (2,412,928 | ) | 2771 | % | ||||||||
| Net cash provided by investing activities from discontinued operations | 29,932,589 | 420,269 | 29,512,320 | 7022 | % | |||||||||||
| Investing Activities | ||||||||||||||||
| Net cash used in (provided by) financing activities from continuing operations | (13,891,011 | ) | 681,257 | (14,572,268 | ) | -2139 | % | |||||||||
| Net cash used in financing activities from discontinued operations | (5,000 | ) | - | (5,000 | ) | 0 | % | |||||||||
| Financing Activities | ||||||||||||||||
| Net change in cash | 3,346,905 | 82,923 | 3,263,982 | 3936 | % | |||||||||||
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Cash used in operations for the three months ended March 31, 2024, was $(10,189,673), compared to cash used in operations for the three months ended March 31, 2023, of $(931,531). The increase in cash used in operations for the three months ended March 31, 2024, compared to March 31, 2023, was mainly due to shares issued for services at fair value of $4,450,919 and increased professional fees and technology expense.
Cash provided by investing activities for the three months ended March 31, 2024, was $27,432,589 and cash provided by investing activities was $333,197 for the three months ended March 31, 2023. The increase in cash provided by investing activities is related to the disposition of Trxade, Inc. and Superlatus, Inc., partially offset by investment in securities of $2,500,000.
Cash used in financing activities for the three months ended March 31, 2024, was $(13,896,011) compared to cash provided by financing activities for the three months ended March 31, 2023, which was $681,257. The decrease was mainly due to repayment of the net balance of the contingent funding liability of $1,246,346 and payment of dividends of $12,671,072.
Results of Operations
The following selected consolidated financial data should be read in conjunction with the unaudited consolidated financial statements and the notes to these statements included above.
Three Month Period Ended March 31, 2024, compared to Three Month Period Ended March 31, 2023
| Three Months Ended | ||||||||||||||||
| March 31, | Percent | |||||||||||||||
| 2024 | 2023 | Change | Change | |||||||||||||
| Revenues | $ | - | 493,316 | (493,316 | ) | -100 | % | |||||||||
| Cost of sales | - | 420,097 | (420,097 | ) | -100 | % | ||||||||||
| Gross profit | - | 73,219 | (73,219 | ) | -100 | % | ||||||||||
| Operating expenses: | ||||||||||||||||
| Wage and salary expense | 223,172 | 203,401 | 19,771 | 10 | % | |||||||||||
| Professional fees | 179,553 | 135,954 | 43,599 | 32 | % | |||||||||||
| Accounting and legal expense | 339,047 | 248,216 | 90,831 | 37 | % | |||||||||||
| Technology expense | 53,859 | 43,717 | 10,142 | 23 | % | |||||||||||
| General and administrative (less stock-based compensation expense) | 4,676,574 | 233,587 | 4,442,987 | 1902 | % | |||||||||||
| Warrants and options expense | 24,266 | 14,434 | 9,832 | 68 | % | |||||||||||
| Total operating expenses | 5,496,471 | 879,309 | 4,617,162 | 525 | % | |||||||||||
| Change in fair value of warrant liability | (729,889 | ) | 79,891 | (809,780 | ) | -1014 | % | |||||||||
| Interest income | 62,921 | 4,198 | 58,724 | 1399 | % | |||||||||||
| Loss on disposal of asset | (374,968 | ) | (352,244 | ) | 22,724 | 6 | % | |||||||||
| Interest expense | (98,515 | ) | (62,392 | ) | (36,124 | ) | 58 | % | ||||||||
| Net loss from operations | (6,636,922 | ) | (1,136,637 | ) | (5,500,285 | ) | 484 | % | ||||||||
| Loss on discontinued operations | 27,882,955 | 458,684 | 27,424,271 | 5979 | % | |||||||||||
| Net income/(loss) | 21,246,033 | (677,953 | ) | 21,923,986 | -3234 | % | ||||||||||
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There are no revenues for the three months ended March 31, 2024. Revenues decreased by $493,316, compared to the same period ended March 31, 2023.
For the three-month period ended March 31, 2024, cost of goods sold and gross profit were $0, and $420,097 and $73,219, respectively for the same period in 2023. Gross profit as a percentage of sales was 0% for the three months ended March 31, 2024, compared to 14.84% for the three months ended March 31, 2023.
Accounting and legal expenses increased $90,831 for the three months ended March 31, 2024 to $339,047 compared to $248,216 for the comparable period in 2023. The increase is primarily due to increase in amount of legal services during the three months ended March 31, 2024 as compared to the same period in 2023.
Professional fees increased $43,599 to $179,553 compared to $135,954 for the comparable period in 2023. The increase was primarily due to increase in Board members’ fees and consulting expense.
General and administrative expenses (including stock-based compensation expense) increased $4,452,819 for the three months ended March 31, 2024 to $4,700,840 compared to $248,021 for the comparable period in 2023. The increase was mainly due to shares issued for services at fair value of $4,450,919.
Technology expense increased $10,142 for the three months ended March 31, 2024 to $53,859 compared to $43,717 for the comparable period in 2023. The increase was mainly due to increased software expense and software support expense.
We had interest expense, net, of $98,515 for the three months ended March 31, 2024, compared to interest expense, net, of $62,392 for the three months ended March 31, 2023. The increase is due to the higher balance of the accounts receivable advances as a result of advances taken in 2024 and 2023.
We recognized a loss on the change in the fair value of the warrant liability of $729,889 for the three months ended March 31, 2024, compared to a gain of $79,891 during the three months ended March 31, 2023.
During the three months ended March 31, 2024, the Company generated a net loss from continuing operations of $6,636,922 compared to a net loss from continuing operations of $1,136,637 for the three months ended March 31, 2023. The increase in net loss is mainly driven by stock compensation in 2024.
Net profit from discontinued operations increased by $27,424,271 to a net income of $27,882,955 for the three months ended March 31, 2024, compared to a net income from discontinued operations of $458,684 for the three months ended March 31, 2023. The increase was due to the disposal of Trxade, Inc., partially offset by loss on disposal of Superlatus, Inc. during the three months ended March 31, 2024.
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.
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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. provided an online web-based buying and selling platform for licensed pharmaceutical wholesalers (“Suppliers”) to sell products and services to licensed pharmacies (“Customers”). Trxade, Inc. charged 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, was the responsibility of the Supplier, not Trxade, Inc. Trxade, Inc. holds no inventory and assumed no responsibility for the shipment or delivery of any products or services from our website. Trxade, Inc. considered itself an agent for this revenue stream and as such, reported revenue as net. Step One: Identify the contract with the Customers – Trxade, Inc.’s Terms and Use “Agreement,” which outlined the terms and conditions between Trxade, Inc. and the Supplier, was acknowledged and agreed to by the Supplier. Collection was 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 required 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 outlined the fee, which is based on the type of product: generic, brand or non-drug. There were no discounts for volume transactions or early payment of invoices. Step Four: Allocate the transaction price – the Agreement detailed the fee. There was no difference between contract price and “stand-alone selling price”. Step Five: Recognize revenue when or as the entity satisfies a performance obligation – revenue was recognized upon Supplier’s fulfillment of the applicable order. In February 2024, we sold substantially all of the assets and liabilities of Trxade, Inc. to MMS.
Integra Pharma Solutions, LLC (“IPS”) is a licensed wholesaler of brand, generic and non-drug products to Customers. IPS 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 – IPS 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 IPS. 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.
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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
Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms and is accumulated and communicated to the Company’s management, as appropriate, in order to allow timely decisions in connection with required disclosure.
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, as of March 31, 2024, 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, 2024, 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.
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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) The Company did not maintain a fully integrated financial consolidation and reporting system throughout the period and as a result, extensive manual analysis, reconciliation and adjustments were required in order to produce financial statements for external reporting purposes, and (2) The Company does not currently have a sufficient complement of technical accounting and external reporting personnel commensurate to support standalone external financial reporting under public company or SEC requirements. Specifically, the Company did not effectively segregate certain accounting duties due to the small size of its accounting staff and maintain a sufficient number of adequately trained personnel necessary to anticipate and identify risks critical to financial reporting and the closing process. In addition, there were inadequate reviews and approvals by the Company’s personnel of certain reconciliations and other processes in day-to-day operations due to the lack of a full complement
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 has prepared and implemented sufficient written policies and checklists which will set forth procedures for accounting and financial reporting with respect to the requirements and application of U.S. 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 U.S. 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 the Effectiveness of Controls
Management of the Company, including its Chief Executive Officer and its Chief Financial Officer, does not expect that the Company’s disclosure controls and procedures or its internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Furthermore, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons or by the collusion of two or more persons. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting during the quarter ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Our workforce operated primarily in a work from home environment for the three months ended March 31, 2024. While pre-existing controls were not specifically designed to operate in our current work-from-home operating environment, we do not believe that such work-from-home actions have had a material adverse effect on our internal controls over financial reporting. We have continued to re-evaluate and refine our financial reporting process to provide reasonable assurance that we could report our financial results accurately and timely.
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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 16 – 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, 2023, filed with the SEC on April 22, 2024 (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, 2023, 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, 2024, the Company had an accumulated deficit of $25.97 million. However, after the Company’s MMS disposition, the Company had $3.5 million in cash. Furthermore, the Company received $7.5 million in May 2024 pertaining to the final payment of the MMS disposition. The Company believes that its cash as of the issuance date of these consolidated financial statements will be sufficient to meet its funding requirements during the next 12 months. 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.
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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.
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.
Risks Relating to our 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 May 23, 2024, the Company received a notice (the “Notice”) from the Nasdaq listing Qualifications Department indicating that the Company was not compliant with the timely filing requirement for continued listing under Nasdaq Listing Rule 5250(c)(1) (the “Listing Rule”), which requires listed companies to timely file all required periodic reports with the SEC.
The Notice had no immediate effect on the listing or trading of the Company’s common stock. The Notice indicated that the Company must, no later than July 22, 2024, submit a plan to regain compliance with respect to the filing requirement. However, as a result of filing this Form 10-Q, the Company believes it has fully regained compliance with the Nasdaq Listing Rule.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
As previously disclosed and under the terms of the Merger Agreement, at the closing of the Merger (the “Closing”), shareholders of Superlatus received in aggregate 136,441 shares of common stock of the Company, representing 19.9% of the total issued and outstanding common stock of the Company after the consummation of the Merger and 306,855 shares of Company’s Series B Preferred Stock, par value $0.00001 per share (the “Series B Preferred Stock”), with a conversion ratio of 100 to one. Not all of the closing conditions of the Merger Agreement were met. As a result, the Company entered into Amendment No. 1 to the Amended and Restated Agreement and Plan of Merger (the “Amendment”) on January 8, 2024. Under the terms of the Amendment, the merger consideration to the shareholders of Superlatus was adjusted to the aggregate of 136,441 shares of common stock of the Company and 15,759 shares of Company’s Series B Preferred Stock. At Closing, the value of the common stock was $7.30 per share, resulting in a total value of $12,500,089. Additionally, the shareholders of Superlatus agreed to surrender back to the Company 291,096 shares of the Company’s Series B Preferred Stock. As described elsewhere in this Quarterly Report, in March 2024 the Company divested of its interest in Superlatus.
During the three months ended March 31, 2024, the Company issued 470,482 shares of common stock for services. The fair value of shares issued for services were $4,450,919. Such issuances were made in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act.
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 2024.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
(a) During the quarter ended March 31, 2024, there was no information required to be disclosed in a report on Form 8-K which was not disclosed in a report on Form 8-K.
(b) During the quarter ended March 31, 2024, there were no material changes to the procedures by which stockholders may recommend nominees to our board of directors.
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ITEM 6. EXHIBITS
* Filed herewith.
** Furnished herewith.
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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: June 26, 2024 | ||
| By: | /s/ Prashant Patel | |
| Prashant Patel | ||
Interim Chief Financial Officer (Principal Accounting/Financial Officer) | ||
| Date: June 26, 2024 | ||
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