UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-1/A
(Amendment
# 2 )
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
TRXADE
GROUP, INC.
|
(Exact
name of registrant as specified in its charter)
|
DELAWARE
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(State
or other jurisdiction of incorporation or organization)
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5122
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(Primary
Standard Industrial Classification Code Number)
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46-3673928
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(I.R.S.
Employer Identification Number)
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3840
Land O’ Lakes Boulevard, Land O’ Lakes, Florida 34639, (800) 261-0281
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(Address,
including zip code, and telephone number, including area code, of registrant’s principal executive offices)
|
The
Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, Delaware,
1980
|
(
866)
403-5272
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(Name,
address, including zip code, and telephone number, including area code, of agent of service)
|
Copies
of communications to:
Blair
Krueger, Esq.
Krueger
LLP
7486
La Jolla Boulevard
La
Jolla, California 92037
Telephone:
(858) 405-7385
Email:
blair@thekruegergroup.com
From
time to time after the effective date of this Registration Statement
|
(Approximate
date of commencement of proposed sale to the public)
|
If
any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933 check the following box: [X]
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration statement number of the earlier effective registration statement
for the same offering. [ ]
If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If
this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act (Check One):
Large
accelerated filer
|
[ ]
|
Accelerated
filer
|
[ ]
|
Non-accelerated
filer
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[X]
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Smaller
reporting company
|
[X]
|
CALCULATION
OF REGISTRATION FEE
Title
of Each Class of
Securities to be Registered
|
|
Amount
to be
Registered
|
|
Proposed
Maximum
Offering Price
Per Share
1
|
|
Proposed
Maximum
Aggregate
Offering Price
1
|
|
Amount
of
Registration Fee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock,
$0.00001 par value per share
|
|
31,949,712
shares
|
|
$
|
0.
5 5
|
|
|
$
|
13,099,381.92
|
|
|
$
|
1,587.65
|
|
The
registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until
the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective
on such date as the Securities and Exchange Commission (the “SEC” or the “Commission”), acting pursuant
to Section 8(a), may determine.
1
Estimated solely for purposed of calculating the registration fee under Rule 457(a) and (o) of the Securities Act.
The
information contained in this preliminary Prospectus is not complete and may be changed in whole or in part. These securities
may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary
Prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction
where the offer or sale is not permitted.
Subject
to completion June 20 , 2019
TRXADE
GROUP, INC.
31,949,712
SHARES OF COMMON STOCK
The
selling shareholders identified in this Prospectus (the “Selling Shareholders”) may sell or otherwise dispose of 31,949,712
shares (each, a “Share” and collectively, the “Shares”) of common stock of Trxade Group, Inc., a Delaware
corporation (“Trxade” or the “Company”), par value $0.00001. The Company is not offering any shares of
common stock under this Prospectus and we will not receive any proceeds from the sale or other disposition of the Shares covered
hereby.
The
Selling Shareholders (which term includes their respective donees, pledgees, transferees, or other successors-in-interest) may,
from time to time, sell, transfer or otherwise dispose of the Shares or interests therein on any stock exchange, market or trading
facility on which the Shares are traded or in private transactions at fixed prices, at market prices prevailing at the time of
sale, at prices related to the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices.
The Selling Shareholders shall bear all fees, discounts, concessions or commissions of broker-dealers or agents in connection
with this Offering of the Shares by the Selling Shareholders.
Currently, our common
stock is quoted on the OTC Markets Group Inc.’s OTCQB® tier Venture Market (the “OTCQB”) under the trading
symbol, “TRXD.” On June 17 , 2019, the last reported sale price of our common stock on the OTCQB was $0.5 5
per share. Following the effectiveness of our registration statement (of which this Prospectus forms a part), we intend that
quotation of our common stock on the OTCQB shall continue under the symbol, “TRXD”.
We
are an “emerging growth company” under applicable federal securities laws and are subject to reduced public company
reporting requirements.
See “
Risk Factors
”
starting on Page 9. Prices of our common stock as reported
on the OTCQB may not be indicative of the prices of our common stock if our common stock were traded on some other exchange. Accordingly,
an investment in our Shares is considered an illiquid investment and subject to many risks.
See
“Plan of Distribution”
beginning on Page 25 of this Prospectus for more information about how the Selling Shareholders may sell their Shares of common
stock.
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or
passed upon the adequacy or accuracy of this Prospectus. Any representation to the contrary is a criminal offense.
The
date of this Prospectus is June 20 , 2019
TABLE
OF CONTENTS
ABOUT
THIS PROSPECTUS
This
Prospectus is part of a registration statement on Form S-1 that we filed with the United States Securities and Exchange Commission
(the “SEC”). Under this registration statement, the Selling Shareholders may sell, at any time and from time to time,
in one or more offerings, up to 31,949,712 shares of common stock. When the Selling Shareholders elect to make an offer of any
common stock described in this Prospectus, pursuant to this registration statement, a Prospectus supplement, if required, may
be distributed that will contain specific information about the terms of that offering. Any required Prospectus supplement may
also add, update or change information contained in this Prospectus.
You
should only rely on the information contained or incorporated by reference in this Prospectus and any Prospectus supplement. No
person has been authorized to give any information or make any representations other than those contained or incorporated by reference
in this Prospectus or any accompanying Prospectus supplement in connection with the offering described herein and therein, and,
if given or made, such information or representations must not be relied upon as having been authorized by us or the Selling Shareholders.
You
should read the entire Prospectus and any Prospectus supplement, as well as the documents incorporated by reference into this
Prospectus or any Prospectus supplement, before making an investment decision. Neither the delivery of this Prospectus or any
Prospectus supplement nor any sale made hereunder shall under any circumstances imply that the information contained or incorporated
by reference herein or in any Prospectus supplement is correct as of any date subsequent to the date hereof or of such Prospectus
supplement, as applicable. You should assume that the information appearing in this Prospectus, any Prospectus supplement or any
document incorporated by reference is accurate only as of the date of the applicable documents, regardless of the time of delivery
of this Prospectus or any sale of securities. Our business, financial condition, results of operations and prospects may have
changed since that date.
This
Prospectus may be supplemented from time to time by one or more Prospectus supplements. Any such Prospectus supplements may include
additional or different information, such as additional or different risk factors or other special considerations applicable to
us or our business, financial condition or results of operations. If there is any inconsistency between the information in this
Prospectus and any Prospectus supplement, you should rely on the information contained in the Prospectus supplement.
This
Prospectus is neither an offer to sell nor a solicitation of an offer to buy any securities other than those registered by this
Prospectus, nor it is an offer to sell or a solicitation of an offer to buy securities where an offer or solicitation would be
unlawful.
Unless
the context requires otherwise, references in this Prospectus to “Trxade,” “the Company,” “we,”
“us” and “our” refer to Trxade Group, Inc., a Delaware corporation, and our consolidated subsidiaries.
This Prospectus, including the documents incorporated herein by reference, contains references to a number of trademarks that
are our registered trademarks or those of our affiliates, or trademarks for which we or our affiliates have pending registration
applications or common law rights. This Prospectus may also include trade names, trademarks and service marks of other companies
and organizations.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This
Prospectus, each Prospectus supplement and the information incorporated by reference in this Prospectus and each Prospectus supplement
contain certain statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities
Act, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). The words “believe,” “may,” “will,” “potentially,” “estimate,”
“continue,” “anticipate,” “intend,” “could,” “would,” “project,”
“plan,” “expect” and the negative and plural forms of these words and similar expressions are intended
to identify forward-looking statements, but are not the exclusive means of identifying such statements. Those statements appear
in this Prospectus, any accompanying Prospectus supplement and the documents incorporated herein and therein by reference, particularly
in the sections titled “Prospectus Summary” and “Risk Factors,” and include statements regarding the intent,
belief or current expectations of the Company and management that are subject to known and unknown risks, uncertainties and assumptions.
This
Prospectus, any Prospectus supplement and the information incorporated by reference in this Prospectus and any Prospectus supplement
also contain statements that are based on the current expectations of our Company and management. You are cautioned that any such
forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results
may differ materially from those projected in the forward-looking statements as a result of various factors.
Because
forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified,
you should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in
the forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in
the forward-looking statements. Except as required by applicable law, including the securities laws of the United States and the
rules and regulations of the SEC, we do not plan to publicly update or revise any forward-looking statements contained herein
after we distribute this Prospectus, whether as a result of any new information, future events or otherwise.
PROSPECTUS
SUMMARY
About
Trxade Group, Inc.
We
have designed and developed, and now own and operate, a business-to-business, web-based marketplace focused on the United States
pharmaceutical industry. Our core service brings the nation’s independent pharmacies and accredited national suppliers of
pharmaceuticals together to provide efficient and transparent buying and selling opportunities. Our executive offices are located
at 3840 Land O’ Lakes Boulevard, Land O’ Lakes, Florida 34639, and our telephone number is (866)-403-5272. We may
refer to ourselves in this Prospectus as “Trxade,” the “Company,” “we,” or “us.”
We
began operations as Trxade Nevada in August of 2010 and initially spent two years creating and enhancing our web-based services.
Our services provide enhanced pricing transparency, purchasing capabilities and other value-added services on a single platform
to focus on serving the nation’s approximately 24,000 independent pharmacies with an annual purchasing power of $96 billion.
Our national supplier partners are able to fulfill orders on our platform immediately and provide the pharmacy with cost saving
payment terms and next day delivery capabilities in unrestrictive states under the Model State Pharmacy Act and Model Rules of
the National Association of Boards of Pharmacy (Model Act). We have expanded rapidly since 2015 and now have over 10,000 registered
pharmacy members purchasing products on our sales platform.
In
December 2013, we launched a second service to help pharmaceutical distributors’ better source their pharmaceutical needs
within a highly structured single platform. This solution is designed to help purchasers overcome pharmaceutical supply issues
as a means to control costs on drugs with volatile pricing, as well as to help our buyers make better purchasing choices based
on their needs. Additionally, we built and, in February 2014, launched a new desktop application, named “RxGuru”,
to bring product information on a just-in-time basis to our member base. Our pharmacy members should benefit from this application
by gaining advanced data analytics at point of purchase and patient care. RxGuru has been upgraded to continue the benefit to
the pharmacies.
In
2015 and 2016, through Westminster Pharmaceuticals, LLC, our wholly-owned subsidiary and distribution division (“Westminster”),
we launched a private label pharmaceutical product program and entered into various supply contracts with pharmaceutical manufacturers
to supply Westminster with generic pharmaceutical products on a private label basis to sell to our customers. In connection with
this expansion, Westminster received significant funding in late 2015 and early 2016. Westminster was not profitable and in December
2016 we sold this division and exited the private label distribution business.
In
October 2018, we acquired 100 percent of Community Specialty Pharmacy, LLC (“CSP”) an accredited independent retail
pharmacy with a focus on specialty medications. CSP operates with an innovative pharmacy model which offers home delivery services
to any patient thereby providing convenience. We intend to continue CSP’s pharmacy model.
In
late 2018, we launched
Delivmeds.com
, a consumer-based app to provide delivery of pharmaceutical products operating as
part of Alliance Pharma Solutions, LLC (“Alliance”). In early 2019 we launched
Trxademso.com
, as part of the
SyncHealth MSO, LLC joint venture, to assist independent retail pharmacies to better compete with large national pharmacies on
pricing, distribution and logistics. To date, we have not generated any revenue from these products.
We
have no current intentions, plans, arrangements, commitments or understandings to engage in a merger or acquisition with another
company nor do we, or any of our shareholders, to our knowledge, have any plans to enter into a change of control or similar type
of transaction not necessarily true as we are looking to acquire Suren’s other company.
Our
Principal Products and Services and their Markets.
Trxade.com
is a web-based pharmaceutical marketplace engaged in promoting and enabling commerce among independent pharmacies and large
pharmaceutical suppliers nationally. Our marketplace has hundreds of suppliers providing over 20,000 branded and generic drugs
available for purchase by pharmacists. We already serve over 10,000 independent pharmacies with access to our proprietary pharmaceutical
database, data analytics regarding medication pricing, and manufacturer return policies. We generate revenues from these services
by charging a transaction fee to the seller of the products for sales conducted via our Trxade platform. The buyers do not bear
the cost of transaction fees for the purchases which they make, nor do they pay a fee to join or register with our platform. Substantially
all of our revenues during the years ended December 31, 2018, and 2017, were from platform revenue generated on
www.Trxade.com.
For additional information, please visit us at
http://www.trxadegroup.com, http://www.trxade.com, http://www.delivmeds.com,
and https://www.trxademso.com.
Status
of any publicly announced new products or services.
We
have a number of products and services still in development, which are described below.
InventoryRx.com
.
InventoryRx, launched in the first quarter of 2014, is a web-based pharmaceutical exchange platform where wholesalers can buy
and sell pharmaceuticals or over-the-counter medications with each other in a systematized online sales platform. The site offers
these trading partners’ greater product availability and pricing transparency. The site may also substantially improve our
customers buying efficiency and lower their cost of goods on a continuous basis. This product is built into the
Trxade.com
platform and, accordingly, we have not generated any independent revenue from this product.
Pharmabayonline
.
We formed Pharmabayonline to provide proprietary pharmaceutical data analytics and governmental reimbursement benchmarks analysis
to United States-based independent pharmacies and pharmaceutical databases.
RxGuru
.
Our RxGuru application was launched in the first quarter of 2014 and underscores our commitment to deliver timely information
to our customers at the moment before purchase. Our industry leading price prediction model, “RxGuru”, integrates
product insight into pharmacy acquisition benchmarks (“PAC”) to ascertain trends and pricing variances which result
in significant purchasing opportunities. “RX Guru” helps to predict prices and affords our members an opportunity
continuously to benefit from real price purchasing opportunities that are often concealed from the rest of the industry. This
product is built into the
Trxade.com
platform and, accordingly, this application works in conjunction with the Trxade platform
but, to date, has not generated any independent revenue.
Integra
Pharma Solutions, LLC
. Integra is intended to serve as our logistics company for pharmaceutical distribution and has limited
operations and revenue at this time.
Community
Specialty Pharmacy, LLC
. We acquired CSP on October 15, 2018. CSP is an accredited pharmacy located in St. Petersburg, Florida
and focuses upon specialty medications. The company operates with an innovative pharmacy model which offers home delivery services
to any patient thereby providing convenience.
See
Note 12 of the Notes to Consolidated Financial Statements for information
concerning the business combination and our Current Report on Form 8-K filed on December 28, 2018.
Delivmeds.com
.
Delivmeds.com
was launched in late 2018 as a consumer-based app to provide delivery of pharmaceutical products associated
with Alliance Pharma Solutions, LLC. To date, we have not generated any revenue from this product.
Trxademso
.
Trxademso was launched early 2019 as part of the SyncHealth MSO, LLC joint venture to assist independent retail pharmacies to
compete better with large national pharmacies on pricing, distribution and logistics. To date, we have not generated any revenue
from this product.
All
our product offerings are focused on the United States markets. Some products are restricted just to certain states, depending
upon the various applicable state regulations and guidelines pertaining to pharmaceuticals, particularly, and drug businesses,
generally. Our services are distributed through our online platform.
The
Pharmaceutical Industry
According
to the
2013-14 Economic Report on Retail, Mail, and Specialty Pharmacies
by Adam J. Fein, Ph.D. (the “Fein Report”),
United States pharmaceutical companies comprise a burgeoning $330 billion industry consisting of over 65,000 pharmacy facilities
and 700 DEA-registered (and 1,500 State-licensed) suppliers. Management believes that few platforms currently in place to bring
these participants together to share market knowledge, product pricing transparency and product availability. According to this,
the pharmaceutical market is comprised primarily of three wholesalers that control an estimated approximately 92% of the market.
Our management believes that this concentration has, over the years, led to a lack of price and cost transparency, thereby resulting
in severe limitations on the purchasing choices of industry participants. These market dynamics have enabled these large wholesalers
(McKesson, Cardinal Health and AmerisourceBergen), known as ADR distributors, to dominate the industry with respect to both generic
and brand pharmaceuticals. The increasing concentration of generic medications (ANDA, or “Abbreviated New Drug Application”),
however, with many more expected to go to market in the near future (approximately $80 billion branded medications will lose their
patent protection within the next ten years), have enabled smaller suppliers’ access to an increasing number of medications
at highly discounted prices. The market is slowly changing towards one where medications will become a commoditized and influenced
by price rather than the business relationships imposed by the dominant participants of the past.
To
fuel this change, insurance companies (Pharmacy Benefits Management (“PBM”) and private health payers) and the federal
government have recently initiated lower medication reimbursement payments to healthcare providers. We believe that pharmacies
in due course will face increasing pressure to source medications as inexpensively as possible and improve operational efficiency.
Trxade seeks to be in the forefront of solving these transparency and pricing concerns by providing independent, retail pharmacies
with real-time, pharmacy acquisition cost (“PAC”) benchmarks to the National Drug Code (the “NDC”) standard.
The NDC mark is a unique product identifier used in the United States for drugs intended for human use.
This
Offering
The
Selling Shareholders named in this Prospectus may offer and sell up to
31,949,712
shares of our common stock, par value $0.00001 per share. Our common stock is currently
listed
on the OTC Markets Group Inc.’s OTCQB® tier Venture Market (the “OTCQB”) under the trading
symbol, “TRXD.” On June 17 , 2019, the last reported sale price of our common stock on the OTCQB was $0.5 5
per share.
Shares of our common stock that may be offered under this Prospectus will
be fully paid and non-assessable. We will not receive any of the proceeds of sales by our Selling Shareholders of any of the common
stock covered by this Prospectus.
Shares
of Common Stock Offered
|
Maximum
of 31,949,712 Shares. No minimum number of Shares must be sold to close.
|
|
|
Use
of Proceeds
|
We
will not receive any of the proceeds from the sale or other disposition by the Selling Shareholders or their transferees of
the Shares of common stock covered hereby.
|
|
|
Termination
of this Offering
|
The
Offering will conclude when all 31,949,712 Shares of common stock have been sold, or 180 days after this registration statement
becomes effective with the Securities and Exchange Commission. At our discretion we may extend this Offering for an additional
180 days.
|
|
|
Risk
factors
|
Purchase
of our common stock involves a high degree of risk. The common stock offered in this Prospectus is for investment purposes
only and currently only a limited market exists for our common stock. Please refer to the section entitled “Risk Factors”
before making an investment in our common stock.
|
|
|
Trading
symbol
|
Our
common stock trades on the OTC Markets Group Inc.’s OTCQB® tier Venture Market (the “OTCQB”) under the
trading symbol “TRXD”.
|
RISK
FACTORS
You
should be aware that there are substantial risks for an investment in our common stock. You should carefully consider these risk
factors, along with the other information included in this Prospectus, before you decide to invest in our common stock.
If
any of the following risks were to occur, such as our business, financial condition, results of operations or other prospects,
any of these could materially affect our likelihood of success. If that happens, the market price of our common stock, if any,
could decline, and prospective investors would lose all or part of their investment in our common stock.
Risks
Related to the Business
Our
business, financial condition and results of operations are subject to various risks and uncertainties, including those described
below and elsewhere in this Report. This section discusses factors that, individually or in the aggregate, we think could cause
our actual results to differ materially from expected and historical results. Our business, financial condition or results of
operations could be materially adversely affected by any of these risks. It is not possible to predict or identify all such factors.
Consequently, the following description of Risk Factors is not a complete discussion of all potential risks or uncertainties applicable
to our business.
Our
internal controls may be inadequate, which could cause our financial reporting to be unreliable and lead to misinformation being
disseminated to the public.
Management
is responsible for establishing and maintaining adequate internal control over our financial reporting. As defined in Exchange
Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal
executive and principal financial officer and effected by the board of directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles and includes those policies and procedures that:
|
●
|
pertain
to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of
the assets of the Company;
|
|
●
|
provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance
with authorizations of management and/or directors of the Company;
|
|
●
|
and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on the financial statements.
|
We
will not be required to provide an assessment of the effectiveness of internal controls over financial reporting until our second
annual report after the completion of our Offering. And our auditor’s attestation of management’s evaluation of effectiveness
of the internal controls is not required as long as we are an emerging growth company under the Jumpstart Our Business Startups
Act and/or a smaller reporting company as that term is defined. Despite these requirements, any delayed implementation of our
internal controls may be inadequate or ineffective, which could cause our financial reporting to be unreliable and lead to misinformation
being disseminated. Investors relying upon this misinformation may make an uninformed investment decision.
We
are an emerging growth company within the meaning of the Securities Act, and as a consequence of taking advantage of certain exemptions
from reporting requirements that are available to emerging growth companies, our financial statements may not be comparable to
companies that comply with public company effective dates.
We
are an emerging growth company as defined in Section 2(a)(19) of the Securities Act of 1933, as amended (the “Securities
Act”). Pursuant to Section 107 of the Jumpstart Our Business Startups Act, we may take advantage of the extended transition
period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards, meaning that
we can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We
have chosen to take advantage of the extended transition period for complying with new or revised accounting standards applicable
to public companies to delay adoption of such standards until such standards are made applicable to private companies. Accordingly,
our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised
accounting standards.
The
costs of being a public company could result in us being unable to continue as a going concern.
As
a public company, we will be required to comply with numerous financial reporting and legal requirements, including those pertaining
to annual audits, quarterly review and reporting and internal controls. The costs of this compliance could be quite significant.
If revenues are insufficient, or we cannot satisfy many of these costs through the issuance of shares, we may be unable to satisfy
these costs through the normal course of business which would result in being unable to continue as a going concern.
We
were recently unprofitable and we may incur losses in the future.
In
2017, we became profitable for the first time; in prior years, we were unprofitable and generated a net accumulated deficit of
($8,120,113). Our current business model has been in constant and improved development since 2010 with results that culminated
in our first profit for the year ended December 31, 2017. Revenues generated from our consolidated operations for the years ended
December 31, 2018 and 2017 were $3,831,778 and $2,931,280, respectively. Revenues generated from our consolidated operations for
the three month period ended March 31, 2019 and 2018 was $1,512,521 and $852,923, respectively.
We
incurred positive net income for the years ended December 31, 2018 and 2017 of $9,038 and $288,983, respectively. We may incur
other losses in the foreseeable future due to the significant costs associated with our business development, including costs
associated with maintaining compliance under SEC reporting standards. We cannot assure you that our operations will annually generate
sufficient revenues to fund our continuing operations or to fully implement our business plan, and thereafter sustain profitability
in any future period.
The
likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently
encountered in connection with the start and growth of a business, the implementation and execution of our business plan, and
the regulatory environment affecting the distribution of pharmaceuticals in which we operate.
If
we do not obtain additional financing, our business, prospects, financial condition and results of operations will be adversely
affected.
Management
anticipates that we will require additional working capital to pursue continued development of products, services, and marketing
operations. We cannot accurately predict the timing and amount of such capital requirements. 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 its development activities (or perhaps even cease the operation of our business).
We
have no commitments for any additional financing, and there can be no assurance that any such commitments can 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.
Many
of our competitors are better established and have resources significantly greater than we have, which may make it difficult to
fend off competition.
We
expect to compete with our three largest ADR distributors (McKesson, Cardinal Health and AmerisourceBergen), in addition to other
pharmaceutical distributors, buying groups, software products, and various start-up drug companies. Many of these operations have
substantially greater financial and manufacturer-backed resources, longer operating histories, greater name recognition and more
established relationships in the industry than us. In addition, a number of these competitors may combine or form strategic partnerships.
As a result, our competitors may establish a more favorable footing in the pharmaceutical industry with respect to pricing or
other factors. Our failure to compete successfully with any of these companies would have a material adverse effect on our business
and the trading price of our common stock.
The
three distributors listed above have a strong control over our industry, as they have contracts with the 24,000 independent, retail
pharmacies that limit the participants’ ability to purchase pharmaceuticals outside of those primary distributors. Additional
restrictive elements exist within the pharmaceutical channels of distribution. For example, a number of the inventory management
systems, either developed by the distributors or third-party vendors, have been developed to require compliance to these restrictive
purchasing agreements. Management anticipates that other existing and prospective competitors will adopt technologies or business
plans similar to ours, or seek other means to develop operations competitive with ours, particularly if our development of large-scale
production progresses as scheduled.
We
will need to expand our member base or our profit margins to attain profitability.
Currently,
we are paid an administrative fee of up to 6 percent of the buying price on the generic pharmaceuticals sold to pharmacies and
up to 1 percent on brand pharmaceuticals that pass through our pharmaceutical exchanges. Our management is aware that the competitiveness
of the group of suppliers that participate in our system and price products on our exchange is a key factor in determining how
many purchasing pharmacies and wholesalers will purchase products through our platforms. However, price is not the only factor
that influences where retail pharmacies will obtain their product. Quality fulfillment services are also important, and retail
pharmacies have historically received quality fulfillment services from the three major ADR distributors. In order to be more
competitive, we must improve our customer service and wholesaler fulfillment efforts, because the independent, retail pharmacy
has for years considered this element of the fulfillment process as important as price. Other factors influencing the pharmacies
purchasing behavior in the future will be changes brought upon by the Affordable Care Act, which regulates some aspects of pharmaceutical
spending and pricing. Management believes that we should benefit substantially from our pricing and product knowledge that is
offered by our platform.
Profitability
may be further increased as a result of lower cost of goods should the Company build stronger relationships with manufacturers
and other larger buying groups that serve wholesalers and distributors. On a larger scale, those margins will drop depending upon
the breadth of products provided in the market and the sale turn rates required. We are currently undertaking a significant effort
to increase our membership base through attendance at annual conferences and other strategies. Trxade has an expanded e-mail marketing
strategy based on our competitive price advantages and price trend analysis tools.
There
are inherent risks associated with our operations within the Pharmaceutical Distribution Markets.
There
are inherent risks involved with doing business within the pharmaceutical distribution channel, including:
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Improperly
manufactured products may prove dangerous to the end consumer.
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Products
may become adulterated by improper warehousing methods or modes of shipment.
|
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Counterfeit
products or products with fake pedigree papers.
|
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Unlicensed
or unlawful participants in the distribution channel.
|
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Risk
with default and the assumption of credit loss.
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Risk
related to the loss of supply, or the loss of a number of suppliers.
|
Although
all of our end-user agreements require our customers to indemnify us and for any and all liabilities resulting from our participation
in the pharmaceutical distribution industry, we cannot assure you that the parties required to provide such indemnification will
have the financial resources to do so. Additionally, although we have evaluated appropriate state statutes and federal laws pertaining
to pharmaceutical distribution in an effort to diminish our risks, the Board of Pharmacy for each state is responsible for interpreting
their state laws, and their interpretations may not comport with our analysis. It is also possible that any third-party logistics
arrangements may disrupt service, create a loss of income, or other unforeseen disruptions should the service provider experience
any legal, financial or other difficulties of their own.
Regulatory
changes that affect our distribution channels could also harm our business.
Certain
states, including California, Florida, Nevada, New Mexico and Indiana, have enacted laws that prohibit lateral movement of pharmaceuticals
within the distribution channel. These laws prohibit wholesalers from selling pharmaceuticals directly from or to other wholesalers
where they maintain inventory. Other states may in the future enact similar laws that place restrictions in pharmaceutical trading
within the Trxade platforms. At the federal level, the implementation of the track and trace legislation by 2017 requiring the
use of pharmaceutical pedigree may, in the future, restrict and disrupt the movement of pharmaceuticals along the supply chain
should the cost of complying with this new legislation be too burdensome for smaller suppliers. Changes in the United States healthcare
industry and regulatory environment could have a material adverse impact on our results of operations.
Many
of our products and services are intended to function within the structure of the healthcare financing and reimbursement system
currently being used in the United States. In recent years, the healthcare industry in the United States has changed significantly
in an effort to enhance efficiencies, reduce costs and improve patient outcomes. These changes have included cuts in Medicare
and Medicaid reimbursement levels, changes in the basis for payments, shifting away from fee-for-service and towards value-based
payments and risk-sharing models, increases in the use of managed care, and consolidation in the healthcare industry generally.
We expect that the healthcare industry in the United States shall continue to change and evolve in the near future. Changes in
the healthcare industry’s (or our pharmaceutical suppliers’) pricing, selling, inventory, distribution or supply policies
or practices could significantly reduce our revenues and net income. Additionally, if we experience disruptions in our supply
of generic drugs, our margins could be adversely affected.
We
distribute generic pharmaceuticals, which can be subject to both price deflation and price inflation. Continued volatility in
the availability, pricing trends or reimbursement of these generic drugs, or significant fluctuations in the nature, frequency
and magnitude of generic pharmaceutical launches, could have a material adverse impact on our results of operations. Additionally,
any future changes in branded and generics drug pricing could be significantly different than our projections. Generic drug manufacturers
are increasingly challenging the validity or enforceability of patents on branded pharmaceutical products. During the pendency
of these legal challenges, a generics manufacturer may begin manufacturing and selling a generic version of the branded product
prior to the final resolution of its legal challenge over the branded product’s patent. To the extent we source, contract
manufacture, and distribute such generic products, the brand-name company could assert infringement claims against us. While we
generally obtain indemnification against such claims from generic manufacturers as a condition of distributing their products,
there can be no assurances that these rights will be adequate or sufficient to protect us.
The
healthcare industry is highly regulated, and further regulation of our distribution businesses and technology products and services
could impose increased costs, negatively impact our profit margins and the profit margins of our customers, delay the introduction
or implementation of our new products, or otherwise negatively impact our business and expose us to litigation and regulatory
investigations.
Healthcare
fraud laws are often vague and uncertain, exposing us to potential liability.
We
are subject to extensive, and frequently changing, local, state and federal laws and regulations relating to healthcare fraud,
waste and abuse. Local, state and federal governments continue to strengthen their position and scrutiny over practices involving
fraud, waste and abuse affecting Medicare, Medicaid and other government healthcare programs. Many of the regulations applicable
to us, including those relating to marketing incentives, are vague or indefinite and have not been interpreted by the courts.
The regulations may be interpreted or applied by a prosecutorial, regulatory, or judicial authority in a manner that could require
us to make changes in our operations. If we fail to comply with applicable laws and regulations, we could become liable for damages
and suffer civil and criminal penalties, including the loss of licenses or our ability to participate in Medicare, Medicaid and
other federal and state healthcare programs.
Laws
reducing reimbursements for pharmaceuticals could ruin our industry.
Both
our profit margins and the profit margins of our customers may be adversely affected by laws and regulations reducing reimbursement
rates for pharmaceuticals, medical treatments and related services, or changing the methodology by which reimbursement levels
are determined. The federal government may adopt measures that could reduce Medicare or Medicaid spending, or impose additional
requirements on healthcare entities. We cannot predict what alternative or additional deficit reduction initiatives or Medicare
payment reductions, if any, will ultimately be enacted into law, or the timing or affect any such initiatives or reductions would
have on us. There can be no assurance that the preceding changes would not have a material adverse impact on our results of operations
Operating,
security and licensure standards of federal agencies challenge our ability to comply with applicable laws and regulations.
We
are subject to the operating and security standards of the Drug Enforcement Administration (the “DEA”), the U.S. Food
and Drug Administration (the “FDA”), various state boards of pharmacy, state health departments, the U.S. Department
of Health and Human Services (“HHS”), the CMS, and other comparable agencies. Although we have enhanced our procedures
to ensure compliance, there can be no assurance that a regulatory agency or tribunal would conclude that our operations are compliant
with applicable laws and regulations. In addition, there can be no assurance that we will be able to maintain or renew existing
permits, licenses or any other regulatory approvals or obtain without significant delay future permits, licenses or other approvals
needed for the operation of our businesses. Any noncompliance by us with applicable laws and regulations or the failure to maintain,
renew or obtain necessary permits and licenses could lead to litigation and have a material adverse impact on our results of operations.
Pedigree
tracking laws and regulations could increase our regulatory burdens.
Congress
and state and federal agencies, including state boards of pharmacy and departments of health and the FDA, have made increased
efforts in the past year to regulate the pharmaceutical distribution system in order to prevent the introduction of counterfeit,
adulterated or mislabeled drugs into the pharmaceutical distribution system (otherwise known as “pedigree tracking”).
In November 2013, Congress passed (and President Barack Obama signed into law) the Drug Quality and Security Act (the “DQSA”).
The DQSA establishes federal standards requiring supply-chain stakeholders to participate in an electronic, interoperable, lot-level
prescription drug track-and-trace system. The law also preempts state drug pedigree requirements and establishes new requirements
for drug wholesale distributors and third-party logistics providers, including licensing requirements in states that had not previously
licensed such entities.
In
addition, the Food and Drug Administration Amendments Act of 2007 requires the FDA to establish standards and identify and validate
effective technologies for the purpose of securing the pharmaceutical supply chain against counterfeit drugs. These standards
may include track-and-trace or authentication technologies, such as radio frequency identification devices, 2D data matrix barcodes,
and other similar technologies. On March 26, 2010, the FDA released the Serialized Numerical Identifier (the “SNI”)
guidance for manufacturers who serialize pharmaceutical packaging. We expect to be able to accommodate these SNI regulations in
our distribution operations. The DQSA and other pedigree tracking laws and regulations could increase the overall regulatory burden
and costs associated with our pharmaceutical distribution business and could have a material adverse impact on our results of
operations.
We
are uncertain how new privacy laws shall be interpreted.
There
are numerous federal and state laws and regulations related to the privacy and security of personal information. In particular,
regulations promulgated pursuant to the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) establish
privacy and security standards that limit the use and disclosure of individually identifiable health information (known as “protected
health information”) and require the implementation of administrative, physical and technological safeguards to protect
the privacy of protected health information and ensure the confidentiality, integrity and availability of electronic protected
health information. We are directly subject to certain provisions of the regulations as a “Business Associate” through
our relationships with customers. We are also directly subject to the HIPAA privacy and security regulations as a “Covered
Entity” with respect to our operations as a healthcare clearinghouse, specialty pharmacy and medical surgical supply business.
If we are unable to properly protect the privacy and security of protected health information entrusted to us, we could be found
to have breached our contracts with our customers. Further, if we fail to comply with applicable HIPAA privacy and security standards,
we could face civil and criminal penalties. Although we have implemented and continue to maintain policies and processes to assist
us in complying with these regulations and our contractual obligations, we cannot provide assurances regarding how these regulations
will be interpreted, enforced or applied by the government and regulators to our operations. In addition to the risks associated
with enforcement activities and potential contractual liabilities, our ongoing efforts to comply with evolving laws and regulations
at the federal and state level might also require us to make costly system purchases /or modifications from time to time.
There
are continued uncertainties associated with efforts to change or repeal healthcare reforms, and we cannot predict their full effect
on us at this time.
The
Affordable Care Act (the “ACA”) significantly expanded health insurance coverage to uninsured Americans and changed
the way healthcare is financed by both governmental and private payers. While certain provisions of the ACA took effect immediately,
others have delayed effective dates or require further rulemaking action or regulatory guidance by governmental agencies to implement
or finalize (e.g. nondiscrimination in health programs and activities, or excise taxes on high-cost employer-sponsored health
coverage). Further, as a result of the November 2016 U.S. presidential election, there are continued uncertainties associated
with efforts to change or repeal certain provisions of the ACA or other healthcare reforms, and we cannot predict their full effect
on thus at this time. A top legislative priority of the Trump presidential administration and Congress may be significant reform
of the ACA, as discussed above. While there is currently a substantial lack of clarity around the likelihood, timing and details
of any such policies and reforms, such policies and reforms may have a material adverse impact on our results of operations.
Medical
billing and coding laws may subject us to fines and investigations.
Medical
billing, coding and collection activities are governed by numerous federal and state civil and criminal laws. In connection with
these laws, we may be subjected to federal or state government investigations and possible penalties may be imposed upon us, false
claims actions may have to be defended, private payers may file claims against us and we may be excluded from Medicare, Medicaid
or other government-funded healthcare programs. Any such proceeding or investigation could have a material adverse impact on our
results of operations.
System
errors or failures of our platform or services to conform to specifications could cause unforeseen liabilities or injury, harm
our reputation and have a material adverse impact on our results of operations.
The
software and technology services that we operate are complex. As with complex systems offered by others, our software and technology
services may contain errors, especially when first introduced. Failure of a customer’s system to perform in accordance with
our documentation could constitute a breach of warranty and could require us to incur additional expense in order to make the
system comply with the documentation. If such failure is not remedied in a timely manner, it could constitute a material breach
under a contract, allowing the client to cancel the contract, obtain refunds of amounts previously paid, or assert claims for
significant damages.
We
may apply working capital and future funding to uses that ultimately do not improve our operating results or increase the value
of your investment.
In
general, we have complete discretion over the use of our working capital and any new investment capital we may obtain in the future.
Because of the number and variety of factors that could determine our use of funds, there can be no assurance that our ultimate
expenditure of funds (and their uses) will not vary substantially from our current intended operating plan for such funds.
We
intend to use existing working capital and future funding to support the development of our products and services, product purchases
in our wholesale distribution division, the expansion of our marketing, or the support of operations to educate our customers.
We will also use capital for market and network expansion, acquisitions, and general working capital purposes. However, we do
not have more specific plans for the use and expenditure of our capital. Our management has broad discretion to use any or all
of our available capital reserves. Our capital could be applied in ways that do not improve our operating results or otherwise
increase the value of a shareholder’s investment.
We
do not have a traditional credit facility with a financial institution, which may adversely impact our operations.
We
do not have a traditional credit facility with a financial institution, such as a working line of credit. The absence of such
a facility could adversely impact our operations, as it may constrain our ability to have available the working capital for equipment
purchases or other operational requirements. If adequate funds are not otherwise available, we may be required to delay, scale
back or eliminate portions of our business development efforts. Without credit facilities, we could be forced to cease operations
and investors in our securities could lose their entire investment.
We
are dependent upon our current management, who may have conflicts of interest.
We
are dependent upon the efforts of our current management. All of our officers and directors have duties and affiliations with
other companies. Even though these companies are not competitors or involved in pharmaceutical distribution, involvement of our
officers and directors in other businesses may still present a conflict of interest regarding decisions they make for Trxade or
with respect to the amount of time available for Trxade. The loss of any of our officers or directors and, in particular, Mr.
Patel or Mr. Ajjarapu, could have a materially adverse effect upon our business and future prospects.
We
do not have key-man life insurance upon the life of any of our officers or directors. While our management team has considerable
information technology and entrepreneurial experience, none of our management was been involved in pharmaceutical distribution
prior to joining the Company and, as such, did not have any technical experience in pharmaceutical distribution prior to joining
us. Upon adequate funding, management intends to hire qualified and experienced personnel, including additional officers and directors,
and specialists, professionals and consulting firms to advise management, as needed; however, there can be no assurance that management
will be successful in raising the necessary funds in respect of recruiting, hiring and retaining such qualified individuals and
firms.
A
significant disruption in our computer systems could adversely affect our operations.
We
rely extensively on our computer systems to manage our ordering, pricing, point-of-sale, pharmacy fulfillment, inventory replenishment,
customer program, finance and other processes. Our systems are subject to damage or interruption from power outages, computer
and telecommunications failures, computer viruses, security breaches, vandalism, natural disasters, catastrophic events and human
error, and our disaster recovery planning cannot account for all eventualities. If any of our systems are damaged, fail to function
properly or otherwise become unavailable, we may incur substantial costs to repair or replace them, and may experience loss or
corruption of critical data and interruptions or delays in our ability to perform critical functions, which could adversely affect
our business and results of operations. In addition, we are currently making, and expect to continue to make, substantial investments
in our information technology systems and infrastructure, some of which are significant. Upgrades involve replacing existing systems
with successor systems, making changes to existing systems, or cost-effectively acquiring new systems with new functionality.
Implementing new systems carries significant potential risks, including failure to operate as designed, potential loss or corruption
of data or information, cost overruns, implementation delays, disruption of operations, and the potential inability to meet business
and reporting requirements. While we are aware of inherent risks associated with replacing these systems and believe we are taking
reasonable action to mitigate known risks, there can be no assurance that these technology initiatives will be deployed as planned
or that they will be timely implemented without disruption to our operations.
We
plan to implement an aggressive growth strategy, which could increase the risk of failure.
For
the foreseeable future, we intend to pursue an aggressive growth strategy for the expansion of our operations through increased
product development and marketing. Our ability to rapidly expand our operations will depend upon many factors, including our ability
to work in a regulated environment, market value-added products effectively to independent pharmacies, establish and maintain
strategic relationships with suppliers, and obtain adequate capital resources on acceptable terms. Any restrictions on our ability
to expand may have a materially adverse effect on our business, results of operations, and financial condition. Accordingly, there
are no assurances that we will be able to achieve our targets for sales growth, or that our operations will be successful or achieve
anticipated operating results.
We
rely on third party contracts.
We
depend on others to provide products and services to us. We do not manufacture pharmaceuticals and we do not sell pharmaceuticals
to the end consumer. We do not control these wholesalers, suppliers and purchasers and, although our arrangements with them will
be terminable or of limited length, a change may be difficult to implement. At this time, we have a working relationship with
over 25 wholesalers and the nation’s largest buying group. Although we believe that those entities are satisfied with their
business relationship with Trxade, if our buying group and two or three of the wholesalers decided no longer to do business with
us, that supplier void would materially and adversely affect our competitiveness in the marketplace.
It
may be difficult and costly for us to comply with the extensive government regulations to which our business may be subject.
Our
operations are subject to extensive regulation by the U.S. federal and state governments. In addition as we expand our operations,
we may also become subject to the regulations of foreign jurisdictions, as well as additional regulations relating to environmental
matters, transportation of pharmaceutical products, shipping restrictions, and import and export restrictions.
Further,
the enactment of new rules and regulations could adversely affect our business. For example, the Affordable Care Act has the primary
goal of reducing the cost of healthcare and providing medical coverage to some of the nation’s 25 million uninsured. Depending
on our future enforcement or additional rules and regulations created around it, pharmaceutical pricing controls could be established
resulting in substantially reduced margins and limited reimbursement for pharmacies and all other healthcare provider bases. In
turn, this may adversely affect our cash flow, profitability, and growth.
We
will continue to incur increased costs as a result of being a reporting company, and given our limited capital resources, such
additional costs may have an adverse impact on our profitability.
We
are an SEC-reporting company. The rules and regulations under the Exchange Act require reporting companies to provide periodic
reports with interactive data files, which require that we engage legal, accounting and auditing professionals, and XBRL and EDGAR
service providers. The engagement of such services can be costly, and we may continue to incur additional losses, which may adversely
affect our ability to continue as a going concern. In addition, the Sarbanes-Oxley Act of 2002, as well as a variety of related
rules implemented by the SEC, have required changes in corporate governance practices and generally increased the disclosure requirements
of public companies. For example, as a result of being a reporting company, we are required to file periodic and current reports
and other information with the SEC and we have adopted policies regarding disclosure controls and procedures and regularly evaluate
those controls and procedures.
The
additional costs we continue to incur in connection with becoming a reporting company (expected to be several hundred thousand
dollars per year) will continue to further stretch our limited capital resources. Due to our limited resources, we have to allocate
resources away from other productive uses in order to continue to comply with our obligations as an SEC reporting company. Further,
there is no guarantee that we will have sufficient resources to continue to meet our reporting and filing obligations with the
SEC as they come due.
Risks
Related to Our Common Stock
We
are subject to the “penny stock” rules which will adversely affect the liquidity of our common stock.
Our
stock is defined as a “penny stock” under Rule 3a51-1 of the Exchange Act. In general, a “penny stock”
includes securities of companies which are not listed on the principal stock exchanges or NASDAQ and have a bid price in the market
of less than $5.00; and companies with net tangible assets of less than $2,000,000 ($5,000,000 if the issuer has been in continuous
operation for less than three years), or which has recorded revenues of less than $6,000,000 in the last three years. “Penny
stocks” are subject to rule 15g-9, which imposes additional sales practice requirements on broker-dealers that sell such
securities to persons other than established customers and “accredited investors” (generally, individuals with net
worth in excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together with their spouses, or individuals who
are officers or directors of the issuer of the securities). For transactions covered by Rule 15g-9, a broker-dealer must make
a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction
prior to sale. Consequently, this rule may adversely affect the ability of broker-dealers to sell our stock, and therefore, may
adversely affect the ability of our stockholders to sell stock in the public market.
The
sale of shares by our directors and officers may adversely affect the market price for our shares.
Sales
of significant amounts of shares held by our officers and directors, or the prospect of these sales, could adversely affect the
market price of our common stock. Management’s stock ownership may discourage a potential acquirer from making a tender
offer or otherwise attempting to obtain control of us, which in turn could reduce our stock price or prevent our stockholders
from realizing a premium over our stock price.
A
significant number of our shares are eligible for sale and their sale or potential sale may depress the market price of our common
stock.
Sales
of a significant number of shares of our common stock in the public market could harm the market price of our common stock. Most
of our common stock is available for resale in the public market, and if sold would increase the supply of our common stock, thereby
causing a decrease its price. Some or all of our shares of common stock may be offered from time to time in the open market pursuant
to compliance with Rule 144, which sales could have a depressive effect on the market for our shares of common stock. Subject
to certain restrictions, a person who has held restricted shares for a period of six months may sell common stock into the market.
The
limitation of monetary liability against our directors, officers and employees under Delaware law and the existence of indemnification
rights to them may result in substantial expenditures by us and may discourage lawsuits against our directors, officers and employees.
Our
articles of incorporation contain a specific provision that limits the liability of our directors for monetary damages to the
Company and the Company’s stockholders. We also have contractual indemnification obligations under our employment and engagement
agreements with our executive officers and directors. The foregoing indemnification obligations could result in us incurring substantial
expenditures to cover the cost of settlement or damage awards against our directors and officers, which the Company may be unable
to recoup. These provisions and resultant costs may also discourage us from bringing a lawsuit against our directors and officers
for breaches of their fiduciary duties and may similarly discourage the filing of derivative litigation by our stockholders against
our directors and officers, even though such actions, if successful, might otherwise benefit us and our stockholders.
Because
our stock currently trades below $5.00 per share and is quoted on the OTCQB® Marketplace, our stock is considered a “penny
stock”, which can adversely affect its liquidity.
As
the trading price of our common stock is less than $5.00 per share, our common stock is considered a “penny stock,”
and trading in our common stock is subject to the requirements of Rule 15g-9 under the Securities Exchange Act of 1934. Under
this rule, broker/dealers who recommend low-priced securities to persons other than established customers and accredited investors
must satisfy special sales practice requirements. The broker/dealer must make an individualized written suitability determination
for the purchaser and receive the purchaser’s written consent prior to the transaction. Securities and Exchange Commission
regulations also require additional disclosure in connection with any trades involving a “penny stock,” including
the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and its associated
risks. These requirements severely limit the liquidity of our common stock in the secondary market because few brokers or dealers
are likely to undertake these compliance activities. Purchasers of our common stock may find it difficult to resell the shares
in the secondary market.
There
may not be sufficient liquidity in the market for our securities in order for investors to sell their Shares. The market price
of our comment stock may be volatile
.
While
our common stock is quoted on the OTCQB Tier of the OTC Markets, our common stock is thinly traded and should be considered an
illiquid investment. The market price of our common stock will likely be highly volatile, as is the stock market in general, and
the market for over the counter quoted stocks in particular. Some of the factors that may materially affect the market price of
our common stock are beyond our control, such as conditions or trends in the industry in which we operate or sales of our common
stock. This situation is attributable to a number of factors, including the fact that we are a small company which is relatively
unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence
sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to
follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more
seasoned and viable.
As
a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as
compared to a mature issuer which has a large and steady volume of trading activity that will generally support continuous sales
without an adverse effect on share price. It is possible that a broader or more active public trading market for our common stock
will not develop or be sustained, or that trading levels will not continue. These factors may materially adversely affect the
market price of our common stock, regardless of our performance. In addition, the public stock markets have experienced extreme
price and trading volume volatility. This volatility has significantly affected the market prices of securities of many companies
for reasons frequently unrelated to the operating performance of the specific companies. These broad market fluctuations may adversely
affect the market price of our common stock.
The
exercise of outstanding warrants, options and shares issued in connection with a joint venture will be dilutive to our existing
stockholders.
As
of June 6, 2019, we had 33,726,459 shares of our common stock issued and outstanding and the following securities, which are exercisable
into shares of our common stock, were outstanding: ● 2,863,475 shares of our common stock issuable upon the exercise of
warrants with exercise prices ranging from $0.01 to $1.50 per share; ● 2,237,846 shares of our common stock issuable upon
the exercise of options with exercise prices ranging from $0.50 per share to $1.61 per share; and ● a maximum total of 14,776,638
shares of our common stock may be issued to PanOptic, subject to PanOptic and SyncHealth meeting all of the revenue covenants,
in connection with the Joint Venture (and these shares would be subject to the Shareholders Agreement-for further information
please review Exhibit 10.4 to the Current Report on Form 8-K filed January 22, 2019, and other documents referenced therein).
The issuance of these shares will be dilutive to our existing stockholders.
FINRA
sales practice requirements may also limit a stockholders ability to buy or sell our stock
In
addition to the penny stock rules promulgated by the SEC, which are discussed earlier in this section, the rules of the Financial
Industry Regulatory Authority, Inc. (FINRA) require that in recommending an investment to a customer, a broker-dealer must have
reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative, low-priced
securities to their non-institutional customers, broker-dealers must have reasonable efforts to obtain information about the customer’s
financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes
that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA
requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit
the ability to buy and sell our stock and have an adverse effect on the market value for our shares.
We
have never paid or declared any dividends on our common stock.
We
have never paid or declared any dividends on our common stock or preferred stock. Likewise, we do not anticipate paying, in the
near future, dividends or distributions on our common stock. Any future dividends on common stock will be declared at the discretion
of our board of directors and will depend, among other things, on our earnings, our financial requirements for future operations
and growth, and other facts as we may then deem appropriate.
Our
directors have the right to authorize the issuance of shares of preferred stock and additional shares of our common stock.
Our
directors, within the limitations and restrictions contained in our articles of incorporation and without further action by our
stockholders, have the authority to issue shares of preferred stock from time to time in one or more series and to fix the number
of shares and the relative rights, conversion rights, voting rights, and terms of redemption, liquidation preferences and any
other preferences, special rights and qualifications of any such series. Any issuance of shares of preferred stock could adversely
affect the rights of holders of our common stock. Should we issue additional shares of our common stock at a later time, each
investor’s ownership interest in our stock would be proportionally reduced.
If
we fail to remain current in our reporting requirements on the OTCQB, where we are publicly quoted, we could be removed from the
OTCQB, which would limit the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities
in the secondary market.
Companies
whose shares are quoted for sale on the OTCQB must be reporting issuers under Section 12 of the Exchange Act and must be current
in their reports under Section 13 of the Exchange Act, in order to maintain price quotation privileges on the OTCQB. If we fail
to remain current in our reporting requirements, we could be removed from the OTCQB. As a result, the market liquidity for our
securities could be adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders
to sell their securities in the secondary market.
The
market price for our common stock is particularly volatile, given our status as a relatively unknown company with a small and
thinly quoted public float, and lack of profitability, which could lead to wide fluctuations in our share price.
The
market for our common stock on the OTCQB will most likely continue to be characterized by significant price volatility when compared
to seasoned issuers, and we expect that our share price will be more volatile than a seasoned issuer for the indefinite future.
The volatility in our share price would be attributable to a number of factors. First, as noted above, the shares of our common
stock will likely be sporadically and/or thinly quoted. As a consequence of this lack of liquidity, the trading of relatively
small quantities of shares by our stockholders may disproportionately influence the price of those shares in either direction.
The price for our shares could, for example, decline precipitously in the event that a large number of shares of our common stock
are sold on the market without commensurate demand, as compared to a seasoned issuer which could better absorb those sales without
adverse impact on its share price.
Anti-takeover
provisions may impede the acquisition of Trxade.
Certain
provisions of the Delaware General Corporation Law (DGCL) have anti-takeover effects and may inhibit a non-negotiated merger or
other business combination. These provisions are intended to encourage any person interested in acquiring Trxade to negotiate
with, and to obtain the approval of, our directors, in connection with such a transaction. As a result, certain of these provisions
may discourage a future acquisition of Trxade, including an acquisition in which the stockholders might otherwise receive a premium
for their shares. In addition, we can also authorize “blank check” preferred stock, which could be issued by our board
of directors without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our common
stock.
If
we fail to establish and maintain an effective system of internal control, we may not be able to report our financial results
accurately or to prevent fraud. Any inability to report and file our financial results accurately and timely could harm our business
and adversely impact the trading price of our common stock.
Effective
internal control is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial
reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment
existed, and our business, brand and reputation with investors may be harmed.
In
addition, reporting a material weakness may negatively impact investors’ perception of us. We have allocated, and will continue
to allocate, significant additional resources to remedy any deficiencies in our internal control. There can be no assurances that
our remedial measures will be successful in curing the any material weakness or that other significant deficiencies or material
weaknesses will not arise in the future.
Our
Chief Executive Officer and President are our two largest stockholders and, as a result, they can exert control over us and have
actual or potential interests that may diverge from yours.
Suren
Ajjarapu, our CEO, and Prashant Patel, our President, beneficially own, in the aggregate, over 78 percent of our common stock.
As a result, these stockholders, acting together, will be able to influence many matters requiring stockholder approval, including
the election of directors and approval of mergers and other significant corporate transactions. This concentration of ownership
may have the effect of delaying, preventing or deterring a change in control, and could deprive our stockholders of an opportunity
to receive a premium for their shares of common stock as part of a sale of our company and may affect the market price of our
stock.
Further,
Mr. Ajjarapu and Mr. Patel may have interests that diverge from those of other holders of our common stock. As a result, Mr. Ajjarapu
and Mr. Patel may vote the shares they own or control or otherwise cause us to take actions that may conflict with your best interests
as a stockholder, which could adversely affect our results of operations and the trading price of our common stock.
Through
this control, Mr. Ajjarapu and Mr. Patel can control our management, affairs and all matters requiring stockholder approval, including
the approval of significant corporate transactions, a sale of our company, decisions about our capital structure and the composition
of our Board of Directors.
Our
stock price could remain volatile.
The
price of our common stock may be highly volatile and could be subject to fluctuations in price in response to various factors,
some of which are beyond our control. These factors include:
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quarterly
variations in our results of operations or those of our competitors;
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announcements
by us or our competitors of acquisitions, new products, significant contracts, commercial relationships or capital commitments;
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disruption
to our operations or those of other sources critical to our operations;
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the
emergence of new competitors;
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our
ability to develop and market new and enhanced products on a timely basis;
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seasonal
or other variations;
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commencement
of, or our involvement in, litigation;
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dilutive
issuances of our stock or the stock of our subsidiaries, or the incurrence of additional debt;
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changes
in our board or management;
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adoption
of new or different accounting standards;
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changes
in governmental regulations or in the status of our regulatory approvals;
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changes
in earnings estimates or recommendations by securities analysts; and
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general
economic conditions and slow or negative growth of related markets.
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The
interests of shareholders may be hurt because we can issue Shares of our common stock to individuals or entities that support
existing management with such issuances serving to enhance management’s ability to maintain control of our company.
Our
board of directors has authority, without action or vote of the shareholders, to issue all or part of the authorized but unissued
common shares. Such issuances may be issued to parties or entities committed to supporting existing management and the interests
of existing management which may not be the same as the interests of other shareholders. Our ability to issue shares without shareholder
approval serves to enhance existing management’s ability to maintain control of our company.
Our
articles of incorporation provide for indemnification of officers and directors at our expense and limit their liability that
may result in a major cost to us and hurt the interests of our shareholders because corporate resources may be expended for the
benefit of officers or directors.
Our
Articles of Incorporation at Article IX provide for indemnification as follows: “To the fullest extent permitted by applicable
law, the Corporation is authorized to provide indemnification of, and advancement of expenses to, such agents of the Corporation
(and any other persons to which Delaware law permits the Corporation to provide indemnification) through Bylaw provisions, agreements
with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification
and advancement otherwise permitted by Section 145 of the Delaware General Corporation Law, subject only to limits created by
applicable Delaware law (statutory or non-statutory), with respect to actions for breach of duty to the Corporation, its stockholders
and others.”
We
have been advised that, in the opinion of the SEC, indemnification for liabilities arising under federal securities laws is against
public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification
for liabilities arising under federal securities laws, other than the payment by us of expenses incurred or paid by a director,
officer or controlling person in the successful defense of any action, suit or proceeding, is asserted by a director, officer
or controlling person in connection with our activities, we will (unless in the opinion of our counsel, the matter has been settled
by controlling precedent) submit to a court of appropriate jurisdiction, the question whether indemnification by us is against
public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The legal process
relating to this matter if it were to occur is likely to be very costly and may result in us receiving negative publicity, either
of which factors is likely to materially reduce the market and price for our shares, if such a market ever develops.
Currently,
we are followed by few analysts.
For
the foreseeable future, our common stock is unlikely to be followed by any market analysts, and there may be few institutions
acting as market makers for our common stock. Either of these factors could adversely affect the liquidity and trading price of
our common stock. Until our common stock is fully distributed and an orderly market develops in our common stock, if ever, the
price at which it trades is likely to fluctuate significantly. Prices for our common stock are determined in the marketplace and
may be influenced by many factors, including the depth and liquidity of the market for shares of our common stock, developments
affecting our business, including the impact of the factors referred to elsewhere in these Risk Factors, investor perception of
us and general economic and market conditions. No assurances can be given that an orderly or liquid market will ever develop for
the Shares of our common stock.
Because
of the anticipated low price of the securities being registered, many brokerage firms may not be willing to effect transactions
in these securities. Purchasers of our securities should be aware that any market that develops in our stock will be subject to
the penny stock restrictions. See “Plan of Distribution.”
Any
market that develops in shares of our common stock will be subject to the penny stock regulations and restrictions pertaining
to low priced stocks that will create a lack of liquidity and make trading difficult or impossible.
The
trading of our securities, if any, will be in the over-the-counter bulletin board market which is commonly referred to as the
“OTCBB” as maintained by FINRA. As a result, an investor may find it difficult to dispose of, or to obtain accurate
quotations as to the price of, our securities.
Rule
3a51-1 of the Exchange Act establishes the definition of a “penny stock,” for purposes relevant to us, as any equity
security that has a minimum bid price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject
to a limited number of exceptions which are not available to us. It is likely that our shares will be considered to be penny stocks
for the immediately foreseeable future. This classification severely and adversely affects any market liquidity for our common
stock.
For
any transaction involving a penny stock, unless exempt, the penny stock rules require that a broker or dealer approve a person’s
account for transactions in penny stocks and the broker or dealer receive from the investor a written agreement to the transaction
setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person’s account for transactions
in penny stocks, the broker or dealer must obtain financial information and investment experience and objectives of the person
and make a reasonable determination that the transactions in penny stocks are suitable for that person and that that person has
sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the SEC relating
to the penny stock market, which, in highlight form, sets forth:
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the
basis on which the broker or dealer made the suitability determination; and
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that
the broker or dealer received a signed, written agreement from the investor prior to the transaction.
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Disclosure
also has to be made about the risks of investing in penny stock in both public offerings and in secondary trading and commissions’
payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and
remedies available to an investor in cases of fraud in penny stock transactions. Additionally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
Because
of these regulations, broker-dealers may not wish to engage in the above-referenced necessary paperwork and disclosures or may
encounter difficulties in their attempt to sell shares of our common stock, which may affect the ability of selling shareholders
or other holders to sell their shares in any secondary market and have the effect of reducing the level of trading activity in
any secondary market. These additional sales practice and disclosure requirements could impede the sale of our securities, if
and when our securities become publicly traded. In addition, the liquidity for our securities may decrease, with a corresponding
decrease in the price of our securities. Our shares, in all probability, will be subject to such penny stock rules for the foreseeable
future and our shareholders will, in all likelihood, find it difficult to sell their securities.
The
market for penny stocks has experienced numerous frauds and abuses that could adversely impact investors in our stock.
Company
management believes that the market for penny stocks has suffered from patterns of fraud and abuse. Such patterns include:
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Control
of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
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Manipulation
of prices through prearranged matching of purchases and sales and false and misleading press releases;
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“Boiler
room” practices involving high pressure sales tactics and unrealistic price projections by sales persons;
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Excessive
and undisclosed bid-ask differentials and markups by selling broker-dealers; and
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Wholesale
dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along
with the inevitable collapse of those prices with consequent investor losses.
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We
do not expect to pay cash dividends in the foreseeable future.
We
have never paid cash dividends on our common stock. We do not expect to pay cash dividends on our common stock at any time in
the foreseeable future. The future payment of dividends directly depends upon our future earnings, capital requirements, financial
requirements and other factors that our board of directors will consider. Since we do not anticipate paying cash dividends on
our common stock, return on your investment, if any, will depend solely on an increase, if any, in the market value of our common
stock.
Because
we are not subject to compliance rules requiring the adoption of certain corporate governance measures, our stockholders have
limited protection against interested director transactions, conflicts of interest and similar matters.
The
Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by the SEC, the New York and American Stock Exchanges
and the NASDAQ Stock Market, as a result of Sarbanes-Oxley, require the implementation of various measures relating to corporate
governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply
to securities that are listed on those exchanges or the NASDAQ Stock Market. Because we are not presently required to comply with
many of the corporate governance provisions and because we chose to avoid incurring the substantial additional costs associated
with such compliance any sooner than legally required, we have not yet adopted these measures.
Two
out of four of our directors are independent directors, and those independent directors serve on the independent audit or compensation
committees. We intend to comply with all additional corporate governance measures relating to director independence as and when
required. However, we may find it very difficult or be unable to attract and retain qualified officers, directors or members of
board committees required to provide for our effective management as a result of Sarbanes-Oxley Act of 2002. The enactment of
the Sarbanes-Oxley Act of 2002 has resulted in a series of rules and regulations by the SEC that increase responsibilities and
liabilities of directors and executive officers. The perceived increased personal risk associated with these recent changes may
make it more costly or deter qualified individuals from accepting these roles.
You
may have limited access to information regarding our business because our obligations to file periodic reports with the SEC could
be automatically suspended under certain circumstances.
As
of the effective date of our registration statement of which this Prospectus is a part, we will become subject to certain informational
requirements of the Exchange Act, as amended and we will be required to file periodic reports (i.e., annual, quarterly and material
events) with the SEC which will be immediately available to the public for inspection and copying. In the event during the year
that our registration statement becomes effective, these reporting obligations may be automatically suspended under Section 15(d)
of the Exchange Act if we have less than 300 shareholders and do not file a registration statement on Form 8-A (of which we have
no current plans to file). If this occurs after the year in which our registration statement becomes effective, we will no longer
be obligated to file such periodic reports with the SEC and access to our business information would then be even more restricted.
After this registration statement on Form S-1 becomes effective, we may be required to deliver periodic reports to security holders
as proscribed by the Exchange Act, as amended. However, we will not be required to furnish proxy statements to security holders
and our directors, officers and principal beneficial owners will not be required to report their beneficial ownership of securities
to the SEC pursuant to Section 16 of the Exchange Act until we have both 500 or more security holders and greater than $10 million
in assets. Access to information regarding our business and operations will be limited.
For
all of the foregoing reasons and others set forth herein, an investment in our securities in any market that may develop in the
future involves a high degree of risk.
USE
OF PROCEEDS
We
are registering these Shares pursuant to registration rights extended to the Selling Shareholders. We are not selling any securities
under this Prospectus and we will not receive any of the proceeds from the sale or other disposition by the Selling Shareholders
or their transferees of the Shares of common stock covered hereby. We have agreed to pay all costs, expenses and fees relating
to registering the Shares of our common stock referenced in this Prospectus. The Selling Shareholders will pay any brokerage commissions
or similar charges incurred in connection with the sale or other disposition by them of the Shares covered hereby.
See
“Selling Shareholders” and “Plan of Distribution” described below.
DETERMINATION
OF OFFERING PRICE
The
Selling Stockholder will offer the Shares at the prevailing market prices or privately negotiated price. The offering price of
our common stock does not necessarily bear any relationship to our book value, assets, past operating results, financial condition
or any other established criteria of value. Our common stock may not trade at market prices in excess of the offering price as
prices for common stock in any public market will be determined in the marketplace and may be influenced by many factors, including
the depth and liquidity.
DESCRIPTION
OF CAPITAL STOCK
The
following information describes our common stock and preferred stock, as well as certain provisions of our articles of incorporation
and bylaws. This description is only a summary. You should also refer to our articles of incorporation and bylaws, which have
been filed with the SEC as exhibits to our registration statement, of which this Prospectus forms a part.
General
Our
authorized capital stock consists of 100,000,000 shares of common stock with a $0.00001 par value per share, and 10,000,000 shares
of undesignated preferred stock with a $0.00001 par value per share. Our board of directors may establish the rights and
preferences of the preferred stock from time to time. As of June 6, 2019, there were 33,726,459 shares of common stock issued
and outstanding. The following is a summary of the material provisions of the common stock and preferred stock provided for in
our articles of incorporation and bylaws. For additional detail about our capital stock, please refer to our articles of incorporation
and bylaws.
Common
stock
We
are authorized to issue 100,000,000 shares of common stock, $0.00001 par value per share. There are no agreements or outstanding
options, warrants or similar rights that entitle their holder to acquire from us any of our equity securities. Holders of shares
of common stock are entitled to one vote per share on each matter submitted to a vote of shareholders. In the event of liquidation,
holders of common stock are entitled to share
pro rata
in the distribution of assets remaining after payment of liabilities,
if any. Holders of common stock have no cumulative voting rights, and, accordingly, the holders of a majority of the outstanding
shares have the ability to elect all of the directors of the Company. Holders of common stock have no preemptive or other rights
to subscribe for shares. Holders of common stock are entitled to such dividends as may be declared by the Board out of funds legally
available therefore. The outstanding shares of common stock are validly issued, fully paid and non-assessable.
Preferred
Stock
We
are authorized to issue 10,000,000 shares of preferred stock, $0.00001 par value per share, all of which 10,000,000 are undesignated
and unissued. We had no preferred shares outstanding at December 31, 2018 or as of the date of this filing.
Under
the terms of our articles of incorporation, our board of directors is authorized to issue shares of preferred stock in one or
more series without stockholder approval. Our board of directors may designate the powers, designations, preferences, and relative
participation, optional or other rights, if any, and the qualifications, limitations or restrictions thereof, including dividend
rights, conversion rights, voting rights, redemption rights, liquidation preference, sinking fund terms and the number of shares
constituting any series or the designation or any series. There are currently no shares of preferred stock outstanding.
Anti-Takeover
Effects Under Section 203 of the Delaware General Corporation Law
We
are subject to Section 203 of the Delaware General Corporation Law, which prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder for a period of three years after the date that such stockholder became an
interested stockholder, with the following exceptions:
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before
such date, the board of directors of the corporation approved either the business combination or the transaction that resulted
in the stockholder becoming an interested stockholder;
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upon
completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder
owned at least 85 percent of the voting stock of the corporation outstanding at the time the transaction began, excluding
for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder)
those shares owned (i) by persons who are directors and also officers and (ii) employee stock plans in which employee participants
do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or
an exchange offer; or
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on
or after such date, the business combination is approved by our board of directors and authorized at an annual or a special
meeting of the stockholders, and not by written consent, by the affirmative vote of at least 66 2/3percent of the outstanding
voting stock that is not owned by the interested stockholder.
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In
general, Section 203 defines “business combination” to include the following:
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any
merger or consolidation involving the corporation or any direct or indirect majority owned subsidiary of the corporation and
the interested stockholder or any other corporation, partnership, unincorporated association, or other entity if the merger
or consolidation is caused by the interested stockholder and as a result of such merger or consolidation the transaction is
not excepted as described above;
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any
sale, transfer, pledge, or other disposition (in one transaction or a series) of 10% or more of the assets of the corporation
involving the interested stockholder;
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subject
to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder;
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any
transaction involving the corporation that has the effect of increasing the proportionate share of the stock or any class
or series of the corporation beneficially owned by the interested stockholder; or
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the
receipt by the interested stockholder of the benefit of any loss, advances, guarantees, pledges, or other financial benefits
by or through the corporation.
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In
general, Section 203 defines an “interested stockholder” as an entity or a person who, together with the person’s
affiliates and associates, beneficially owns, or within three years prior to the time of determination of interested stockholder
status did own, 15 percent or more of the outstanding voting stock of the corporation.
A
Delaware corporation may “opt out” of these provisions with an express provision in its original certificate of incorporation
or an express provision in its certificate of incorporation or bylaws resulting from a stockholders153 amendment approved by at
least a majority of the outstanding voting shares. We have not opted out of these provisions. As a result, mergers or other takeover
or change in control attempts of us may be discouraged or prevented.
Listing
Our
common stock is traded on the OTCQB Venture Board under the symbol “TRXD”.
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is Action Stock Transfer Corporation, 2469 E. Fort Union Boulevard, Suite 214,
Salt Lake City, Utah 84121. Its telephone number is (801) 274-1088.
PLAN
OF DISTRIBUTION
We
are registering the Shares of common stock issued to the Selling Shareholders to permit the sale and resale of these shares of
common stock by the Selling Shareholders from time to time from after the date of this Prospectus.
Each
Selling Shareholder may, from time to time, sell any or all of their Shares of common stock covered hereby on the OTC market trading
facility on which the Shares are traded or in private transactions. These sales may be at fixed prices, at prevailing market prices
at the time of the sale, at varying prices determined at the time of sale, or privately negotiated prices. A Selling Shareholder
may use any one or more of the following methods when selling shares:
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ordinary
brokerage transactions and transactions in which the broker-dealer solicits purchasers;
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block
trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
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purchases
by a broker-dealer as principal and resale by the broker-dealer for its account;
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an
exchange distribution in accordance with the rules of the applicable exchange;
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privately
negotiated transactions;
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settlement
of short sales, to the extent permitted by law;
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in
transactions through broker-dealers that agree with the Selling Shareholders to sell a specified number of such shares at
a stipulated price per share;
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through
the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
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a
combination of any such methods of sale; or
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any
other method permitted pursuant to applicable law.
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The
Selling Shareholders may also sell the shares of common stock under Rule 144 under the Securities Act, if available, rather than
under this Prospectus.
Broker-dealers
engaged by the Selling Shareholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Selling Shareholders (or, if any broker-dealer acts as agent for the purchaser of shares, from
the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency
transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal
transaction a markup or markdown in compliance with FINRA IM-2440-1.
The
aggregate proceeds to the Selling Shareholders from the sale of the common stock offered by them will be the purchase price of
the common stock less discounts or commissions, if any. Each of the Selling Shareholders reserves the right to accept and, together
with their agents from time to time, to reject, in whole or in part, any proposed purchase of common stock to be made directly
or through agents. We will not receive any of the proceeds from the sale by the Selling Shareholders of the shares of common stock.
In
connection with the sale of the Shares of common stock or interests therein, the Selling Shareholders may enter into hedging transactions
with broker-dealers or other financial institutions, which may in turn engage in short sales of the shares of common stock in
the course of hedging the positions they assume. The Selling Shareholders may also sell the shares of common stock short and deliver
these securities to close out their short positions or to return borrowed shares in connection with such short sales, or loan
or pledge the shares of common stock to broker-dealers that in turn may sell these securities. The Selling Shareholders may also
enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities
which require the delivery to such broker-dealer or other financial institution of shares of common stock offered by this Prospectus,
which shares such broker-dealer or other financial institution may resell pursuant to this Prospectus (as supplemented or amended
to reflect such transaction).
The
Selling Shareholders and any broker-dealers or agents that are involved in selling the shares of common stock may be deemed to
be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions
received by such Selling Shareholders, broker-dealers or agents and any profit on the resale of the shares purchased by them may
be deemed to be underwriting commissions or discounts under the Securities Act. Selling Shareholders who are “underwriters”
within the meaning of Section 2(11) of the Securities Act will be subject to the Prospectus delivery requirements of the Securities
Act and may be subject to certain statutory liabilities of, including but not limited to, Sections 11, 12 and 17 of the Securities
Act and Rule 10b-5 under the Exchange Act. Each Selling Shareholder has informed us that it is not a registered broker-dealer
or an affiliate of a registered broker-dealer. In no event shall any broker-dealer receive fees, commissions and markups which,
in the aggregate, would exceed eight percent (8%).
We
are required to pay certain fees and expenses incurred by us incident to the registration of the shares. We have agreed to indemnify
the Selling Shareholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act,
and the Selling Shareholders may be entitled to contribution. We may be indemnified by the Selling Shareholders against certain
losses, claims, damages and liabilities, including liabilities under the Securities Act that may arise from any written information
furnished to us by the Selling Shareholders specifically for use in this Prospectus, or we may be entitled to contribution.
The
Selling Shareholders will be subject to the Prospectus delivery requirements of the Securities Act including Rule 172 thereunder
unless an exemption therefrom is available.
Under
applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the shares of common stock
may not simultaneously engage in market making activities with respect to the shares of common stock for the applicable restricted
period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Shareholders will
be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which
may limit the timing of purchases and sales of shares of common stock by the Selling Shareholders or any other person. We will
make copies of this Prospectus available to the Selling Shareholders and have informed them of the need to deliver a copy of this
Prospectus at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
To
the extent required, the shares of our common stock to be sold, the names of the Selling Shareholders, the respective purchase
prices and public offering prices, the names of any agents, dealer or underwriter, any applicable commissions or discounts with
respect to a particular offer will be set forth in an accompanying Prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this Prospectus.
There
can be no assurance that any Selling Shareholder will sell any or all of the Shares of common stock we registered on behalf of
the Selling Shareholders pursuant to the registration statement of which this Prospectus forms a part.
Once
sold under the registration statement of which this Prospectus forms a part, the Shares of common stock will be freely tradable
in the hands of persons other than our affiliates.
SELLING
SHAREHOLDERS
This
Prospectus covers the resale from time to time by the Selling Shareholders identified in the table below of up to 31,949,712 shares
of common stock through this Prospectus consisting of (a) 30,209,080 shares held by the Selling Shareholders named in this Prospectus
as part of the equity transactions completed in years prior to December 31, 2016 with a stated value of approximately $7,261,000;
(b) 1,300,000 shares held by the Selling Shareholders named in this Prospectus, which were issued pursuant to a private placement
offering completed during the year ended December 31, 2018 for $800,000 in cash; (c) 423,966 shares issued upon the conversion
of a promissory note payable during the month ended February 28, 2019 for a total principal and interest value of $211,983; and
(d) 16,666 shares issued upon the conversion of warrants for $166 in cash during the month ending February 28, 2019.
We
are registering the shares to permit the Selling Shareholders and any of their pledgees, donees, transferees, assignees and successors-in-interest
to, from time to time, sell any or all of the shares through public or private transactions at prevailing market prices, at prices
related to prevailing market prices or at privately negotiated prices of common stock on any stock exchange, market or trading
facility on which the shares are traded or in private transactions when and as they deem appropriate in the manner described in
“
Plan of Distribution
.” As of the date of this Prospectus, there are 33,726,459 shares of our common stock
issued and outstanding.
The
following table sets forth, as of the date of this Prospectus, the name of each Selling Shareholder, the number and percentage
of shares of our common stock beneficially owned by each Selling Shareholder prior to the offering for resale of the shares under
this Prospectus, the number of shares of our common stock beneficially owned by each Selling Shareholder that may be offered from
time to time under this Prospectus, and the number and percentage of shares of our common stock beneficially owned by the Selling
Shareholder after the offering of the shares (assuming all of the offered shares are sold by the Selling Shareholder.
There
are no agreements between the Company and any Selling Shareholder pursuant to which the shares subject to this registration statement
were issued. None of the Selling Shareholders has ever been an executive officer or director of the Company or has had a material
relationship with us at any time within the past three years unless disclosed below and elsewhere in this Prospectus.
Beneficial
ownership is determined in accordance with the rules of the SEC, and includes any shares of common stock as to which a person
has sole or shared voting power or investment power and any shares of common stock which the person has the right to acquire within
sixty (60) days through the exercise of any option, warrant or right, through conversion of any security or pursuant to the automatic
termination of a power of attorney or revocation of a trust, discretionary account or similar arrangement.
Name
of Selling Shareholder
|
|
Total
Shares Owned by Selling Shareholder
|
|
|
Total
Shares
to be Registered Pursuant to this Offering
|
|
|
Percentage
of Common Stock Before Offering
|
|
|
Number
of Shares
Owned by Selling Shareholder After Offering
|
|
Surendra
Ajjarapu (1)
|
|
|
7,143,750
|
|
|
|
7,143,750
|
|
|
|
21.18
|
%
|
|
|
7,143,750
|
|
Sandhya
Ajjarapu (1)
|
|
|
4,050,000
|
|
|
|
4,050,000
|
|
|
|
12.01
|
%
|
|
|
4,050,000
|
|
Sandhya
Ajjarapu Revocable Trust 2007 (1)
|
|
|
1,275,000
|
|
|
|
1,275,000
|
|
|
|
3.78
|
%
|
|
|
1,275,000
|
|
Surendra
Ajjarapu Revocable Trust 2007 (1)
|
|
|
1,275,000
|
|
|
|
1,275,000
|
|
|
|
3.78
|
%
|
|
|
1,275,000
|
|
Aware
Investment Ltd
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
1.48
|
%
|
|
|
-
|
|
Rakesh
Bhargava
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
*
|
|
|
|
-
|
|
Ankush
Bikkasani Trust
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
*
|
|
|
|
-
|
|
Tej
Bikkasani Trust
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
*
|
|
|
|
-
|
|
Derek
Bodart
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
*
|
|
|
|
-
|
|
Thomas
Breiter
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
*
|
|
|
|
-
|
|
Jayadeva
Chowdappa
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
*
|
|
|
|
-
|
|
Mehul
Desai
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
*
|
|
|
|
-
|
|
Sanjiv
Desai
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
*
|
|
|
|
-
|
|
Nuview
IRA Inc. F/b/o Donald Almeida IRA
|
|
|
166,667
|
|
|
|
166,667
|
|
|
|
*
|
|
|
|
-
|
|
Barrett
Fell
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
*
|
|
|
|
-
|
|
Gibraltar
Global Securities Inc.
|
|
|
3,200
|
|
|
|
3,200
|
|
|
|
*
|
|
|
|
-
|
|
Annapurna
Gundlapalli (2)
|
|
|
16,600
|
|
|
|
16,600
|
|
|
|
*
|
|
|
|
-
|
|
Lara
Hendrix
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
*
|
|
|
|
-
|
|
J.
Stephen Ivey
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
*
|
|
|
|
-
|
|
Smita
S Jaswa
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
*
|
|
|
|
-
|
|
Blair
Krueger
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
*
|
|
|
|
-
|
|
Steven
D Lee
|
|
|
290,000
|
|
|
|
290,000
|
|
|
|
*
|
|
|
|
-
|
|
Gail
Lynch
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
*
|
|
|
|
-
|
|
Gajan
Mahendiran
|
|
|
166,667
|
|
|
|
166,667
|
|
|
|
*
|
|
|
|
-
|
|
Sanjay
Navadia
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
*
|
|
|
|
-
|
|
Aadil
Nathoo
|
|
|
141,322
|
|
|
|
141,322
|
|
|
|
*
|
|
|
|
-
|
|
Alan
Oak
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
*
|
|
|
|
-
|
|
Sandesh
Pandhare
|
|
|
1,500,000
|
|
|
|
1,500,000
|
|
|
|
4.45
|
%
|
|
|
1,500,000
|
|
Prashant
Patel (3)
|
|
|
7,350,000
|
|
|
|
7,350,000
|
|
|
|
21.79
|
%
|
|
|
7,350,000
|
|
Rina
Patel (3)
|
|
|
2,500,000
|
|
|
|
2,500,000
|
|
|
|
7.41
|
%
|
|
|
2,500,000
|
|
Dilip
Patel
|
|
|
17,780
|
|
|
|
17,780
|
|
|
|
*
|
|
|
|
-
|
|
Alka
Patel
|
|
|
7,500
|
|
|
|
7,500
|
|
|
|
*
|
|
|
|
-
|
|
Suresh
K Patel
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
*
|
|
|
|
-
|
|
Nitesh
Patel
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
*
|
|
|
|
-
|
|
Shilpa
Patel
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
*
|
|
|
|
-
|
|
Mukesh
Kumar Patel
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
*
|
|
|
|
-
|
|
Pritesh
Patel
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
*
|
|
|
|
-
|
|
Punil
Patel
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
*
|
|
|
|
-
|
|
Rajiv
Patel
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
*
|
|
|
|
-
|
|
Rakesh
Patel
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
*
|
|
|
|
-
|
|
Umesh
Patel
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
*
|
|
|
|
-
|
|
Snehal
Patel
|
|
|
182,988
|
|
|
|
182,988
|
|
|
|
*
|
|
|
|
-
|
|
Amit
Patel
|
|
|
192,988
|
|
|
|
192,988
|
|
|
|
*
|
|
|
|
-
|
|
Patel
Trust 2010 (3)
|
|
|
2,400,000
|
|
|
|
2,400,000
|
|
|
|
7.12
|
%
|
|
|
2,400,000
|
|
Aditi
Patidat Living Trust U/A 06/17/08
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
*
|
|
|
|
-
|
|
Mohan
Paul
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
*
|
|
|
|
-
|
|
Ranit
LLC
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
2.97
|
%
|
|
|
1,000,000
|
|
Lily
Roda
|
|
|
250
|
|
|
|
250
|
|
|
|
*
|
|
|
|
-
|
|
Siddharth
Shah
|
|
|
75,000
|
|
|
|
75,000
|
|
|
|
*
|
|
|
|
-
|
|
Manish
Shah
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
*
|
|
|
|
-
|
|
Manish
Shah
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
*
|
|
|
|
-
|
|
Sydney
Shaw
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
*
|
|
|
|
-
|
|
Gerald
Slavin
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
*
|
|
|
|
-
|
|
Eugene
Smiley
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
*
|
|
|
|
-
|
|
Thomas
A Tollette
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
*
|
|
|
|
-
|
|
TPT
Investments LLC
|
|
|
125,000
|
|
|
|
125,000
|
|
|
|
*
|
|
|
|
-
|
|
Trinity
Medical Pharmacy LLC
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
*
|
|
|
|
-
|
|
Kesav
Vadrevu (4)
|
|
|
45,000
|
|
|
|
45,000
|
|
|
|
*
|
|
|
|
-
|
|
Kiran
Vadrevu (5)
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
*
|
|
|
|
-
|
|
Divyasri
Voleti
|
|
|
45,000
|
|
|
|
45,000
|
|
|
|
*
|
|
|
|
-
|
|
*Less
than 1%.
(1)
|
Mr.
Surendra Ajjarapu (also known as Suren Ajjarapu) is the Company’s Chairman of the Board of Directors and our Chief Executive
Officer and is considered an affiliate subject to the resale limitations under Rule 144. The following (i) 7,143,750 shares
are owned directly by Mr. Ajjarapu, (ii) 4,050,000 shares are owned by Sandhya Ajjarapu, Mr. Ajjarapu’s wife, for whom
Mr. Ajjarapu claims beneficial ownership, (iii) 1,275,000 shares are owned by the Surendra Ajjarapu Revocable Trust of 2007,
for whom Mr. Ajjarapu claims beneficial ownership as Trustee, and (iv) 1,275,000 shares are owned by the Sandhya Ajjarapu
Revocable Trust of 2007, for whom Mr. Ajjarapu claims beneficial ownership as Trustee.
|
|
|
(2)
|
Mrs.
Annapurna Gundlapalli is the mother-in-law of Surendra Ajjarapu. Mr. Ajjarapu disclaims any beneficial ownership of Ms. Gundlapalli’s
Shares
|
|
|
(3)
|
Mr.
Prashant Patel is a member of the Company’s Board of Directors and acts our Chief Operating Officer and is considered
an affiliate subject to the resale limitations under Rule 144. The following (i) 7,350,000 shares are owned directly by Mr.
Patel, (ii) 2,500,000 shares are owned by Rina Patel, Mr. Patel’s wife for whom Mr. Patel claims beneficial ownership,
and (iii) 2,400,000 shares are owned by the Patel Trust, for whom Mr. Patel claims beneficial ownership as Trustee.
|
|
|
(4)
|
Mr.
Vadrevu is the brother of Sandhya Ajjarapu, wife of Surendra Ajjarapu. Mr. Ajjarapu disclaims any beneficial ownership of
Ms. Gundlapalli’s Shares
|
|
|
(5)
|
Mrs.
Vedrevu is the sister-in-law of Sandhya Ajjarapu, wife of Surendra Ajjarapu. Mr. Ajjarapu disclaims any beneficial ownership
of Ms. Gundlapalli’s Shares
|
CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information with respect to the beneficial ownership of our securities as of June 6, 2019 [by
(i) each of our named executive officers and directors; (ii) each person known to us who owns beneficially more than 5% of any
class of our outstanding equity securities; and (iii) all of our executive officers and directors as a group. The number of shares
and the percentage of shares beneficially owned by each such person or group, as set forth below, include shares of common stock
that such person or group had the right to acquire on or within sixty days after June 6, 2019 pursuant to the exercise of vested
and exercisable options or warrants. References to options or warrants in the footnotes to the table below include only options
or warrants to purchase shares that were exercisable on or within sixty days after June 6, 2019.
Name
and Address of Beneficial Owner
(1)
|
|
Shares
Beneficially Owned
(2)
|
|
|
Percentage
(3)
|
|
Directors
and Named Executive Officers:
|
|
|
|
|
|
|
|
|
Suren
Ajjarapu, Chairman, CEO (4)
|
|
|
13,743,750
|
|
|
|
40.75
|
%
|
Prashant
Patel, Director, COO, and President (5)
|
|
|
12,250,000
|
|
|
|
36.32
|
%
|
Donald
G Fell, Director (6)
|
|
|
200,048
|
|
|
|
*
|
|
Howard
Doss, CFO (7)
|
|
|
315,281
|
|
|
|
*
|
|
Michael
L Peterson, Director (9)
|
|
|
148,798
|
|
|
|
*
|
|
Gajan
Mahendiran (8)
|
|
|
2,760,002
|
|
|
|
8.18
|
%
|
|
|
|
|
|
|
|
|
|
All
executive officers and directors as a Group (five persons)
|
|
|
29,417,879
|
|
|
|
87.22
|
%
|
Greater
than 5% Stockholders
|
|
|
|
|
|
|
|
|
*
Less than one 1%
(1)
Unless
otherwise indicated in the footnotes to the following table, the address of each person named in the table is: c/o Trxade Group,
Inc., 3840 Land O’ Lakes Blvd, Land O’ Lakes, Florida, 34639.
(2)
Based
on 33,726,459 shares of common stock outstanding on June 6 , 2019. Does not include shares issuable upon exercise
of (i) 1,732,846 stock options currently outstanding, (ii) warrants to purchase 2,863,475 shares of common stock, (iii) 267,154
shares which are reserved for the Company’s 2014 Equity Incentive Plan, none of which shares are issuable within 60 days
of the date set forth above.
(3)
Except
as otherwise indicated, we believe that the beneficial owner of the common stock listed above, based on information furnished
by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable.
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with
respect to securities.
(4)
Includes
(i) 7,143,750 shares owned directly by Mr. Ajjarapu, (ii) 4,050,000 shares owned by Sandhya Ajjarapu, Mr. Ajjarapu’s wife,
for whom Mr. Ajjarapu claims beneficial ownership, (iii) 1,275,000 shares owned by the Surendra Ajjarapu Revocable Trust of 2007,
for whom Mr. Ajjarapu claims beneficial ownership as Trustee, and (iv) 1,275,000 shares owned by the Sandhya Ajjarapu Revocable
Trust of 2007, for whom Mr. Ajjarapu claims beneficial ownership as Trustee.
(5)
Includes
(i) 7,350,000 shares owned directly by Mr. Patel, (ii) 2,500,000 shares owned by Rina Patel, Mr. Patel’s wife for whom Mr.
Patel claims beneficial ownership, and (iii) 2,400,000 shares owned by the Patel Trust, for whom Mr. Patel claims beneficial ownership
as Trustee.
(6)
Includes 200,048 shares of common stock issuable upon the exercise of stock options that are exercisable within 60 days
of the applicable date above.
(7)
Includes 315,281 shares of common stock issuable upon the exercise of stock options that are exercisable within 60 days
of the applicable date above.
(8)
Includes 833,334 shares of common stock of the Company and warrants to purchase 1,926,668 shares of common stock at an exercise
price of $0.01 per share that are exercisable within 60 days of the applicable date above, and which are held jointly with Mr.
Mahendiran’ s wife, Amudha Mahendiran, as tenants by entirety.
(9)
Includes 148,798 shares of common stock issuable upon the exercise of stock options that are exercisable within 60 days
of the applicable date above.
There
are no current arrangements among any of the foregoing persons which would result in a change in control.
DIVIDEND
POLICY
We
have never paid or declared any cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable
future. We anticipate that we will retain all of our future earnings for use in the operation of our business and for general
corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly,
investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize
any future gains on their investments.
PLAN
OF DISTRIBUTION
There
is no actively traded public market for our common stock. Although our common shares are quoted for sale on the OTCQB, our common
stock is mostly held by just a few shareholders. Therefore, the current and potential market for our common stock is limited and
the liquidity of our shares may be severely limited. While we successfully identified and engaged a market maker to file an application
with FINRA on our behalf, hence we are able to quote our shares of common stock on the OTCQB maintained by OTC Markets, Inc. and
administered by FINRA. We cannot provide any assurance that a meaningful trading market will ever develop or that our common stock
will ever be quoted or listed for trading on any market above the OTC.
The
trading price of our common stock could be subject to wide fluctuations in response to various events or factors, many of which
are beyond our control. As a result, investors may be unable to sell their shares at or greater than the price at which they are
being offered. No officers or directors of the Company may purchase any securities in this Offering.
There
can be no assurance that all, or any, of the Shares will be sold. As of this date, we have not entered into any agreements or
arrangements for the sale of the shares with any broker-dealer or sales agent. However, if we were to enter into such arrangements,
we will file a post-effective amendment to disclose those arrangements because any broker-dealer participating in this Offering
would be acting as an underwriter and would have to be so named herein. In order to comply with the applicable securities laws
of certain states, the securities may not be offered or sold unless they have been registered or qualified for sale in such states
or an exemption from such registration or qualification requirement is available and with which we have complied. The purchasers
in this Offering and in any subsequent trading market must be residents of such states where the shares have been registered or
qualified for sale or an exemption from such registration or qualification requirement is available. As of this date, we have
not identified the specific states where this Offering will be sold.
Any
purchaser of our securities should be aware that any market that develops in our common stock will be subject to “penny
stock” restrictions.
We
will pay all expenses incident to the registration, offering and sale of the Shares other than commissions or discounts of underwriters,
broker-dealers or agents, if any.
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and control persons,
we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.
The
trading of our securities occurs in the over-the-counter markets which are commonly referred to as the OTCQB as maintained by
OTC Markets, Inc. and administered by FINRA (if and when quoting thereon has occurred). As a result, a purchaser of our securities
may find it difficult to dispose of, or to obtain accurate quotations as to the price of, our securities. The Over-the-Counter
Bulletin Board (the “OTCBB”) is maintained and owned by FINRA. OTCQB is maintained and owned by OTC Markets, Inc.
UNITED
STATES FEDERAL INCOME TAX CONSIDERATIONS
The
following is a summary of the material U.S. federal income tax considerations relating to the purchase, ownership and disposition
of the shares of the common stock purchased by the investor pursuant to this Offering. We have based this summary upon the Internal
Revenue Code of 1986, as amended (the “Code”), Treasury regulations promulgated under the Code, as amended (the “Treasury
Regulations”), administrative rulings and pronouncements and judicial decisions, in each case as of the date hereof. These
authorities are subject to differing interpretations and are subject to change, perhaps retroactively, resulting in U.S. federal
income tax consequences different from those discussed below. We have not sought any ruling from the Internal Revenue Service
(the “IRS”) with respect to the statements made and the conclusions reached in the following summary, and there can
be no assurance that the IRS will agree with such statements and conclusions or that a court will not sustain any challenge by
the IRS in the event of litigation.
This
summary assumes that a beneficial owner will hold the shares of the common stock, as the case may be, as capital assets within
the meaning of section 1221 of the Code. This summary does not address the tax consequences arising under the laws of any state
or local jurisdiction or non-U.S. jurisdiction or any other U.S. federal tax consequences, such as estate and gift tax consequences.
In addition, this summary does not address all tax considerations that might be applicable to your particular circumstances (such
as the alternative minimum tax provisions of the Code), or to certain types of holders subject to special tax rules, including,
without limitation, partnerships, banks, financial institutions or other “financial services” entities, broker-dealers,
insurance companies, tax-exempt organizations, regulated investment companies, real estate investment trusts, retirement plans,
individual retirement accounts or other tax-deferred accounts, persons who use or are required to use mark-to-market accounting
for federal income tax purposes, persons that hold shares of the common stock as part of a “straddle”, a “hedge”,
a “conversion transaction” or other arrangement involving more than one position, U.S. holders (as defined below)
that have a functional currency other than the U.S. dollar and certain former citizens or permanent residents of the United States.
If
a partnership holds the shares of the common stock, the tax treatment of a partner in the partnership will generally depend upon
the status of the partner and the activities of the partnership. If you are a partner of a partnership holding the shares of the
common stock, you should consult your tax advisor.
If
you are considering the purchase of the shares of the common stock, you should consult your own tax advisor concerning the U.S.
federal income tax consequences to you in light of your particular facts and circumstances and any consequences arising under
the laws of any state, local, foreign or other taxing jurisdiction.
As
used in this discussion, a “U.S. Holder” is a beneficial owner of the shares of the common stock that is not a partnership
or entity treated as a partnership for U.S. federal income tax purposes and is:
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an
individual who is a citizen or resident of the United States;
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a
corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under
the laws of the United States, any state thereof or the District of Columbia;
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an
estate, the income of which is subject to U.S. federal income taxation regardless of its source; or
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a
trust (i) if a court within the United States is able to exercise primary supervision over its administration and one or more
U.S. persons have authority to control all substantial decisions of the trust or (ii) that has a valid election in effect
under applicable Treasury Regulations to be treated as a U.S. person.
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As
used in this discussion, a “Non-U.S. Holder” is a beneficial owner of Shares of the common stock that is neither a
U.S. Holder nor a partnership or other entity treated as a partnership for U.S. federal income tax purposes. Special rules may
apply to Non-U.S. Holders that are subject to special treatment under the Code, including controlled foreign corporations, passive
foreign investment companies, U.S. expatriates, and foreign persons eligible for benefits under an applicable income tax treaty
with the United States. Such Non-U.S. Holders should consult their tax advisors to determine U.S. federal, state, local and other
tax consequences that may be relevant to them.
THIS
DISCUSSION IS ONLY A SUMMARY OF CERTAIN MATERIAL U.S. FEDERAL INCOME TAX OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE
COMMON STOCK. IT IS NOT TAX ADVICE. EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT ITS TAX ADVISOR WITH RESPECT TO THE PARTICULAR
TAX CONSEQUENCES TO SUCH INVESTOR, INCLUDING THE APPLICABILITY AND EFFECT OF ANY LOCAL, AND NON-U.S. TAX LAWS, AS WELL AS U.S.
FEDERAL TAX LAWS, AND ANY APPLICABLE TAX TREATIES.
Distributions
made to U.S. Holders out of our current or accumulated earnings and profits, as determined for U.S. federal income tax purposes,
will be included in the income of a U.S. Holder as dividend income and will be subject to tax as ordinary income. Distributions
in excess of our current and accumulated earnings and profits will not be taxable to a U.S. Holder to the extent that the distributions
do not exceed the U.S. Holder’s adjusted tax basis in the stock to which such distribution relates, but rather will reduce
the adjusted tax basis of such shares. To the extent that distributions in excess of our current and accumulated earnings and
profits exceed the U.S. Holder’s adjusted tax basis in the shares of stock to which the distribution relates, such distributions
will generally be treated as the sale or exchange of such stock, resulting in capital gain. In addition, a corporate U.S. Holder
will not be entitled to the dividends-received deduction on this portion of a distribution.
Any
distribution not constituting a dividend will be treated for U.S. federal income tax purposes as a tax-free return of capital
to the extent of the Non-U.S. Holder’s adjusted tax basis in its shares of our common stock (with a corresponding reduction
to such basis), and, to the extent such distribution exceeds the Non-U.S. Holder’s adjusted tax basis, as gain from the
sale or other disposition of the common stock. Generally, any distribution to a Non-U.S. Holder that is a dividend for U.S. federal
income tax purposes and that is not effectively connected with the Non-U.S. Holder’s conduct of a trade or business within
the Unites States, as described below, will be subject to U.S. federal withholding tax at a rate of 30% percent of the gross amount
of the dividend, unless such Non-U.S. Holder is eligible for a reduced rate of withholding tax under an applicable income tax
treaty and provides proper certification of its eligibility for such reduced rate.
We
will notify all of our U.S. and non-U.S. holders of our shares after the close of each taxable year as to the portions of the
distributions attributable to that year that constitute ordinary income, qualified dividend income and non-dividend distributions,
if any. Each investor should consult the investor’s individual or corporate tax advisor.
LEGAL
COUNSEL MATTERS
The
validity of our common stock offering hereby will be passed upon by Krueger LLP, La Jolla and Los Angeles, California.
EXPERTS
The
audited consolidated financial statements of Trxade Group, Inc. and its subsidiaries as of December 31, 2018 and 2017, and for
the years then ended, included in our Annual Report on Form 10-K for the year ended December 31, 2018, incorporated in this Prospectus
have been audited by MaloneBailey LLP, Houston, Texas, independent registered public accounting firm, as stated in their report
date dated March 22, 2019 which is incorporated herein, and has been so incorporated in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
UNAUDITED
INTERIM FINANCIAL STATEMENTS
The
information for the interim period ended March 31, 2019 is unaudited; however, it includes all adjustments considered necessary
by management for a fair presentation of our financial condition and results of operations.
BUSINESS
The
following discussion should be read in conjunction with our financial statements and the related notes and other financial information
appearing elsewhere in this Form S-1.
Overview
We
have designed and developed, and now own and operate, a business-to-business, web-based marketplace focused on the pharmaceutical
industry in the United States. 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 on a web-based
platform.
CORPORATE
HISTORY
Background
of XCEL
Our
Company was incorporated in Delaware on July 15, 2005 as “Bluebird Exploration Company” (“Bluebird”).
Bluebird was originally formed to engage in the exploitation of mineral properties. In December 2008, Bluebird changed its name
to “Xcellink International, Inc.” (“XCEL”), and subsequently announced that its business plan was being
expanded to include the development and marketing of platform-independent customer-centric payment systems and methodologies.
XCEL was unable to raise the funds necessary to implement its business strategy, never generated any revenue and was a reporting
as a “shell” corporation. On January 9, 2014, Trxade Group, Inc., a privately held Nevada corporation, merged with
and into XCEL, and XCEL changed its name to “Trxade Group, Inc.” XCEL’s shares traded on the OTCBB market until
early 2010.
Background
of Trxade
PharmaCycle
LLC, a Nevada limited liability company (“PharmaCycle”), was formed in August 2010 by Prashant Patel to serve as a
web-based market platform designed to enable trading among healthcare buyers and sellers of pharmaceuticals, accessories and services.
In January 2013, PharmaCycle converted into a Florida corporation and changed its name to Trxade, Inc. (“Trxade Florida”).
In May 2013, Trxade Florida created a new wholly-owned subsidiary, Trxade Group, Inc., a Nevada corporation (“Trxade Nevada”).
Trxade Nevada acquired Trxade Florida pursuant to a reverse triangular merger, resulting in Trxade Florida becoming a wholly owned
subsidiary of Trxade Nevada (the “Nevada-Florida Merger”). The sole purpose of the Nevada-Florida Merger was to provide
for a holding company to own Trxade Florida, the operating company. At all times, up to the Nevada-Florida Merger, Trxade Florida
was capitalized exclusively by cash capital contributions from Messrs. Suren Ajjarapu and Patel. Immediately following the Nevada-Florida
Merger, Messrs. Ajjarapu and Patel collectively owned 99% of Trxade Nevada. After the Nevada-Florida Merger (but prior to the
merger with XCEL), Trxade Nevada raised $670,000 through the sale of its preferred stock in private placements made to third party
investors.
Reverse
Merger with Trxade
On
September 26, 2008, Mark Fingarson, the former President, sole Director and controlling shareholder of XCEL, sold 80,000,000 shares
of XCEL to XCEL’s then attorney, Ron McIntyre. On November 22, 2013, Trxade Nevada acquired Mr. McIntyre’s controlling
interest of 80,000,000 shares in XCEL pursuant to a Purchase and Sale Agreement dated November 7, 2013. At the time of the sale,
XCEL had 104,160,000 shares of common stock issued and outstanding, including the 80,000,000 shares of stock acquired by Trxade
Nevada.
On
December 16, 2013, Trxade Nevada and XCEL entered into a definitive merger agreement (the “Merger Agreement”) providing
for the merger (the “Merger”) of Trxade Nevada with and into XCEL, with XCEL as the surviving corporation. The Merger
closed on January 8, 2014. Under the terms of the Merger Agreement, we amended our articles of incorporation changed our name
to “Trxade Group, Inc.,” and changed our trading symbol to XCEL.PK. On February 13, 2014, an additional 600,000 shares
of our common stock (on a post-reverse split basis) were issued pursuant to the conversion of $19,333 in aggregate principal amount
of our outstanding promissory notes.
Recapitalization
of Common Stock by a Reverse Split and Increase of Authorized Shares of Stock
We
also reversed our issued and outstanding stock at the ratio of one thousand-for-one (1,000:1) shares effective upon the closing
of the Merger (the “Reverse Split”). In connection with the Reverse Split, 104,160,000 outstanding shares of our common
stock, including the 80,000,000 shares held by Trxade Nevada, converted into 104,160 shares of common stock. As a result of the
Merger, Trxade Nevada Shareholders holding 28,800,000 shares of common stock and 670,000 shares of Series A Preferred Stock converted
their shares on a one-to-one basis into 28,800,000 shares of our common stock and 670,000 shares of our Series A Preferred Stock,
for an aggregate total of 29,470,000 shares. Further, 600,000 shares of our common stock (on a post- Reverse Split basis) were
issued following the Merger in connection with the conversion of our promissory notes. The 80,000,000 pre-Merger shares held by
Trxade Nevada, which amounted to 80,000 shares after the Reverse Split, reverted to treasury stock of the Company.
On
June 11, 2015, pursuant to our Second Amended and Restated Certification of Incorporation, we decreased the authorized shares
of our common stock from 500,000,000 to 100,000,000 and decreased the authorized shares of our Preferred Stock from 100,000,000
to 10,000,000. The Company is currently authorized to issue 100,000,000 shares of common stock with $0.00001 par value per share
and 10,000,000 shares of preferred stock, $0.00001 par value per share.
Subsidiaries
We
own 100% of Trxade, Inc. This subsidiary is included in our attached consolidated financial statements and is engaged in the same
line of business as Trxade. Trxade Florida is a web-based market platform that enables commerce among healthcare buyers and sellers
of pharmaceuticals, accessories and services.
We
own 100% of Integra Pharma Solutions, LLC, (formerly Pinnacle Tek, Inc., a Florida corporation) founded by Mr. Ajjarapu in 2011
(“INTEGRA”). Until the end of 2016, INTEGRA served as our technology consultant provider, but we discontinued that
line of business in 2016. We now intend that INTEGRA serve as our logistics company for pharmaceutical distribution.
We
own 100% of Community Specialty Pharmacy, LLC, an independent retail specialty pharmacy with a focus on specialty medications.
We
own 100% of Alliance Pharma Solutions, LLC, a Florida limited liability company, which was founded in January 2018 (“Alliance”).
Alliance currently owns 30% (with the option to acquire more) of SyncHealth MSO, LLC as part of a joint venture enabling independent
retail pharmacies to better compete with large national pharmacies on pricing, distribution and logistics. Under our joint venture
arraignment, we have the option to acquire 100% of SyncHealth MSO, LLC. For further information, please consult the Current Report
on Form 8-K filed January 22, 2019 and referenced herein as Exhibits 10.2-10.7.
Sale
of Westminster
We
also owned 100 percent of Westminster Pharmaceuticals LLC, a Delaware limited liability company (“Westminster”), from
2015 through December 31, 2016. Trxade Florida formed Westminster in January 2013 as its wholly-owned subsidiary. This licensed
subsidiary is included in our attached financial statements and provides state-licensed pharmacies and buying groups in the United
States with pharmaceuticals approved by the United States Food and Drug Administration (the “FDA”). In late 2015 and
early 2016, Westminster entered into multiple supply contracts with wholesale manufacturers of generic pharmaceuticals to begin
selling Westminster private label generic pharmaceuticals to our customers.
In
December 2016, based on our management’s strategic review of our portfolio of businesses, we committed to a plan to sell
our private label generic pharmaceutical businesses. On December 31, 2016, we entered into and consummated the sale of 100% of
our equity interests in Westminster, and, in connection with the sale, we exited the private label generic pharmaceuticals business
line. We sold Westminster in exchange for (a) the buyer’s cancellation of $1,500,000 of indebtedness owed by us under a
senior secured note, (b) our issuance of warrants to the buyer to purchase 1,500,000 shares of our common stock (the “Warrants”),
and (c) the buyer’s assumption of various contracts and obligations of Westminster. We issued the Warrants to the buyer
at a strike price of $0.01 per share. The Warrants have an expiration date of five years from date of grant under the term and
conditions of our warrant agreement with the buyer
The
Westminster sale is considered a discontinued operation and, as a result, all consolidated financial statements in this Form S-1
have been adjusted accordingly to reflect this financial statement presentation.
Acquisition
of Community Specialty Pharmacy, LLC
On
October 15, 2018, the Company entered into and consummated the purchase of 100% of the equity interests of Community Specialty
Pharmacy, LLC, a Florida limited liability company, (“CSP”), pursuant to the terms and conditions of the Membership
Interest Purchase Agreement, entered into by and among the Company as the buyer, and CSP, and Nikul Panchal, the equity owner
of CSP (collectively, the “Seller”). The purchase price for the 100% equity interest in CSP was $300,000 in cash,
a promissory note issued by the Company of $300,000 (see Note 4), and warrants to purchase 405,507 shares of the common stock
of the Company which vested at the acquisition date, are exercisable for eight (8) years from the issuance date at a strike price
of $0.01 per share, and subject to exercise restrictions which lapse over a period of three (3) years.
See
Note 12 of the
Notes to Consolidated Financial Statements for information concerning the Community Specialty Pharmacy, LLC acquisition and our
Current Report on Form 8-K on October 17, 2018 and an Amended Report on Current Form 8-K filed on December 28, 2018.
SyncHealth
MSO, LLC Joint Venture
On
January 17, 2019, the Company and Alliance Pharma Solutions, LLC, a Delaware limited liability company and wholly-owned subsidiary
of the Company (hereafter “Alliance,” with Alliance and Trxade referred to collectively herein as the “Trxade
Parties”), entered into a transaction effective as of 1 January 17, 2019 with PanOptic Health, LLC, a Delaware limited liability
company (“PanOptic”), to create a new entity, SyncHealth MSO, LLC (“SyncHealth”) to enable independent
retail pharmacies to better compete with large national pharmacies on pricing, distribution and logistics. SyncHealth MSO, LLC.
See Note 13 of the Notes to Consolidated Financial Statements for information concerning the SyncHealth MSO Joint Venture and
our Current Report on Form 8-K filed on January 22, 2019.
BUSINESS
OF TRXADE
Our
Principal Products and Services and their Markets.
Trxade.com
is a web-based pharmaceutical marketplace engaged in promoting and enabling commerce among independent pharmacies and large
pharmaceutical suppliers nationally. Our marketplace has hundreds of suppliers providing over 20,000 branded and generic drugs
available for purchase by pharmacists. We already serve over 10,000 independent pharmacies. access to Trxade’s proprietary
pharmaceutical database, data analytics regarding medication pricing, and manufacturer return policies. We generate revenue from
these services by charging a transaction fee to the seller of the products for sales conducted via the Trxade platform. The buyers
do not bear the cost of transaction fees for the purchases that they make, nor do they pay a fee to join or register with our
platform. Substantially all of our revenues during the years ended December 31, 2018, and 2017, were from platform revenue generated
on
www.Trxade.com.
For additional information, please visit us at http://www.trxadegroup.com, http://www.trxade.com, http://www.delivmeds.com,
and https://www.trxademso.com.
Status
of any publicly announced new products or services.
We
have a number of products and services still in development, which are described below.
InventoryRx.com
.
InventoryRx, launched in the first quarter of 2014, is a web-based pharmaceutical exchange platform where wholesalers can buy
and sell pharmaceuticals or over-the-counter medications with each other in a systematized online sales platform. The site offers
these trading partners greater product availability and pricing transparency. The site may also substantially improve our customers
buying efficiency and lower their cost of goods on a continuous basis. This product is built into the
Trxade.com
platform
and, accordingly, we have not generated any independent revenue from this product.
Pharmabayonline
.
We formed Pharmabayonline to provide proprietary pharmaceutical data analytics and governmental reimbursement benchmarks analysis
to United States-based independent pharmacies and pharmaceutical databases.
RxGuru
.
Our RxGuru application was launched in the first quarter of 2014 and underscores our commitment to deliver timely information
to our customers at the moment before purchase. Our industry leading price prediction model “RxGuru” integrates product
insight into pharmacy acquisition benchmarks (“PAC”) to ascertain trends and pricing variances which result in significant
purchasing opportunities. “RX Guru” helps to predict prices and affords our members an opportunity continuously to
benefit from real price purchasing opportunities that are often concealed from the rest of the industry. This product is built
into the
Trxade.com
platform and, accordingly, this application works in conjunction with the Trxade platform but, to date,
has not generated any independent revenue.
Integra
Pharma Solutions, LLC
. INTEGRA is intended to serve as our logistics company for pharmaceutical distribution and has limited
operations and revenue at this time.
Community
Specialty Pharmacy, LLC
. We acquired Community Specialty Pharmacy, LLC, a Florida limited liability company (“CSP”),
on October 15, 2018. CSP is an accredited pharmacy located in St. Petersburg, Florida. CSP has a focus on specialty medications.
The company operates with an innovative pharmacy model which offers home delivery services to any patient thereby providing convenience.
See
Note 12 of the Notes to Consolidated Financial Statements for information concerning the business combination and our
Current Report on Form 8-K filed on December 28, 2018.
Delivmeds.com
.
Delivmeds.com
was launched in late 2018 as a consumer-based app to provide delivery of pharmaceutical products associated
with Alliance Pharma Solutions, LLC. To date, we have not generated any revenue from this product.
Trxademso
.
Trxademso was launched early 2019 as part of the, SyncHealth MSO, LLC joint venture to assist independent retail pharmacies to
compete better with large national pharmacies on pricing, distribution and logistics. To date, we have not generated any revenue
from this product.
All
our product offerings are focused on the United States markets. Some products are restricted just to certain states, depending
upon the various applicable state regulations and guidelines pertaining to pharmaceuticals, particularly, and drug businesses,
generally. Our services are distributed through our online platform.
Discontinued
Operations.
Westminster
Pharmaceuticals
.
Westminster
bought FDA-approved prescription medications from licensed pharmaceutical wholesalers and manufacturers from 2015 until 2016.
Westminster stored these products at a licensed logistics location in Olive Brach, Mississippi until they were ready for delivery
to Westminster’s customers once sold. In late 2015 and early 2016, Westminster entered into multiple supply contracts with
wholesale manufacturers of generic pharmaceuticals to begin selling Westminster private label generic pharmaceuticals to its customers.
Westminster generated very limited revenue from the sale of its private label products. This business line was not profitable
for the Company, and we sold Westminster in December 2016, thus concluding the Company’s exit from the private label generic
pharmaceuticals business.
The
Pharmaceutical Industry
According
to the
2013-14 Economic Report on Retail, Mail, and Specialty Pharmacies
by Adam J. Fein, Ph.D. (the “Fein Report”),
United States pharmaceutical companies comprise a burgeoning $330 billion industry consisting of over 65,000 pharmacy facilities
and 700 DEA-registered (and 1,500 State-licensed) suppliers. Management believes that few platforms currently in place to bring
these participants together to share market knowledge, product pricing transparency and product availability. According to this,
the pharmaceutical market is comprised primarily of three wholesalers that control an estimated approximately 92% of the market.
Our management believes that this concentration has, over the years, led to a lack of price and cost transparency, thereby resulting
in severe limitations on the purchasing choices of industry participants. These market dynamics have enabled these large wholesalers
(McKesson, Cardinal Health and AmerisourceBergen), known as ADR distributors, to dominate the industry with respect to both generic
and brand pharmaceuticals. The increasing concentration of generic medications (ANDA or Abbreviated New Drug Application), however,
with many more expected to go to market in the near future (approximately $80 billion branded medications will lose their patent
protection within the next ten years), have enabled smaller suppliers’ access to an increasing number of medications at
highly discounted prices. The market is slowly changing towards one where medications will become a commoditized and influenced
by price rather than the business relationships imposed by the dominant participants of the past.
To
fuel this change, insurance companies (Pharmacy Benefits Management (“PBM”) and private health payers) and the federal
government have recently initiated lower medication reimbursement payments to healthcare providers. We believe that pharmacies
in due course will face increasing pressure to source medications as inexpensively as possible and improve operational efficiency.
Trxade seeks to be in the forefront of solving these transparency and pricing concerns by providing independent, retail pharmacies
with real-time, pharmacy acquisition cost (“PAC”) benchmarks to the National Drug Code (the “NDC”) standard.
The NDC mark is a unique product identifier used in the United States for drugs intended for human use.
Competitive
Business Conditions, Our competitive position in our Industry, and our Methods of Competition.
We
expect to face competition from the three large ADR distributors (McKesson, Cardinal Health & AmerisourceBergen), other pharmaceutical
distributors, buying groups, software products, and other start-up companies. Most of our competitors’ operations have substantially
greater financial- and manufacturer-backed resources, longer operating histories, greater name recognition, and more established
relationships in the industry.
Other
Start-up Companies.
We
have identified start-ups that provide for supplier-pharmacy trading such as PharmaBid, RxCherrypick, PharmSaver, MatchRx and
GenericBid, and provide web-based services similar to ours, allowing pharmacies to buy from several suppliers. Trxade differentiates
itself from these exchanges by providing our pharmacies with both brand and generic pharmaceutical products. Additional companies
target “direct-to-consumer” pharmacy deliveries, including
Amazon.com
’s
PillPack
,
Capsule
and
GetRoman.com
.
Buying
Groups.
Buying
Groups provide discounted prices to their members by negotiating better pricing with one primary wholesaler, while charging
administrative fees generally ranging from 3 to 5 percent. Some Buying Groups are structured like co-operatives (such as the
IPC and API) and offer their members monthly or quarterly rebates. Although they can function well to bring pricing
competition to the industry, they often offer rebates only after the purchase. Management does not believe Buying Groups will
provide long-term savings to customers with this model given the increased transparency and competition in the
industry.
Pharmaceutical
Software.
Some
pharmaceutical software companies compete with us to varying degrees at different levels. SureCost, for example, provides inventory
management software enabling pharmacies to comply with primary supplier contracts. This software is fee-based and requires training.
Pharmacies
may be reluctant to buy pharmaceuticals on the internet due to the historical negativity and uncertainty with respect to the origin
and purity of drugs purchased off the web. Trxade management believes that as we continue to develop our brand, our customer base,
and our vast product offerings, we will gain the trust of the market and overcome the negativity associated with purchasing via
a pharmaceutical online marketplace.
One
advantage that we believe we have over our competition is our ability to be flexible and fast moving in adjusting our business
model to address the needs of our customer base. Trxade started by offering pharmacies a reverse auction model to enhance savings
on the purchase of their pharmaceuticals. Customer feedback suggested that pharmacies prefer a more “buy now” format,
which we implemented. This resulted in a “one-stop-one-search” platform to buy quality pharmaceuticals for less and
a data-rich platform to help pharmacies overcome the complexities related to supply chain purchasing.
Sources
and Availability of Raw Materials; Principal Suppliers.
Trxade
is a web-based technology platform. Because we are not a manufacturing company, we do not need any raw materials. Our module on
the platform is drug supplier-to-retailer. We bring buyers and sellers together on this platform. Our suppliers include National
Apothecary Solutions, Integral RX, and South Pointe Wholesale, Inc.
Dependence
on One or More Major Customers.
As
of the date of this S-1, we have over 10,000 independent pharmacies and over 30 pharmaceutical suppliers as customers, with a
market potential of approximately 24,000 independent pharmacies and 1,500 regional and local suppliers. We have a working relationship
with over 25 wholesalers and the nation’s largest buying group. Although we believe those entities are satisfied with their
business relationship with Trxade, if our buying group and two or three of the largest wholesalers decided no longer to do business
with Trxade, the resulting supplier void would materially and adversely affect our competitiveness in the marketplace.
Intellectual
Property.
Although
we believe that our name and brand are protected by applicable state common law trademark laws, we do not currently have any registered
trademarks, patents, concessions, licenses, royalty agreements, or franchises other than Trxade (and pending trademarks on RxGuru
and our pharmaceutical pricing benchmarks, PAC). Our business operates under a proprietary software system which includes trade
secrets within our database, business practices and pricing model.
Need
for Government Approval of Products and Services.
We
are required to hold business licenses and to follow applicable state and federal government regulations detailed herein. In October
2018, we acquired Community Specialty Pharmacy, LLC, an accredited independent retail pharmacy with a focus on specialty medications,
which requires state approval, which we have obtained.
Effect
of Existing or Probable Government Regulations on the Business
.
Federal
Drug Administration Guidelines
On
April 12, 1988, President Ronald Reagan signed into law the Prescription Drug Marketing Act of 1987 (PDMA), setting the baseline
for wholesale distribution regulations. The final regulations were published in 1999, establishing the minimum wholesale distribution
requirements for state licensure. With the intent to prevent the introduction and retail sale of substandard, ineffective, or
counterfeit drugs into the distribution system, state licensing systems moved to update their standards to match those provided
federally as guided under FDA’s Guidelines for State Licensing of Wholesale Prescription Drug Distributors (21 CFR 205).
PDMA established minimum federal pedigree requirements to trace the ownership of prescription drugs through the supply chain.
The principal goal of the PDMA was to further secure the nation’s drug supply from counterfeit and substandard prescription
drugs. The law establishes two types of distributors: “Authorized distributor[s] of record” or ADRs; and “Unauthorized
distributor[s],” such as wholesalers. The pedigree requirement was to require each person engaged in the wholesale distribution
of a prescription drug in interstate commerce, who is not the manufacturer or an authorized distributor of record for that drug,
to provide a pedigree to the recipient. After meeting resistance from various stakeholders, the FDA delayed the effective date
of the regulations several times, until final implementation in December 2006.
At
the federal level the implementation of the track and trace legislation by 2018 will require the use of pharmaceutical pedigree
to track the movement of pharmaceuticals along the supply chain. The costs of complying with this new legislation may be too burdensome
for many of the smaller suppliers.
State
Drug Administration Guidelines
There
are a number of national and state-wide regulations that have an effect on our business. All drug wholesalers must be licensed
under state licensing systems, which must in turn meet the FDA guidelines under State Licensing of Wholesale Prescription Drug
Distributors (21 CFR Part 205). The regulations set forth minimum requirements for prescription drug storage and security as well
as for the treatment of returned, damaged, and outdated prescription drugs. Further, wholesale drug distributors must establish
and maintain inventories and records of all transactions regarding the receipt and distribution of prescription drugs and make
these available for inspection and copying by authorized federal, state, or local law enforcement officials. In most states, wholesale
distributor licenses are issued by the State Boards of Pharmacy and require periodic renewal. Approximately 40 states also require
out-of-state wholesalers that distribute drugs within their borders to be licensed as well.
California,
Florida, Nevada, New Mexico and Indiana define the normal distribution channel to not include the lateral sales of pharmaceuticals
between wholesalers. The new Supply Chain Act, part of the Quality Drug Act, which was signed into federal law in December 2013,
precludes all states from restricting, investigating or inspecting the distribution channel and transactional history. Until the
federal government provides guidelines for the new federal law, no state regulation or guideline exists.
The
warehousing of pharmaceuticals is also restricted and requires additional state licenses. Some licenses require bonds and written
exams and may take some time to approve. Currently, Westminster Pharmaceuticals, our wholesale distributor, asks for formal pedigrees
from the ADR wholesalers and provides pedigrees to those entities they sell to in the marketplace. This requirement limits liability
and provides assurance if a recall is warranted that Trxade and its participants will receive value for the commodity.
Research
and Development.
During
the last two fiscal years,
Trxade.com
,
InventoryRx.com
,
Pharmabayonline
and
RxGuru
have been developed
as proprietary software. For the years ended December 31, 2018 and 2017, $949,948 and $863,324, respectively, was spent by the
company in technology activities, these were included in General and Administrative expenses. None of these expenses were borne
directly by customers.
Cost
of Compliance with Environmental Laws.
Our
operations are subject to regulations under various federal, state, local and foreign laws concerning the environment, including
laws addressing the discharge of pollutants into the air and water, the management and disposal of hazardous substances and wastes,
and the cleanup of contaminated sites. We could incur substantial costs, including cleanup costs, fines and civil or criminal
sanctions and third-party damage or personal injury claims, if in the future we were to violate or become liable under environmental
laws. We are not aware of any costs or effects of our compliance with environmental laws.
Employees
Currently,
we have 31 full time employees and 1 part time employee. We also utilize numerous outside consultants. Our future success will
depend partially on our ability to attract, retain and motivate qualified personnel. We are not a party to any collective bargaining
agreements and have not experienced any strikes or work stoppages. We consider our relations with our employees to be satisfactory.
Seasonality
Our
business is not directly affected by seasonal fluctuations but is affected indirectly by the fall and winter flu season, to the
extent it leads to in increased demand for certain generic pharmaceuticals.
Available
Information
We
are subject to the information and reporting requirements of the 1934 Securities Exchange Act (the “Exchange Act”),
under which we file periodic reports, proxy and information statements and other information with the United States Securities
and Exchange Commission, or (the “SEC”). Copies of the reports, proxy statements and other information may be examined
without charge at the Public Reference Room of the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549, or on the Internet
at
http://www.sec.gov
. Copies of all or a portion of such materials can be obtained from the Public Reference Room of the
SEC upon payment of prescribed fees. Please call the SEC at 1-800-SEC-0330 for further information about the Public Reference
Room.
Financial
and other information about Trxade Group, Inc. is available on our website (www.traxadegroup.com). Information on our website
is not incorporated by reference into this report. We make available on our website, free of charge, copies of our annual report
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing such material electronically
or otherwise furnishing it to the SEC.
PROPERTIES
Description
of Property
We
do not own any real property. We entered into a new lease for our office space at 3840 Land O’ Lakes Blvd, Land O’Lakes,
Florida 34639 from January 1, 2018 for approximately $100,000 per year under a three-year lease agreement, occupying approximately
6,300 square feet. We entered into a lease for Integra Pharma Solutions, LLC at 6308 Benjamin Road, Tampa, Florida 33634 from
October 17, 2018 for approximately $42,000 per year under a five-year lease agreement, occupying approximately 6,300. We believe
our current and future facilities are adequate for our current and near-term needs. Additional space may be required as we expand
our activities. We do not currently foresee any significant difficulties in obtaining any required additional facilities.
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
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Holders
According
to the records of our transfer agent, as of June 6, 2019, there were approximately 67 holders of record of our common stock, not
including any persons who hold their stock in “street name.”
Market
Information
Since
June 2014, our common stock has been quoted on the OTCQB tier of the marketplace maintained by OTC Markets Group, Inc. under
the symbol “TRXD” after filing a Form 10 Registration Statement. Prior to June 2014 , our stock traded on the
Pink Sheets national quotation system on the Over-the-Counter Quotation Board (the “OTCQB”) administered by the
OTC Markets Group, Inc. (the “OTC”) after filing a Form SB-2 Registration Statement in 2007. Our common stock
trades on a limited and sporadic basis and should not be deemed to constitute an established public trading market. There is
no assurance that there will be liquidity in the common stock.
The
following table sets forth the high and low bid price for each quarter within the fiscal years ended December 31, 2018 and 2017
and the first quarter ended March 31, 2019. The information reflects prices between dealers, and does not include retail markup,
markdown, or commission, and may not represent actual transactions.
Fiscal
Year
|
|
Period
|
|
Bid
Prices
High
|
|
|
Bid
Prices
Low
|
|
2017
|
|
First
Quarter
|
|
$
|
.45
|
|
|
$
|
.25
|
|
|
|
Second
Quarter
|
|
$
|
.45
|
|
|
$
|
.25
|
|
|
|
Third
Quarter
|
|
$
|
.45
|
|
|
$
|
.40
|
|
|
|
Fourth
Quarter
|
|
$
|
.72
|
|
|
$
|
.22
|
|
2018
|
|
First
Quarter
|
|
$
|
.50
|
|
|
$
|
.22
|
|
|
|
Second
Quarter
|
|
$
|
.55
|
|
|
$
|
.31
|
|
|
|
Third
Quarter
|
|
$
|
.60
|
|
|
$
|
.42
|
|
|
|
Fourth
Quarter
|
|
$
|
.42
|
|
|
$
|
.22
|
|
2019
|
|
First
Quarter
|
|
$
|
.51
|
|
|
$
|
.31
|
|
The
Securities Enforcement and Penny Stock Reform Act of 1990 requires an additional disclosure relating to the market for penny stocks
in connection with trades in any stock defined as a penny stock. The Commission has adopted regulations that generally define
a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to a few exceptions which
we do not meet. Unless an exception is available, the regulations require the delivery prior to any transaction involving a penny
stock, of a disclosure schedule explaining the penny stock market and the risks associated therewith.
Dividends
We
have never paid any cash dividends on our common stock. We currently anticipate that we will retain all future earnings for use
in our business. Consequently, we do not anticipate paying any cash dividends in the foreseeable future. The payment of dividends
in the future will depend upon our results of operations, as well as our short-term and long-term cash availability, working capital,
working capital needs, and other factors as determined by our Board of Directors. Currently, except as may be provided by applicable
laws, there are no contractual or other restrictions on our ability to pay dividends if we were to decide to declare and pay them.
Common
Stock
We
are authorized to issue 100,000,000 shares of common stock with $0.00001 par value per share. Holders of shares of common stock
are entitled to one vote per share on each matter submitted to a vote of shareholders. In the event of liquidation, holders of
common stock are entitled to share
pro rata
in the distribution of assets remaining after payment of liabilities, if any.
Holders of common stock have no cumulative voting rights, and, accordingly, the holders of a majority of the outstanding shares
have the ability to elect all of the directors of the Company. Holders of common stock have no preemptive or other rights to subscribe
for shares. Holders of common stock are entitled to such dividends as may be declared by the Board out of funds legally available
therefore. The outstanding shares of common stock are validly issued, fully paid and non-assessable.
Preferred
Stock
The
Company is authorized to issue 10,000,000 shares of preferred stock, $0.00001 par value per share, all of which the 10,000,000
are undesignated and unissued. The Company had no preferred shares outstanding at December 31, 2018 or as of the date of this
filing.
Securities
Authorized for Issuance Under Equity Compensation Plans
The
following table sets forth information, as of December 31, 2018, with respect to our compensation plans under which common stock
is authorized for issuance.
EQUITY
COMPENSATION PLAN INFORMATION
Plan
Category
|
|
Number
of securities to be issued upon exercise of outstanding options, warrants and rights
(A)
|
|
|
Weighted-average
exercise price of outstanding options, warrants and rights
(B)
|
|
|
Number
of securities remaining available for future issuance under equity compensation plans
(excluding securities reflected in Column A)
(C)
|
|
Equity
compensation plans approved by stockholders (1)
|
|
|
1,732,846
|
|
|
|
1.19
|
|
|
|
267,154
|
(2)
|
Equity
compensation plans not approved by stockholders (3)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
1,732,846
|
|
|
|
1.19
|
|
|
|
267,154
|
|
|
(1)
|
Consists
of (i) options to purchase 1,357,846 shares of common stock issued and outstanding under the Trxade Group, Inc. 2014 Equity
Incentive Plan, (ii) options to purchase 375,000 shares of common stock issued and outstanding under the Trxade Group, Inc.
2013 Equity Incentive Plan.
|
|
|
|
|
(2)
|
Consists
of 2,000,000 shares of common stock reserved and available for issuance under the Trxade Group, Inc. 2014 Equity Incentive
Plan. 1,732,846 have been issued and 267,154 are available for issuance at December 31, 2018
|
|
|
|
|
(3)
|
Consists
of (i) warrants to purchase 435,000 shares of common stock granted by Trxade Group, Inc., and our predecessor in interest
to consultants in October 2013. These warrants expired during October 2018.
|
Stock
Transfer Agent
Our
transfer agent is Action Stock Transfer Corp., 2469 E. Fort Union Boulevard, Suite 214, Salt Lake City, Utah 84121.
Repurchase
of Securities
We
did not purchase any shares of our common stock during the year ended December 31, 2018.
Selected
Financial Data
Not
applicable to a “smaller reporting company” as defined in Item 10(f)(1) of SEC Regulation S-K.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking
Statements
Our
Management’s Discussion and Analysis of Financial Condition and Results of Operations (the “MD&A”) is provided
in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of
operations, financial condition, and cash flows. MD&A is organized as follows:
|
●
|
Overview
.
Discussion of our business and overall analysis of financial and other highlights affecting us, to provide context for the
remainder of MD&A.
|
|
●
|
Liquidity
and Capital Resources
. An analysis of changes in our balance sheets and cash flows and discussion of our financial condition.
|
|
|
|
|
●
|
Results
of Operations
. An analysis of our financial results comparing the twelve months ended December 31, 2018 and 2017 and three
month periods March 31, 2019 and 2018.
|
|
|
|
|
●
|
Critical
Accounting Policies
. Accounting estimates that we believe are important to understanding the assumptions and judgments
incorporated in our reported financial results and forecasts.
|
The
following discussion should be read in conjunction with our consolidated financial statements and accompanying notes included
elsewhere in this report. The following discussion contains forward-looking statements 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. Therefore, actual results may differ materially and adversely from those expressed
in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to,
those discussed elsewhere in this Report, particularly under “Part I, Item 1A. Risk Factors,” and in other reports
we file with the SEC. All references to years relate to the calendar year ended December 31 of the particular year. The Company
undertakes no obligation to revise or update publicly any forward-looking statements for any reason. Factors that could cause
or contribute to these differences include those discussed below and elsewhere in this Report.
The
following discussion is based upon our Consolidated Financial Statements included elsewhere in this report, which have been prepared
in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure
of contingencies. In the course of operating our business, we routinely make decisions as to the timing of the payment of invoices,
the collection of receivables, the shipment of products, the fulfillment of orders, the purchase of supplies, and the building
of inventory, among other matters. Each of these decisions has some impact on the financial results for any given period. In making
these decisions, we consider various factors including contractual obligations, customer satisfaction, competition, internal and
external financial targets and expectations, and financial planning objectives. On an on-going basis, we evaluate our estimates,
including those related to sales returns, pricing credits, warranty costs, allowance for doubtful accounts, impairment of long-term
assets, especially goodwill and intangible assets, contract manufacturer exposures for carrying and obsolete material charges,
assumptions used in the valuation of stock-based compensation, and litigation. We base our estimates on historical experience
and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or conditions.
Company
Overview
We
have designed and developed, and now own and operate, a business-to-business, web-based marketplace focused on the United States
pharmaceutical industry. Our core service brings the nation’s independent pharmacies and accredited national suppliers of
pharmaceuticals together to provide efficient and transparent buying and selling opportunities.
We
began operations under Trxade Nevada in August of 2010 and spent over two years creating and enhancing our web-based services.
Our services provide enhanced pricing transparency, purchasing capabilities and other value-added services on a single platform
to focus on serving the nation’s approximately 24,000 independent pharmacies with an annual purchasing power of $96 billion.
Our national supplier partners are able to fulfill orders on our platform immediately and provide the pharmacy with cost saving
payment terms and next day delivery capabilities in unrestrictive states under the Model State Pharmacy Act and Model Rules of
the National Association of Boards of Pharmacy (Model Act). We expanded rapidly since 2015 and now have over 10,000 registered
pharmacy members purchasing on our platform.
In
December 2013, we launched a second service to help pharmaceutical distributors better source their pharmaceutical needs within
a highly structured single platform. This solution is designed to help purchasers overcome pharmaceutical supply issues as a means
to control costs on drugs with volatile pricing and to help buyers make better purchasing choices based on their needs. Additionally,
we built and, in February 2014, launched, a new desktop application, named RxGuru, to bring product information on a just in time
basis to our member base. Our pharmacy members should benefit from this application by gaining advanced data analytics at point
of purchase and patient care. RxGuru has been upgraded to continue the benefit to the pharmacies.
In
2015 and 2016, through Westminster Pharmaceuticals, LLC, our wholly-owned subsidiary and distribution division, we launched a
private label pharmaceutical product program and entered into various supply contracts with pharmaceutical manufactures to supply
Westminster with generic pharmaceutical products on a private label basis to sell to our customers. In connection with this expansion,
Westminster received significant funding in late 2015 and early 2016. Westminster was not profitable and in December 2016 we sold
this division and exited the private label distribution business.
In
October 2018, we acquired 100 percent of Community Specialty Pharmacy, LLC. CSP is an accredited independent retail pharmacy with
a focus on specialty medications. The company operates with an innovative pharmacy model which offers home delivery services to
any patient thereby providing convenience. The business plan is to continue this pharmacy model.
In
late 2018, we launched
Delivmeds.com
, a consumer based app to provide delivery of pharmaceutical products operating as
part of Alliance Pharma Solutions, LLC. In early 2019 we launched
Trxademso.com
, as part of the, SyncHealth MSO, LLC joint
venture to assist independent retail pharmacies to better compete with large national pharmacies on pricing, distribution and
logistics. To date, we have not generated any revenue from these products.
Company
Organization
Trxade
Group, Inc. owns 100 percent of Trxade, Inc., and Integra Pharma Solutions, LLC (formerly Pinnacle Tek, Inc.), Alliance Pharma
Solutions, LLC, and Community Specialty Pharmacy, LLC. The reverse subsidiary merger of Trxade, Inc. and Trxade Group, Inc. occurred
in July 2013. INTEGRA was merged through a subsidiary with Trxade Group, Inc. in July 2013. We acquired 100 percent of Community
Specialty Pharmacy, LLC, in October 2018. Alliance Pharma Solutions, LLC was formed in January 2018 and our 30 percent owned joint
venture, SyncHealth MSO, LLC, was formed in January 2019. The Company also owned 100 percent of Westminster, which was formed
in January 2013, until this division was sold in December 2016. Trxade, is a web-based market platform that enables commerce among
healthcare buyers and sellers of pharmaceuticals, accessories and services.
Inactive
or discontinued segments:
Westminster
provided state licensed pharmacies and other buying groups with FDA-approved pharmaceuticals under a private label program. This
division was sold in December 2016.
Liquidity
and Capital Resources As Of and For The Year Ended December 31, 2018
Cash
and Cash Equivalents
Cash
and cash equivalents were $869,557 at December 31, 2018. We expect that our future available capital resources will consist primarily
of cash generated from operations, remaining cash balances, borrowings, and any additional funds raised through sales of debt
and/or equity.
Liquidity
Cash
and cash equivalents, current assets, current liabilities, short term debt and working capital at the end of each period were
as follows:
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
Cash
|
|
$
|
869,557
|
|
|
$
|
183,914
|
|
Current
assets (excluding cash and cash equivalents)
|
|
|
596,520
|
|
|
|
423,562
|
|
Current
liabilities (excluding short term debt)
|
|
|
538,867
|
|
|
|
263,045
|
|
Short
term debt
|
|
|
321,500
|
|
|
|
262,312
|
|
Working
Capital
|
|
|
605,710
|
|
|
|
82,119
|
|
Our
principal sources of liquidity have been cash provided by operations, equity capital and borrowings under various debt arrangements.
Our principal uses of cash have been for operating expenses and acquisition. We anticipate these uses will continue to be our
principal uses of cash in the future.
The
increase in cash and cash equivalents from 2017 was primarily due to equity capital and operating income. The increase in our
current assets was primarily due to higher cash. Cash and other current assets increased by $685,643 and $172,958, respectively.
Current
liabilities increase is primarily due to the acquisition of Community Specialty Pharmacy, LLC inventory purchases and the reclassification
of $181,500 long term debt.
Liquidity
Outlook cash explanation.
Cash
Requirements
Our
primary objectives for 2018 are to continue the development of the Trxade Platform and increase our client base and operational
revenue. Additional funds will be needed to continue to expand our platform and customer base and cover general and administrative
expense. We expect to pursue raising capital to fund our operations and provide personnel to expand operations and required working
capital. Through these efforts, management believe the Company will be able to obtain the liquidity necessary to fund company
operations for the foreseeable future, however there is 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 when required, or
at all.
We
estimate our operating expenses and working capital requirements for the next 12 months to be approximately as follows:
Projected
Expenses for 2019
|
|
Amount
|
|
General
and administrative (1)
|
|
$
|
3,500,000
|
|
Total
|
|
$
|
3,500,000
|
|
(1)
|
Includes
wages and payroll, legal and accounting, marketing, rent and web development.
|
Since
inception, we have funded our operations primarily through debt and equity capital raises and operational revenue. In 2018, common
stock was issued for $800,000 and we acquired new unsecured long-term debt of approximately $300,000.
We
expect to continue to seek additional outside funding in the future although no assurance can be given that we will be able to
obtain financing on reasonable terms or revenues will continue. If we obtain additional financing by issuing equity securities,
our existing stockholders’ ownership will be diluted. Obtaining commercial loans, assuming those loans would be available,
will increase our liabilities and future cash commitments. We may be unable to maintain operations at a level sufficient for investors
to obtain a return on their investments in our common stock.
We
will need significantly more cash to implement our plan to operate a business-to-business web-based marketplace focused on the
US 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 fiscal years ended December 31, 2018 and 2017:
|
|
Fiscal
Year Ended
|
|
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
Net
Income
|
|
$
|
9,038
|
|
|
$
|
288,983
|
|
Net
Cash Provided by (Used in):
|
|
|
|
|
|
|
|
|
Operating
Activities
|
|
|
273,386
|
|
|
|
171,670
|
|
Investing
Activities
|
|
|
(265,279
|
)
|
|
|
-
|
|
Financing
Activities
|
|
|
677,536
|
|
|
|
(2,435
|
)
|
Net
increase in cash
|
|
$
|
685,643
|
|
|
$
|
169,235
|
|
Cash
provided by operations for the fiscal year ended December 31, 2018 was $273,386. This compared to $171,670 provided in operating
activities for the fiscal year 2017.
Investing
activities include the acquisition of Community Specialty Pharmacy, LLC.
Financing
activities in 2017 included $180,000 proceeds from long term debt and $250,000 in common stock issuance.
Financing
activities in 2018 included $800,000 proceeds from common stock issuance.
Results
of Operations
The
following selected consolidated financial data should be read in conjunction with the consolidated financial statements and the
notes to these statements included in this Prospectus. For all years presented, the consolidated statements of income and consolidated
balance sheet data set forth in this Prospectus have been adjusted for the reclassification of discontinued operations information,
unless otherwise noted.
Fiscal
Year Ended December 31, 2018 Compared to Fiscal Year Ended December 31, 2017
|
|
Fiscal
Year Ended
|
|
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
Revenues
|
|
$
|
3,831,778
|
|
|
$
|
2,931,280
|
|
Cost of Sales
|
|
|
449,049
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
3,382,729
|
|
|
|
2,931,280
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
Technology
|
|
|
949,948
|
|
|
|
863,324
|
|
General
and Administrative
|
|
|
2,350,569
|
|
|
|
1,405,026
|
|
Warrants
and Options Expense
|
|
|
169,828
|
|
|
|
267,835
|
|
Total
Operating Expense
|
|
|
3,470,345
|
|
|
|
2,536,185
|
|
|
|
|
|
|
|
|
|
|
Other
Income
|
|
|
161,639
|
|
|
|
67,500
|
|
Loss
on Extinguishment of Debt
|
|
|
(7,444
|
)
|
|
|
(16,556
|
)
|
Interest
Expense
|
|
|
(57,541
|
)
|
|
|
(157,056
|
)
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
9,038
|
|
|
$
|
288,983
|
|
Substantially
all of our revenues during the years ended December 31, 2018, and 2017 were from platform revenue. Revenues increased for the
Fiscal Year ended December 31, 2018 to $3,407,823 compared to $2,931,280 for the comparable period in 2017. This increase was
attributable to the mix of pharmaceuticals sold on the platform, brands vs. generics, the fee for generics are higher than brands.
Our sales department has continued to add customers in 2018 through direct marketing and customer training. In 2018, with the
acquisition of Community Specialty Pharmacy, LLC in the fourth quarter, $395,418 of revenue was added.
Technology
expenditures increased to $949,948 from $863,324 in 2017 as the Company developed apps for customers.
General
and administrative expenses increased for the fiscal year ended December 31, 2018 to $2,350,569 compared to $1,405,026 for the
comparable period in 2017. There was an increase in legal fees, rent and employee cash compensation directly as a result of the
acquisition. In addition Trxade Conference, increased employee benefits and computer software were additional expenditures.
Warrant
and options expense in the 2018 and 2017 period represents compensation cost-related to the issuance of employee stock options.
Interest
expense in 2018 was as a result of approximately $800,000 in debt borrowings. Interest expense in 2017 was as a result of approximately
$700,000 in debt borrowings.
Contractual
Obligations and Commitments.
In
addition to our long-term debt obligations to our various lenders, we have certain other contractual working capital obligations,
including contractual purchase obligations related to various supply contracts.
The
following table summarizes our contractual obligations as of December 31, 2018:
|
|
|
|
|
Payments
due by Period
|
|
Contractual
Obligations
|
|
Total
|
|
|
Less
than 1 year
|
|
|
1-3
years
|
|
|
3-5
years
|
|
|
More
than 5 years
|
|
Short
and Long-term debt obligations
|
|
$
|
844,042
|
|
|
|
321,500
|
|
|
|
522,552
|
|
|
|
-
|
|
|
|
-
|
|
Operating
lease obligations
|
|
|
573,253
|
|
|
|
156,024
|
|
|
|
375,295
|
|
|
|
41,934
|
|
|
|
-
|
|
Total
Contractual obligations
|
|
$
|
1,417,295
|
|
|
|
477,524
|
|
|
|
897,847
|
|
|
|
41,934
|
|
|
|
-
|
|
Off-Balance
Sheet Arrangements
We
had no outstanding off-balance sheet arrangements as of December 31, 2018.
Liquidity
and Capital Resources As Of and For The Three Month Period Ended March 31, 2019
Cash
and Cash Equivalents
Cash
and cash equivalents were $533,929 at March 31, 2019. We expect that our future available capital resources will consist primarily
of cash generated from operations, remaining cash balances, borrowings, and any additional funds raised through sales of debt
and/or equity.
Liquidity
Cash
and cash equivalents, current assets, current liabilities, short term debt and working capital at the end of each period were
as follows:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
533,929
|
|
|
$
|
869,557
|
|
Current
assets (excluding cash)
|
|
|
957,462
|
|
|
|
596,520
|
|
Current
liabilities (excluding short term debt)
|
|
|
668,448
|
|
|
|
538,867
|
|
Short
term debt
|
|
|
140,000
|
|
|
|
321,500
|
|
Working
Capital
|
|
|
682,943
|
|
|
|
605,710
|
|
Our
principal sources of liquidity have been cash provided by operations, equity capital and borrowings under various debt arrangements.
Our principal uses of cash have been for operating expenses and acquisition. We anticipate these uses will continue to be our
principal uses of cash in the future.
The
decrease in cash was primarily due to investment in SyncHealth, LLC of $210,000. Cash decreased by $335,628.
Liquidity
Outlook cash explanation.
Cash
Requirements
Our
primary objectives for 2019 are to continue the development of the Trxade Platform and increase our client base and operational
revenue. Additional funds will be needed to continue to expand our platform and customer base and cover general and administrative
expense. We expect to pursue raising capital to fund our operations and provide personnel to expand operations and required working
capital. Through these efforts, management believe the Company will be able to obtain the liquidity necessary to fund company
operations for the foreseeable future, however there is 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 when required, or
at all.
We
estimate our operating expenses and working capital requirements for the next 12 months to be approximately as follows:
Projected
Expenses for 2019
|
|
Amount
|
|
General
and administrative (1)
|
|
$
|
3,500,000
|
|
Total
|
|
$
|
3,500,000
|
|
(1)
Includes wages and payroll, legal and accounting, marketing, rent and web development.
Since
inception, we have funded our operations primarily through debt and equity capital raises and operational revenue. In 2018, common
stock was issued for $800,000 and we acquired new unsecured long-term debt of approximately $300,000.
We
expect to continue to seek additional outside funding in the future although no assurance can be given that we will be able to
obtain financing on reasonable terms or revenues will continue. If we obtain additional financing by issuing equity securities,
our existing stockholders’ ownership will be diluted. Obtaining commercial loans, assuming those loans would be available,
will increase our liabilities and future cash commitments. We may be unable to maintain operations at a level sufficient for investors
to obtain a return on their investments in our common stock.
We
will need significantly more cash to implement our plan to operate a business-to-business web-based marketplace focused on the
US 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 three months ended March 31, 2019 and 2018:
|
|
Three
Months Ended
|
|
|
|
March
31, 2019
|
|
|
March
31, 2018
|
|
Net
Income
|
|
$
|
125,229
|
|
|
$
|
82,269
|
|
Net
Cash Provided by (used in) operations:
|
|
|
|
|
|
|
|
|
Operating
Activities
|
|
|
(125,794
|
)
|
|
|
66,663
|
|
Investing
Activities
|
|
|
(210,000
|
)
|
|
|
-
|
|
Financing
Activities
|
|
|
166
|
|
|
|
(60,739
|
)
|
Net
increase (decrease) in cash and cash equivalents
|
|
$
|
(335,628
|
)
|
|
$
|
5,924
|
|
Cash
used in operations for the three fiscal year ended March 31, 2019 was $125,794. This compared to $66,663 provided in operating
activities for the three months ended March 31, 2018.
Investing
activities in 2019 include the investment in SyncHealth MSO, LLC.
Financing
activities in 2018 included $60,739 payment of Notes.
Financing
activities in 2019 included $166 proceeds from warrant exercise.
Results
of Operations
The
following selected consolidated financial data should be read in conjunction with the interim consolidated financial statements
included in this Prospectus.
Three
Month Period Ended March 31, 2019 Compared to Three Month Period Ended March 31, 2018
|
|
Three
Months Ended
|
|
|
|
March
31, 2019
|
|
|
March
31, 2018
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,512,521
|
|
|
$
|
852,923
|
|
Cost of Sales
|
|
|
365,839
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
1,146,682
|
|
|
|
852,923
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
General
and Administrative
|
|
|
938,944
|
|
|
|
716,739
|
|
Warrants
and Options Expense
|
|
|
35,979
|
|
|
|
37,456
|
|
Total
Operating Expense
|
|
|
974,923
|
|
|
|
754,195
|
|
|
|
|
|
|
|
|
|
|
Amortization
of Debt Discount
|
|
|
-
|
|
|
|
(152
|
)
|
Share
in Equity Losses in Investment
|
|
|
(28,972
|
)
|
|
|
|
|
Interest
Expense
|
|
|
(17,558
|
)
|
|
|
(16,307
|
)
|
|
|
|
|
|
|
|
|
|
Income
from Operations
|
|
$
|
125,229
|
|
|
$
|
82,269
|
|
Substantially
all of our revenues during the three months ended March 31, 2018 was from platform revenue. Revenues increased in the three months
ended March 31, 2019 with the addition of Community Specialty Pharmacy, LLC and Trxade platform revenue increase to $1,043,810
from $852,923.
General
and administrative expenses increased for the three months ended March 31, 2019 to $938,944 compared to $716,739 for the comparable
period in 2018. There was an increase in rent and employee cash compensation directly as a result of the acquisition of CSP.
Warrant
and options expense in the 2019 and 2018 period represents compensation cost-related to the issuance of employee stock options.
Off-Balance
Sheet Arrangements
We
had no outstanding off-balance sheet arrangements as of March 31, 2019.
Critical
Accounting Policies
Our
discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation
of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of net sales
and expenses for each period. The following represents a summary of our critical accounting policies, defined as those policies
that we believe are the most important to the portrayal of our financial condition and results of operations and that require
management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the
effects of matters that are inherently uncertain.
Revenue
Recognition
In
general, the Company accounts for revenue recognition in accordance with ASC 606, “Revenue from Contracts with Customers.”
Trxade,
Inc. provides an online website service, a buying and selling marketplace for licensed Pharmaceutical Wholesalers to sell products
and services to licensed Pharmacies. The Company charges Suppliers a transaction fee, a percentage of the purchase price of the
Prescription Drugs and other products sold through its website service. The fulfillment of confirmed orders, including delivery
and shipment of Prescription Drugs and other products, is the responsibility of the Supplier and not of the Company. The Company
holds no inventory and assumes no responsibility for the shipment or delivery of any products or services from our website. The
Company considers itself an agent for this revenue stream and as such, reports revenue as net. Step One: Identify the contract
with the customer – Trxade, Inc.’s Terms and Use Agreement is acknowledged between the Wholesaler and Trxade, Inc.
which outlines the terms and conditions. The collection is probable based on the credit evaluation of the Wholesaler. Step Two:
Identify the performance obligations in the contract – The Company provides to the Supplier access to the online website,
uploading of catalogs of products and Dashboard access to review status of inventory posted and processed orders. The Agreement
requires the supplier to provide a catalog of pharmaceuticals for posting on the platform, deliver the pharmaceuticals and upon
shipment remit the stated platform fee. Step Three: Determine the transaction price – The Fee Agreement outlines the fee
based on the type of product, generic, brand or non-drug. There are no discounts for volume of transactions or early payment of
invoices. Step Four: Allocate the transaction price – The Fee Agreement outlines the fee. There is no difference between
contract price and “stand-alone selling price”. Step Five: Recognize revenue when or as the entity satisfies a performance
obligation – Revenue is recognized the day the order has been processed by the Supplier.
Integra
Pharma Solutions, LLC is a licensed wholesaler and sells to licensed pharmacies brand, generic and non-drug products. The Company
takes orders for product and creates invoices for each order and recognizes revenue at the time the Customer receives the product.
Customer returns are not material. Step One: Identify the contract with the customer – The Company requires that an application
and a credit card for payment is completed by the Customer prior to the first order. Each transaction is evidenced by an order
form sent by the customer and an invoice for the product is sent by the Company. The collection is probable based on the application
and credit card information provided prior to the first order. Step Two: Identify the performance obligations in the contract
– Each order is distinct and evidenced by the shipping order and invoice. Step Three: Determine the transaction price –
The consideration is variable if product is returned. The variability is determined based on the return policy of the product
manufacturer. There are no sales or volume discounts. The transaction price is determined at the time of the order evidenced by
the invoice. Step Four: Allocate the transaction price – There is no difference between contract price and “stand-alone
selling price”. Step Five: Recognize revenue when or as the entity satisfies a performance obligation - The Revenue is recognized
when the Customer receives the product.
Community
Specialty Pharmacy, LLC is in the retail pharmacy business. The Company fills prescriptions for drugs written by a doctor and
recognizes revenue at the time the patient confirms delivery of the prescription. Customer returns are not material. Step One:
Identify the contract with the customer – The prescription is written by a doctor for a Customer and delivered to the Company.
The prescription identifies the performance obligations in the contract. The Company fills the prescription and delivers to the
Customer the prescription, fulfilling the contract. The collection is probable because there is confirmation that the customer
has insurance for the reimbursement to the Company prior to filling of the prescription. Step Two: Identify the performance obligations
in the contract – Each prescription is distinct to the Customer. Step Three: Determine the transaction price – The
consideration is not variable. The transaction price is determined to be the price of prescription at the time of delivery which
considers the expected reimbursements from third party payors (e.g., pharmacy benefit managers, insurance companies and government
agencies). Step Four: Allocate the transaction price – The price of the prescription invoiced represents the expected amount
of reimbursement from third party payors. There is no difference between contract price and “stand-alone selling price”.
Step Five: Recognize revenue when or as the entity satisfies a performance obligation – Revenue is recognized upon the delivery
of the prescription.
Stock-Based
Compensation
The
Company accounts for stock-based compensation to non-employees in accordance with the provision of ASC 505, “Equity Based
Payments to Non-Employees” (“ASC 505”), Share Based Payments to Non-Employees, and ASC 505 which requires that
such equity instruments are recorded at their fair value on the measurement date. The measurement of stock-based compensation
is subject to periodic adjustment as the underlying instruments vest.
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.
Quantitative
and Qualitative Disclosures About Market Risk
Not
applicable to a “smaller reporting company” as defined in Item 10(f)(1) of SEC Regulation S-K
CONTROLS
AND PROCEDURES
Disclosure
Controls and Procedures
As
of the end of the period covered by this quarterly report on Form 10-Q, our principal executive officer and our principal accounting
officer (the “Certifying Officers”), evaluated the effectiveness of our disclosure controls and procedures. Disclosure
controls and procedures are controls and procedures designed to reasonably assure that information required to be disclosed in
our reports filed under the Securities Exchange Act of 1934 (the “Exchange Act”), such as this quarterly report on
Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Disclosure
controls and procedures are also designed to reasonably assure that such information is accumulated and communicated to our management,
including the Certifying Officers, as appropriate to allow timely decisions regarding required disclosure. Based on these evaluations,
the Certifying Officers have concluded, that, as of the end of the period covered by this quarterly report on Form 10-Q:
|
(a)
|
our
disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed
by us in the reports we file or submit under the Exchange Act was recorded, processed, summarized and reported within the
time periods specified in the SEC’s rules and forms; and
|
|
(b)
|
our
disclosure controls and procedures were not effective to provide reasonable assurance that material information required to
be disclosed by us in the reports we file or submit under the Exchange Act was accumulated and communicated to our management,
including the Certifying Officers, as appropriate to allow timely decisions regarding required disclosure.
|
Changes
in Internal Control over Financial Reporting
There
has not been any change in our internal control over financial reporting that occurred during the three-months ended March 31,
2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Directors,
Executive Officers and Corporate Governance
Set
forth below is certain information regarding our directors and executive officers as of March 2, 2019:
Name
|
|
Position
|
|
Age
|
|
|
Director/Officer
Since
|
Suren
Ajjarapu
|
|
Chairman,
Chief Executive Officer and Secretary
|
|
|
48
|
|
|
January
2014
|
Prashant
Patel
|
|
Director,
President and Chief Operating Officer
|
|
|
45
|
|
|
January
2014
|
Donald
G. Fell
|
|
Director
|
|
|
71
|
|
|
January
2014
|
Howard
A. Doss
|
|
Chief
Financial Officer
|
|
|
66
|
|
|
January
2014
|
Michael
L. Peterson
|
|
Director
|
|
|
65
|
|
|
August
2016
|
Business
Experience
The
following is a brief description of the education and business experience of our current directors and executive officers.
Suren
Ajjarapu, Chairman of the Board, Chief Executive Officer and Secretary.
Mr.
Ajjarapu has served as our Chairman of the Board, Chief Executive Officer and Secretary since our acquisition of Trxade Nevada
in January 2014, and as the Chairman of the Board, Chief Executive Officer and Secretary of Trxade Nevada since our inception.
Mr. Ajjarapu also serves as a Chairman of the Board for Feeder Creek Group, Inc since March 2018. Feed Creek Group, Inc. is a
company involved in developing renewable natural gas sites in Iowa. Mr. Ajjarapu was a Founder, CEO and Chairman of Sansur Renewable
Energy, Inc., a company involved in developing wind power sites in the Midwest, United States, from 2009 to 2012. Mr. Ajjarapu
was a Founder, President and Director of Aemetis, Inc., a biofuels company (AMTX.OB) and a Founder, Chairman and Chief Executive
Officer of International Biofuels, a subsidiary of Aemetis, Inc., from 2006 to 2009. Mr. Ajjarapu was Co-Founder, COO, and Director
Global Information Technology, Inc., an IT outsourcing and systems design company, headquartered in Tampa, Florida with major
operations in India from 1995 to 2006. Mr. Ajjarapu acts as a non-Executive Director for AIM-listed company Nandan Clean Tec Plc.
(Ticker: “NAND”), a backward integrated Biofuels company. Mr. Ajjarapu holds an M.S. in Environmental engineering
from South Dakota State University, Brookings, South Dakota, and an MBA from the University of South Florida, specializing in
International Finance and Management. Mr. Ajjarapu is also a graduate of the Venture Capital and Private Equity program at Harvard
University. Our Board of Directors believes that Mr. Ajjarapu’s history with our Company, from both an operational standpoint
and that of a member of management, are vital to the Board’s collective knowledge of our day-to-day operations.
Prashant
Patel, Director, President and Chief Operating Officer
Mr.
Patel has served as our full-time President and COO, and as a director since our acquisition of Trxade Nevada on January 8, 2014,
and as the COO and President and as a director of Trxade Nevada since its inception. Mr. Patel is a registered pharmacist and
pharmaceutical consultant with over ten years of experience in retail pharmacy and pharmaceutical logistics and the founder of
several pharmacies in the Tampa Bay area, in Florida. Mr. Patel has been a President and Member of the Board of Trxade since August
2010. Since October 2008, Mr. Patel has been Managing Member of the APAA LLC, a pharmacy. Since April 2007, Mr. Patel has been
a Vice President of Holiday Pharmacy, Inc., a pharmacy. Mr Patel graduated from Nottingham University School of Pharmacy and practiced
in the United Kingdom before obtaining his masters in Transport, Trade and Finance from Cass Business School, City University,
UK. Our Board of Directors believes that Mr. Patel’s history with our Company, from both an operational standpoint and that
of a member of management, are vital to the Board’s collective knowledge of our day-to-day operations.
Howard
A. Doss, Chief Financial Officer
Mr.
Doss has served as our CFO since January 2014. Mr. Doss has served in a variety of capacities with accounting and investment firms.
He joined the staff of Seidman & Seidman (BDO Seidman, Dallas) in 1977 and, in 1980, he joined the investment firm Van Kampen
Investments, opening the firm’s southeast office in Tampa in 1982. He remained with the firm until 1996 when he joined Franklin
Templeton to develop corporate retirement plan distribution. After working for the Principal Financial Group office in Tampa,
Mr. Doss was City Executive for U.S. Trust in Sarasota, responsible for high net worth individuals. He retired from that position
in 2009. He served as CFO and Director for Sansur Renewable Energy an alternative energy development company, from 2010 to 2012.
Mr. Doss has also served as President of STARadio Corp. since 2005. Mr. Doss is a member of the America Institute of CPA’s.
He is a graduate of Illinois Wesleyan University. Our Board of Director’s believes that Mr. Doss’ experience is significant
to the Board’s understanding today’s complex and ever changing accounting rules and regulations.
Donald
G. Fell, Director
Mr.
Fell has served as a Director of our company since January 2014, as well as a director of Trxade Nevada since December 2013. Since
1992, Mr. Fell has been a Director/Professor Foundation for Teaching Economics. From 1995 to 2012, Mr. Fell was Senior Fellow/Professor
at the Executive MBA faculty at the University of South Florida. He was also a Visiting Professor at the University of Rochelle,
FR in 2010. Mr. Fell holds degrees in Economics from Indiana State University, with additional graduate work in Economics at Northern
Illinois University and Illinois State University. Mr. Fell since 2012 has been employed as Institute Director and Professor for
the Davis, California based Foundation for Teaching Economics, conducting Institutes related to: 1) economic policy; and 2) environmental
economics. Institute audiences consist of university/college professors, high school teachers and government leaders. These Institutes
have been held throughout the U.S. Our Board of Director’s believes that Mr. Fell’s extensive experience in the field
of economics and business will provide us with valuable insight as we seek to execute our business strategy.
Michael
L. Peterson,
Director
Mr.
Peterson is on the Board of Directors at Trxade Group, Inc.
Mr.
Peterson was President & Chief Executive Officer at PEDEVCO Corp until 2018. Mr. Peterson was previously employed as Chairman,
President & Chief Executive Officer by Nevo Energy, Inc., Chairman, President & Chief Executive Officer by Solargen Energy,
Inc., Chief Financial Officer, Director & Executive VP by Blast Energy Services, Inc., Managing Partner by Pascal Management
LLC, Managing Partner by American Institutional Partners LLC, and Vice President by Goldman Sachs & Co. He also served on
the board at AE Biofuels, Inc., American Ethanol, Inc., Aemetis, Inc., and Navitas Corp.
Our
Board of Director’s believes that Mr. Peterson’s extensive experience in finance and business will provide us with
valuable insight as we seek to execute our business strategy.
He received his undergraduate degree from Brigham Young University
and an M.B.A. from the BYU Marriott Business School.
Family
Relationships
There
are no family relationships among any of our executive officers or directors.
Committees
of the Board of Directors
Our
board of directors has the authority to appoint committees to perform certain management and administration functions. Our board
of directors has two committees: the audit committee and the compensation committee.
Audit
Committee
The
primary purpose of the audit committee will be to assist the board of directors’ oversight of:
|
●
|
the
integrity of our financial statements; our systems of control over financial reporting and disclosure controls and procedures;
|
|
●
|
our
compliance with legal and regulatory requirements;
|
|
●
|
our
independent auditors’ qualifications and independence;
|
|
●
|
the
performance of our independent auditors and our internal audit function;
|
|
●
|
all
related-person transactions for potential conflict of interest situations on an ongoing basis; and
|
|
●
|
the
preparation of the report required to be prepared by the committee pursuant to SEC rules.
|
Mr.
Fell and Mr. Peterson serve on the audit committee, where Mr. Peterson acted as chairman of the audit committee. Mr. Fell and
Mr. Peterson each qualify as an ‘‘audit committee financial expert’’ as such term has been defined by
the SEC in Item 407(d)(5) of Regulation S-K. Our board of directors has affirmatively determined that Mr. Fell and Mr. Peterson
meet the definition of ‘‘independent directors’’ for the purposes of serving on the audit committee under
applicable SEC rules and the OTC, and we intend to comply with these independence requirements within the time periods specified.
Compensation
Committee
The
primary purpose of our compensation committee is to recommend to our board of directors for consideration, the compensation and
benefits of our executive officers and key employees; monitor and review our compensation and benefit plans; administer our stock
and other incentive compensation plans and programs and prepare recommendations and periodic reports to the board of directors
concerning such matters; prepare the compensation committee report required by SEC rules to be included in our annual report;
prepare recommendations and periodic reports to the board of directors as appropriate; and, handle such other matters that are
specifically delegated to the compensation committee by our board of directors from time to time.
Mr.
Fell and Mr. Peterson serve on the compensation committee, and Mr. Fell serves as the chairman.
Compensation
Committee Interlocks and Insider Participation
None
of our executive officers serve on the compensation committee or board of directors of any other company of which any of the members
of our compensation committee or any of our directors is an executive officer.
Code
of Business Conduct and Ethics
Our
Board of Directors had adopted a Code of Business Conduct and Ethics that applies to all of our directors, officers and employees.
The Code of Business Conduct and Ethics will be available for review in print, without charge, to any stockholder who requests
a copy by writing to us at Trxade Group, Inc., 3840 Land O’ Lakes Boulevard, Land O’ Lakes, Florida, 34639, Attention:
Investor Relations. Each of our directors, employees and officers are required to comply with the Code of Business Conduct and
Ethics.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934 requires the Company’s executive officers, directors and persons who own more
than 10% of the Company’s common stock to file reports of ownership and changes in ownership with the Securities and Exchange
Commission (“SEC”). The Company recently undertook a review of the Section 16(a) reports filed on behalf of each individual
who served as a director or executive officer of the Company during the fiscal year ended December 31, 2018 to determine whether
all of their reportable transactions in the Company’s common stock were timely reported and to ensure reporting of all of
their beneficial holdings. The review revealed that while all of the required transactions had been reported in the Company’s
Form 10-K and Form 10-Qs, the reports listed below were not timely filed. In all cases, the transactions were non-market transactions
such as option grants by the Company, or in one case, a private sale.
The
following reports were filed under Section 16(a) since the beginning of the fiscal year ended December 31, 2018:
Suren
Ajjarapu, CEO, filed one Form 4 reporting the sale of stock.
Michael
Peterson, Director, filed a Form 4 reporting an award of stock options.
Michael
Peterson, Director, filed a Form 5 reporting a prior award of stock options.
Donald
Fell, Director, filed a Form 4 reporting an award of stock options.
Donald
Fell, Director, filed a Form 5 reporting a prior award of stock options.
Howard
Doss, CFO, filed a Form 4 reporting an award of stock options.
Howard
Doss, CFO, filed a Form 5 reporting a prior award of stock options.
Executive
Compensation
The
following table sets forth the compensation for the fiscal years ended December 31, 2018 and 2017 for services rendered to us
(including our subsidiary, Trxade, Inc.) by our Chief Executive Officer and our two most highly compensated executive officers
other than our Chief Executive Officer:
Summary
Compensation Table
Name
and Principal Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-Equity
Incentive Plan Compensation ($)
|
|
|
Nonqualified
Deferred Compensation
Earnings
($)
|
|
|
All
Other Compensation
($)
|
|
|
Total
($)
|
|
Suren
Ajjarapu
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chairman
of the Board,
|
|
|
2017
|
|
|
$
|
148,750
|
(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
148,750
|
|
Chief
Executive Officer,
and Director
|
|
|
2018
|
|
|
$
|
200,000
|
(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prashant
Patel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief
Operating Officer,
|
|
|
2017
|
|
|
$
|
62,500
|
(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
62,500
|
|
President
and Director
|
|
|
2018
|
|
|
$
|
150,000
|
(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Howard
A. Doss
|
|
|
2017
|
|
|
$
|
60,000
|
(3)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
60,000
|
|
Chief
Financial Officer
|
|
|
2018
|
|
|
$
|
62,500
|
(3)
|
|
|
-
|
|
|
|
-
|
|
|
$
|
17,250
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
79,750
|
|
|
(1)
|
The
amount shown reflects compensation under an at will employment agreement with the Company.
|
|
(2)
|
The
amount shown reflects compensation under an at will employment agreement with the Company.
|
|
(3)
|
The
amount shown reflects compensation under a consulting agreement with the Company.
|
Employment
and Consulting Agreements
All
of our named executives are at-will employees or consultants. In 2016, the Company entered into an at-will employment agreement
with Mr. Ajjarapu, with an annual salary of $165,000 and a possible $50,000 performance bonus, and an at-will employment agreement
with Mr. Patel with an annual salary of $125,000 and a possible $50,000 performance bonus. In January 2017, each of Messrs. Ajjarapu
and Patel suspended their executive salaries through June 30, 2017, a period of six months. Mr. Ajjarapu entered into an amendment
in June 2017 to resume payment of the annual salary. Mr. Patel resumed July 1, 2017. In January 2018, Mr. Ajjarapu and Mr. Patel
salaries were amended to $200,000 and $150,000 respectively. The Company has an hourly rate consulting arrangement with Mr. Doss.
The Company has also entered into indemnification agreements with its officers and directors. The annual bonus payable to each
of Mr. Ajjarapu and Mr. Patel is based upon executive’s performance and the Company’s attainment of objectives established
by the Board of Directors or Compensation Committee of the Board. With respect to any subjective milestones, the determination
of whether executive has attained the mutually agreed upon milestones for the bonus shall be reasonably determined by the Board
or the Compensation Committee.
Compensation
of the Board of Directors
The
following table provides information regarding all compensation awarded to, earned by or paid to each person who served as a director
of the Company for some portion or all of 2018 and 2017. Other than as set forth in the table and described more fully below,
the Company. did not pay any fees, made any equity or non-equity awards, or paid any other compensation, to its non-employee directors.
All compensation paid to its employee directors is set forth in the tables summarizing executive officer compensation above.
Name
|
|
Fees
Earned
or
paid
in Cash
|
|
|
Stock
Awards
|
|
|
Option
Awards
(1)
|
|
|
All
Other Compensation
|
|
|
Total
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald
Fell
|
|
$
|
15,000
|
|
|
|
-
|
|
|
$
|
50,000
|
|
|
|
-
|
|
|
$
|
65,000
|
|
Michael
Peterson
|
|
$
|
15,000
|
|
|
|
-
|
|
|
|
113,883
|
|
|
|
-
|
|
|
$
|
128,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald
Fell
|
|
$
|
20,000
|
|
|
|
-
|
|
|
$
|
25,000
|
|
|
|
-
|
|
|
$
|
45,000
|
|
Michael
Peterson
|
|
$
|
20,000
|
|
|
|
-
|
|
|
$
|
25,000
|
|
|
|
-
|
|
|
$
|
45,000
|
|
(1)
|
In
April 2017, the Company granted Mr. Fell options to purchase 76,923 shares of common stock, vesting over one year and exercisable
at $.65 per share.
|
In
April 2017, the Company granted Mr. Peterson options to purchase 76,923 shares of common stock, vesting over one years and exercisable
at $.65 per share.
In
April 2017, the Company granted Mr. Peterson options to purchase 100,000 shares of common stock, vesting over four years and exercisable
at $.65 per share.
In
April 2018, The Company granted Mr. Fell options or purchase 50,000 shares of common stock, vesting over four years and exercisable
at $.50 per share
In
April 2018, The Company granted Mr. Peterson options or purchase 50,000 shares of common stock, vesting over four years and exercisable
at $.50 per share
Non-employee
directors are paid $5,000 per quarter for board responsibilities. The Company has also entered into an indemnification agreement
with Messrs. Fell, Sanchez and Peterson.
Outstanding
Option Equity Awards at 2018 Fiscal Year End
The
following table sets forth information as of December 31, 2018 concerning unexercised options, unvested stock and equity incentive
plan awards for each of the executive officers named in the Summary Compensation Table.
OUTSTANDING
EQUITY AWARDS AT YEAR ENDED DECEMBER 31, 2018
|
|
Option
Awards
|
|
Stock
Awards
|
|
Name
|
|
Grant
Date
|
|
Number
of Securities Underlying Unexercised Options
(#) Exercisable
|
|
|
Number
of Securities Underlying Unexercised Options
(#) Unexercisable
|
|
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
(#)
|
|
|
Option
Exercise Price
($)
|
|
|
Option
Expiration Date
|
|
Number
of Shares or Units of Stock That Have Not Vested
(#)
|
|
|
Market
Value of Shares or Units of Stock That Have Not Vested
($)
|
|
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested
(#)
|
|
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
($)
|
|
Howard
A. Doss, Chief Financial Officer
|
|
1/20/2014
|
|
|
300,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.00
|
|
|
1/1/2024
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4/1/2016
|
|
|
8,250
|
|
|
|
6,750
|
(1)
|
|
|
—
|
|
|
|
1.02
|
|
|
4/1/2026
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4/1/2018
|
|
|
7,031
|
|
|
|
30,469
|
(2)
|
|
|
—
|
|
|
|
0.50
|
|
|
4/1/2028
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
(1)
|
Vesting
is 6.25% of the total number of shares each quarter of the vesting commencement date of 7/1/2016.
|
(2)
|
Vesting
is 6.25% of the total number of shares each quarter of the vesting commencement date of 7/1/2018.
|
Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The
following table sets forth certain information with respect to the beneficial ownership of our securities as of June 6, 2019 by
(i) each of our named executive officers and directors; (ii) each person known to us who owns beneficially more than 5% of any
class of our outstanding equity securities; and (iii) all of our executive officers and directors as a group. The number of shares
and the percentage of shares beneficially owned by each such person or group, as set forth below, include shares of common stock
that such person or group had the right to acquire on or within sixty days after June 6, 2019 pursuant to the exercise of vested
and exercisable options or warrants. References to options or warrants in the footnotes to the table below include only options
or warrants to purchase shares that were exercisable on or within 60 days after June 6, 2019.
Name
and Address of Beneficial Owner
(1)
|
|
Number
of Shares Beneficially Owned
(2)
|
|
|
Percentage
Beneficially Owned
(3)
|
|
|
|
|
|
|
|
|
Directors
and Named Executive Officers:
|
|
|
|
|
|
|
|
|
Suren
Ajjarapu, Chairman, CEO (4)
|
|
|
13,743,750
|
|
|
|
40.75
|
%
|
Prashant
Patel, Director, COO, and President (5)
|
|
|
12,250,000
|
|
|
|
36.32
|
%
|
Donald
G Fell, Director (6)
|
|
|
204,423
|
|
|
|
*
|
|
Howard
Doss, CFO (7)
|
|
|
318,375
|
|
|
|
*
|
|
Michael
L Peterson, Director (9)
|
|
|
158,173
|
|
|
|
*
|
|
Gajan
Mahendiran (8)
|
|
|
2,760,002
|
|
|
|
8.18
|
%
|
|
|
|
|
|
|
|
|
|
All
executive officers and directors as a Group (five persons)
|
|
|
29,434,723
|
|
|
|
87.22
|
%
|
Greater
than 5% Stockholders
|
|
|
|
|
|
|
|
|
*
Less than one 1%
(1)
Unless
otherwise indicated in the footnotes to the following table, the address of each person named in the table is: c/o Trxade Group,
Inc., 3840 Land O’ Lakes Boulevard, Land O’ Lakes, Florida 34639.
(2)
Based
on 33,726,459 shares of common stock outstanding on June 6, 2019. Does not include shares issuable upon exercise of (i) 2,237,846
stock options currently outstanding, (ii) warrants to purchase 2,863,475 shares of common stock, (iii) 267,154 shares which are
reserved for the Company’s 2014 Equity Incentive Plan, none of which shares are issuable within 60 days of the date set
forth above.
(3)
Except
as otherwise indicated, we believe that the beneficial owner of the common stock listed above, based on information furnished
by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable.
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with
respect to securities.
(4)
Includes
(i) 7,143,750 shares owned directly by Mr. Ajjarapu, (ii) 4,050,000 shares owned by Sandhya Ajjarapu, Mr. Ajjarapu’s wife,
for whom Mr. Ajjarapu claims beneficial ownership, (iii) 1,275,000 shares owned by the Surendra Ajjarapu Revocable Trust of 2007,
for whom Mr. Ajjarapu claims beneficial ownership as Trustee, and (iv) 1,275,000 shares owned by the Sandhya Ajjarapu Revocable
Trust of 2007, for whom Mr. Ajjarapu claims beneficial ownership as Trustee.
(5)
Includes
(i) 7,350,000 shares owned directly by Mr. Patel, (ii) 2,500,000 shares owned by Rina Patel, Mr. Patel’s wife for whom Mr.
Patel claims beneficial ownership, and (iii) 2,400,000 shares owned by the Patel Trust, for whom Mr. Patel claims beneficial ownership
as Trustee.
(6)
Includes 200,048 shares of common stock issuable upon the exercise of stock options that are exercisable within 60 days
of the applicable date above.
(7)
Includes 315,281 shares of common stock issuable upon the exercise of stock options that are exercisable within 60 days
of the applicable date above.
(8)
Includes 833,334 shares of common stock of the Company and warrants to purchase 1,926,668 shares of common stock at an exercise
price of $0.01 per share that are exercisable within 60 days of the applicable date above, and which are held jointly with Mr.
Mahendiran’ s wife, Amudha Mahendiran, as tenants by entirety.
(9)
Includes 148,798 shares of common stock issuable upon the exercise of stock options that are exercisable within 60 days
of the applicable date above.
There
are no current arrangements among any of the foregoing persons which would result in a change in control.
Equity
Compensation Plan Information
The
following table provides information as of December 31, 2018 with respect to securities that may be issued under our equity compensation
plans.
Plan
Category
|
|
Number
of
securities to be
issued upon
exercise of
outstanding options,
warrants and rights
|
|
|
Weighted-average
exercise
price of outstanding options,
warrants and rights
|
|
|
Number
of securities
remaining available
for
future issuance under
equity compensation
plans (excluding
securities reflected
in
column (a))
|
|
|
|
|
(a)
|
|
|
|
(b)
|
|
|
|
(c)
|
|
Equity
compensation plans approved by security holders
|
|
|
4,612,987
|
|
|
$
|
0.47
|
|
|
|
267,154
|
|
Equity
compensation plans not approved by security holders
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
4,612,987
|
|
|
$
|
1.10
|
|
|
|
267,154
|
|
The
equity compensation plans approved by the Company’s security holders are the 2014 Equity Incentive Plan (“2014 Stock
Plan”) of Trxade Group, Inc., Delaware corporation, and the 2013 Equity Incentive Plan of Trxade Group, Inc., a Nevada corporation
and predecessor in interest to Trxade Group, Inc., a Delaware corporation. The above listed equity compensation plans were adopted
as of December 31, 2018 with the approval of security holders.
Summary
of Material Features of the 2014 Equity Incentive Plan
The
following discussion summarizes the material terms of the 2014 Stock Plan. A description of the 2014 Stock Plan, which is intended
merely as a summary of its principal features and is qualified in its entirety by reference to the full text of the 2014 Stock
Plan, as filed and incorporated by reference to Exhibit 10.3 to the Registration Statement on Form 10 of Trxade Group, Inc., File
No. 000-55218, filed on June 6, 2014, is below.
Administration.
The 2014 Stock Plan is administered by the Company’s Board of Directors and the Compensation Committee of the Board.
Term.
The 2014 Stock Plan shall continue in effect for a period of 10 years. In general, the term of each option granted shall be
no more than ten 10 years from the date of grant, though in certain instances such term may be shorter.
Eligibility.
Employees and service providers of the Company and its subsidiaries and non-employee directors of the Company are eligible
to receive awards under the 2014 Stock Plan. Awards under the 2014 Stock Plan may include grants of options, stock appreciation
rights, restricted stock, restricted stock units, performance units and performance shares, and awards intended to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue Code. Eligibility for any particular award is determined
by the Administrator (as defined in the 2014 Stock Plan) and, in the case of certain awards such as incentive stock options, eligibility
for receipt of such awards may be limited by the Internal Revenue Code.
Plan
Limit.
The Company has reserved 2,000,000 Common Shares for issuance under the 2014 Stock Plan. The 2014 Stock Plan had 802,154
remaining shares reserved for issuance as of March 2, 2018.
The
above limit is subject to adjustment for certain changes in the Company’s capitalization such as stock dividends, stock
splits, combinations or similar events. If an award expires, terminates, is forfeited or is settled in cash rather than in Common
Shares, the Common Shares not issued under that award will again become available for grant under the 2014 Stock Plan. If Common
Shares are surrendered to the Company or withheld to pay any exercise price or tax withholding requirements, only the number of
Common Shares issued net of the shares withheld or surrendered will be counted against the number of Common Shares available under
the 2014 Stock Plan. The exercise price for a stock option or stock appreciation right may not be less than 100% of the fair market
value of the shares on the date of grant or may not be less than 110% of the fair market value of the shares on the date of grant
for employees representing more than 10% of the voting power of all of the classes of stock of the Company. The Board may amend,
alter, suspend or terminate the plan. The Company must obtain stockholder approval of any amendment of the 2014 Stock Plan to
the extent necessary and desirable to comply with applicable law.
Certain
Relationships and Related Transactions, and Director Independence
Transactions
with Related Persons.
All
of our executives are at-will employees or consultants. Each of Messrs. Ajjarapu and Patel are parties to an at-will executive
employment agreement. In January 2017, each of Messrs. Ajjarapu and Patel suspended their executive salaries of for a period of
six months. The Company has also entered into indemnification agreements with its officers and directors. In January 2018 ,
Mr. Ajjarapu ’s and Mr. Patel ’s executive salar y agreements were amended from $165,000 and
$125,000, to $200,000 and $150,000 , respectively.
The
Company’s founders, Mr. Ajjarapu (through Sansur Associates, a company that he controls) and Mr. Patel, have periodically
loaned funds on a short-term interest free basis to cover the Company’s operating expenses. In November 2016, Mr. Patel
loaned the Company $10,000. In June 2017, the Company borrowed $100,000 and $80,000 from Sansur Associates, LLC, a limited liability
company controlled by Mr. Ajjarapu, and Mr. Patel, respectively. The term of each of these Notes is three years and they each
bear interest at 6%, which is payable annually. The note due to Mr. Patel is $122,552. It comprises $80,000, $17,280 for existing
promissory note and $25,272 assumption of credit card obligation related to business expenses of the Company. As of December 31,
2018, $222,552 was outstanding on these loans.
The
Company owed $61,725 under related party note that was renewed in April 2017 for a one-year extension at the same interest rate
of 10%, due April 2018. Further, the Company owed $150,000 under a related party note that was renewed for a six-month extension
at the same interest rate of 10% in September 2017, which is now due February 2018. Both of these notes were entered with Nitel
Patel, the brother of Prashant Patel, the Director and President of the Company. In February 2018, $50,000 of the $150,000 of
principal was paid. The remaining $100,000 was extended to July 2018 as the same interest rate of 10%.
In
August 2017, $40,000 in convertible promissory notes was amended. A one-year extension was executed to August 2018. In connection
with the one-year extension of the maturity date of the outstanding notes, the holder of the notes was granted warrants to purchase
10,000 shares of common stock that was issued at a strike price of $0.80 and an expiration date of five years from date of issuance.
The amendment of the note was considered a debt extinguishment and a loss on extinguishment of debt was booked in the amount of
$5,044.
During
the year ended December 31, 2018, there have been no other related party transactions, or currently proposed transactions, in
which we were or are to be a participant and the amount involved exceeds the lesser of $120,000 or one percent of the average
of our total assets at year-end for the last completed fiscal years and in which any related person had or will have a direct
or indirect material interest.
On
January 17, 2019, the Company, through its wholly-owned subsidiary, Alliance Pharma Solutions, LLC, a Delaware limited liability
company entered into a joint venture with PanOptic Health, LLC, a Delaware limited liability company (“PanOptic”),
to create a new entity, SyncHealth MSO, LLC (the “Joint Venture”). Under the terms of the Shareholders’ Agreement
included in the Joint Venture, PanOptic has agreed to vote all of its shares of stock of the Company for Suren Ajjarapu and Prashant
Patel (the current directors) and the two or three independent designee directors, as determined by the Founder Directors (Mr.
Ajjarapu and Mr. Patel). By January 2020, a maximum total of 14,776,638 shares of common stock of Trxade may be issued to PanOptic,
subject to PanOptic and SyncHealth meeting all of the revenue covenants, in connection with the Joint Venture, and these shares
would be subject to the Shareholders Agreement. For further information on the Shareholders Agreement, please review Exhibit 10.4
to the Current Report on Form 8-K filed January 22, 2019, and other documents referenced therein.
On
February 6, 2019, the Company entered into an Indemnification Agreement with Board Members Suren Ajjarapu and Prashant Patel in
connection with a personal guarantee they had both given for a Credit Agreement of approximately $1,000,000 with the Company and
an outside lender. This Indemnification Agreement is found on Exhibit 10.1 hereto.
Review
and Approval of Related Party Transactions
We
have not adopted formal policies and procedures for the review, approval or ratification of transactions, such as those described
above, with our executive officer(s), director(s) and significant stockholders, provided that it is our policy that any and all
such transactions are presented and approved by the board and future material transactions between us and members of management
or their affiliates shall be on terms no less favorable than those available from unaffiliated third parties.
In
addition, our Code of Ethics (described above under “Item 10. Directors, Executive Officers and Corporate Governance”
– “Code of Ethics”), which is applicable to all of our employees, officers and directors, requires that all
employees, officers and directors avoid any conflict, or the appearance of a conflict, between an individual’s personal
interests and our interests.
Director
Independence
Our
common stock is traded on the OTCQB under the symbol “TRXD”. The OTCQB electronic trading platform does not maintain
any standards regarding the “independence” of the directors on our company’s Board of Directors, and we are
not otherwise subject to the requirements of any national securities exchange or an inter-dealer quotation system with respect
to the need to have a majority of our directors be independent.
In
the absence of such requirements, we have elected to use the definition for “director independence” under the NASDAQ
stock market’s listing standards, which defines an “independent director” as “a person other than an officer
or employee of the Company or the Company’s subsidiaries or any other individual having a relationship, which in the opinion
of our Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a
director.” The definition further provides that, among others, employment of a director by us (or any parent or subsidiary
of ours) at any time during the past three years is considered a bar to independence regardless of the determination of our Board
of Directors. Two of our four directors, Mr. Fell and Mr. Peterson, are deemed “independent” under the OTC’s
listing standards.
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
We
will provide without charge to each person, including any beneficial owner, to whom this Prospectus is delivered, upon his or
her written or oral request, a copy of any or all of the reports or documents referred to above that have been incorporated by
reference into this Prospectus, excluding exhibits to those documents unless they are specifically incorporated by reference into
those documents. You may request a copy of these filings, at no cost, by contacting us at our address at 3840 Land O’ Lakes
Boulevard, Land O’Lakes, Florida, 34639 or by email at
info@trxade.com
.
We
do not incorporate information on our website into this Prospectus or any supplement to this Prospectus and you should not consider
any information on, or that can be accessed through, our website as part of this Prospectus or any supplement to this Prospectus
(other than those filings with the SEC that we specifically incorporate by reference into this Prospectus or any supplement to
this Prospectus).
TRXADE
GROUP, INC.
INDEX
TO FINANCIAL STATEMENTS
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Shareholders and Board of Directors of
Trxade
Group, Inc.
3840
Land O’ Lakes Boulevard
Land
O’ Lakes, Florida 95662
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of Trxade Group, Inc., and its subsidiaries (collectively, the “Company”)
as of December 31, 2018 and 2017, and the related consolidated statements of operations, changes in shareholders’ equity
(deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”).
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2018 and 2017, and the results of their operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
/s/
MaloneBailey, LLP
www.malonebailey.com
We
have served as the Company’s auditor since 2013.
Houston,
Texas
March
22, 2019
Trxade
Group, Inc.
Consolidated
Balance Sheets
December
31, 2018 and 2017
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
Assets
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
869,557
|
|
|
$
|
183,914
|
|
Accounts
Receivable, net
|
|
|
433,627
|
|
|
|
319,467
|
|
Inventory
|
|
|
79,966
|
|
|
|
-
|
|
Prepaid
Assets
|
|
|
82,927
|
|
|
|
102,095
|
|
Other
Assets
|
|
|
-
|
|
|
|
2,000
|
|
Total
Current Assets
|
|
|
1,466,077
|
|
|
|
607,476
|
|
|
|
|
|
|
|
|
|
|
Property
Plant and Equipment, Net
|
|
|
15,006
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
20,531
|
|
|
|
10,000
|
|
Goodwill
|
|
|
725,973
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
2,227,587
|
|
|
$
|
617,476
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
$
|
400,544
|
|
|
$
|
106,084
|
|
Accrued
Liabilities
|
|
|
138,323
|
|
|
|
156,961
|
|
Short
Term Notes Payable net of $0 and $152 discount
|
|
|
-
|
|
|
|
10,587
|
|
Short
Term Convertible Notes Payable
|
|
|
181,500
|
|
|
|
-
|
|
Short
term Convertible Notes Payable – Related Parties
|
|
|
140,000
|
|
|
|
251,725
|
|
Total
Current Liabilities
|
|
|
860,367
|
|
|
|
525,357
|
|
|
|
|
|
|
|
|
|
|
Long
Term Liabilities
|
|
|
|
|
|
|
|
|
Convertible
Notes Payable
|
|
|
-
|
|
|
|
181,500
|
|
Notes
Payable – Related Parties
|
|
|
522,552
|
|
|
|
222,552
|
|
Total
Liabilities
|
|
|
1,382,919
|
|
|
|
929,409
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
Equity (Deficit)
|
|
|
|
|
|
|
|
|
Series
A Preferred Stock, $0.00001 par value; 10,000,000 shares authorized; none issued and outstanding as of December 31, 2018 and
December 31, 2017, respectively
|
|
|
-
|
|
|
|
-
|
|
Common
Stock, $0.00001 par value; 100,000,000 shares authorized; 33,285,827 and 31,985,827 shares issued and outstanding as of December
31, 2018 and 2017, respectively
|
|
|
332
|
|
|
|
320
|
|
Additional
Paid-in Capital
|
|
|
8,955,411
|
|
|
|
7,807,860
|
|
Retained
Deficit
|
|
|
(8,111,075
|
)
|
|
|
(8,120,113
|
)
|
Total
Shareholders’ Equity (Deficit)
|
|
|
844,668
|
|
|
|
(311,933
|
)
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholders’ Equity (Deficit)
|
|
$
|
2,227,587
|
|
|
$
|
617,476
|
|
The
accompanying notes are an integral part of the consolidated financial statements.
Trxade
Group, Inc.
Consolidated
Statements of Operations
Years
Ended December 31, 2018 and 2017
|
|
2018
|
|
|
2017
|
|
Revenues,
net
|
|
$
|
3,831,778
|
|
|
$
|
2,931,280
|
|
Cost
of Sales
|
|
|
449,049
|
|
|
|
-
|
|
Gross
Profit
|
|
|
3,382,729
|
|
|
|
2,931,280
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
General
and Administrative
|
|
|
3,470,345
|
|
|
|
2,536,185
|
|
|
|
|
|
|
|
|
|
|
Operating
Income (Loss)
|
|
|
(87,616
|
)
|
|
|
395,095
|
|
|
|
|
|
|
|
|
|
|
Other
Income
|
|
|
161,639
|
|
|
|
67,500
|
|
Loss
on Extinguishment of Debt
|
|
|
(7,444
|
)
|
|
|
(16,556
|
)
|
Interest
Expense
|
|
|
(57,541
|
)
|
|
|
(157,056
|
)
|
Net
Income
|
|
$
|
9,038
|
|
|
$
|
288,983
|
|
|
|
|
|
|
|
|
|
|
Net
Income per Common Share – Basic:
|
|
$
|
0.00
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
Net
Income per Common Share – Diluted:
|
|
$
|
0.00
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
Weighted
average Common Shares Outstanding Basic
|
|
|
32,260,622
|
|
|
|
31,955,416
|
|
|
|
|
|
|
|
|
|
|
Weighted
average Common Shares Outstanding Diluted
|
|
|
34,958,502
|
|
|
|
34,086,251
|
|
The
accompanying notes are an integral part of the consolidated financial statements.
Trxade
Group, Inc.
Consolidated
Statements of Changes in Shareholders’ Equity (Deficit)
Years
Ended December 31, 2018 and 2017
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Additional
Paid-in-
|
|
|
Accumulated
|
|
|
Total
Shareholders’
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
(Deficit)
|
|
Balance
at December 31, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
|
31,660,827
|
|
|
$
|
316
|
|
|
$
|
7,260,723
|
|
|
$
|
(8,409,096
|
)
|
|
$
|
(1,148,057
|
)
|
Common
Stock Issued for Cash
|
|
|
-
|
|
|
|
-
|
|
|
|
250,000
|
|
|
|
3
|
|
|
|
249,997
|
|
|
|
-
|
|
|
|
250,000
|
|
Common
Stock Issued for Services
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
1
|
|
|
|
12,499
|
|
|
|
-
|
|
|
|
12,500
|
|
Warrants
Issued for debt Amendment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,556
|
|
|
|
-
|
|
|
|
16,556
|
|
Warrants
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
-
|
|
|
|
250
|
|
|
|
-
|
|
|
|
250
|
|
Options
Expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
267,835
|
|
|
|
-
|
|
|
|
267,835
|
|
Net
Income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
288,983
|
|
|
|
288,983
|
|
December
31, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
|
31,985,827
|
|
|
$
|
320
|
|
|
$
|
7,807,860
|
|
|
$
|
(8,120,113
|
)
|
|
$
|
(311,933
|
)
|
Common
Stock Issued for Cash
|
|
|
-
|
|
|
|
-
|
|
|
|
1,300,000
|
|
|
|
12
|
|
|
|
799,988
|
|
|
|
-
|
|
|
|
800,000
|
|
Warrants
Issued for debt Amendment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,444
|
|
|
|
-
|
|
|
|
7,444
|
|
Warrants
for Acquisition of Community Specialty Pharmacy, LLC
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
170,291
|
|
|
|
-
|
|
|
|
170,291
|
|
Options
Expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
169,828
|
|
|
|
-
|
|
|
|
169,828
|
|
Net
Income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,038
|
|
|
|
9,038
|
|
December
31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
33,285,827
|
|
|
$
|
332
|
|
|
$
|
8,955,411
|
|
|
$
|
(8,111,075
|
)
|
|
$
|
844,668
|
|
The
accompanying notes are an integral part of the consolidated financial statements.
Trxade
Group, Inc.
Consolidated
Statements of Cash Flows
Years
ended December 31, 2018 and 2017
|
|
2018
|
|
|
2017
|
|
Operating
Activities:
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
9,038
|
|
|
$
|
288,983
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Stock
Issued for Services
|
|
|
-
|
|
|
|
12,500
|
|
Options
expense
|
|
|
169,828
|
|
|
|
267,835
|
|
Bad
Debt Expense
|
|
|
2,271
|
|
|
|
-
|
|
Loss
on debt extinguishment
|
|
|
7,444
|
|
|
|
16,556
|
|
Amortization
of Debt Discount
|
|
|
152
|
|
|
|
88,647
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
Receivable
|
|
|
(1,532
|
)
|
|
|
(20,354
|
)
|
Prepaid
Assets and Other Assets
|
|
|
13,637
|
|
|
|
(90,763
|
)
|
Inventory
|
|
|
(3,810
|
)
|
|
|
-
|
|
Accounts
Payable
|
|
|
95,149
|
|
|
|
(98,213
|
)
|
Accrued
Liabilities and Other Liabilities
|
|
|
(18,791
|
)
|
|
|
(293,521
|
)
|
Net
Cash provided by operating activities
|
|
|
273,386
|
|
|
|
171,670
|
|
|
|
|
|
|
|
|
|
|
Investing
Activities:
|
|
|
|
|
|
|
|
|
Purchase
of Fixed Assets
|
|
|
(15,006
|
)
|
|
|
-
|
|
Cash
paid for acquisition of Community Specialty Pharmacy, LLC, net of cash received
|
|
|
(250,273
|
)
|
|
|
-
|
|
Net
Cash Used in Investing Activities
|
|
|
(265,279
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Financing
Activities:
|
|
|
|
|
|
|
|
|
Repayments
of Promissory Note – Third Parties
|
|
|
(10,739
|
)
|
|
|
(432,685
|
)
|
Repayments
of Short Term Debt – Related Parties
|
|
|
(111,725
|
)
|
|
|
-
|
|
Proceeds
from Convertible Note – Related Parties
|
|
|
-
|
|
|
|
180,000
|
|
Proceeds
from exercise of Warrants
|
|
|
-
|
|
|
|
250
|
|
Proceeds
from Issuance of Common Stock
|
|
|
800,000
|
|
|
|
250,000
|
|
Net
Cash provided by financing activities
|
|
|
677,536
|
|
|
|
(2,435
|
)
|
|
|
|
|
|
|
|
|
|
Net
increase in Cash
|
|
|
685,643
|
|
|
|
169,235
|
|
Cash
at Beginning of the Year
|
|
|
183,914
|
|
|
|
14,679
|
|
Cash
at End of the Year
|
|
$
|
869,557
|
|
|
$
|
183,914
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Cash Flow Information
|
|
|
|
|
|
|
|
|
Cash
Paid for Interest
|
|
$
|
36,970
|
|
|
$
|
71,210
|
|
Cash
Paid for Income Taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-Cash
Transactions
|
|
|
|
|
|
|
|
|
Related
party note payable and warrants issued for acquisition of Community Specialty Pharmacy,
LLC
|
|
$
|
470,921
|
|
|
$
|
-
|
|
Reclass
from accrued interest to short term convertible notes
|
|
$
|
-
|
|
|
$
|
16,500
|
|
Arrangement
to move related party Accounts Payable to Notes Payable
|
|
$
|
-
|
|
|
$
|
32,552
|
|
The
accompanying notes are an integral part of the consolidated financial statements.
Trxade
Group, Inc.
Notes
to Consolidated Financial Statements
For
the years ended December 31, 2018 and 2017
NOTE
1 – ORGANIZATION
Trxade
Group, Inc. (“we”, “our”, “Trxade”, the “Company”) owns 100% of Trxade, Inc.,
Integra Pharma Solutions, LLC, Community Specialty Pharmacy, LLC and Alliance Pharma Solutions, LLC. The merger of Trxade, Inc.
and Trxade Group, Inc. occurred in May 2013. Community Specialty Pharmacy was acquired October 2018.
Trxade,
Inc. operates a web-based market platform that enables commerce among healthcare buyers and sellers of pharmaceuticals, accessories
and services.
Integra
Pharma Solutions, LLC is a licensed pharmaceutical wholesaler and sells brand, generic and non-drug products.
Community
Specialty Pharmacy, LLC is an accredited independent retail pharmacy with a focus on specialty medications. The company operates
with innovative pharmacy model which offers home delivery services to any patient thereby providing convenience.
Alliance
Pharma Solutions, LLC has developed same day Pharma delivery software – Delivmeds.com and invested in SyncHealth MSO, LLC
a managed services organization in January 2019. (See Note 13).
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The
accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America (“GAAP”).
The
summary of significant accounting policies presented below is designed to assist in understanding the Company’s financial
statements. Such financial statements and accompanying notes are the representations of the Company’s management, who are
responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted
in the United States of America (“GAAP”) in all material respects, and have been consistently applied in preparing
the accompanying financial statements.
Basis
of Presentation – Historically, operations have been funded primarily through the sale of equity or debt securities and
operating activities. In 2018, the Company renewed outstanding debt (See Note 3 and 4), raised capital (See Note 5) and had positive
operating cash flow from operations. The Company has the ability to maintain the current level of spending or reduce expenditures
to maintain operations if funding is not available.
Use
of Estimates – In preparing these financial statements, management is required to make estimates and assumptions that effect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those
estimates.
Reclassification
– Certain prior year amounts have been reclassified to conform to the current year presentation.
Principle
of Consolidation – The Company’s consolidated financial statements include the accounts of Trxade Group, Inc., Trxade,
Inc., Integra Pharma Solutions, Inc., Alliance Pharma Solutions, LLC and Community Specialty Pharmacy, LLC. All significant intercompany
accounts and transactions have been eliminated.
Cash
and Cash Equivalents – Cash in bank accounts are at risk to the extent that they exceed U.S. Federal Deposit Insurance Corporation
insured amounts. All investments purchased with a maturity of three months or less are cash equivalents. Cash and cash equivalents
are available on demand and are generally within of FDIC insurance limits for 2018.
Accounts
Receivable – The Company’s receivables are from customers and are collected within 90 days. The Company determines
the allowance based on known troubled accounts, historical experience, and other currently available evidence. During the years
ended December 31, 2018 and 2017, $2,271 of bad debt expense and $0 of recovery of bad debt was recognized, respectively.
Inventory
– Inventories are stated at the lower of cost or net realizable value. Cost is determined on a weighted average basis. On
a quarterly basis, we analyze our inventory levels and no reserve is maintained as obsolete or expired inventories are written
off. There is no reserve for inventory obsolescence during the periods presented.
Beneficial
Conversion Features – The intrinsic value of a beneficial conversion feature inherent to a convertible note payable, which
is not bifurcated and accounted for separately from the convertible note payable and may not be settled in cash upon conversion,
is treated as a discount to the convertible note payable. This discount is amortized over the period from the date of issuance
to the date the note is due using the effective interest method. If the note payable is retired prior to the end of its contractual
term, the unamortized discount is expensed in the period of retirement to interest expense. In general, the beneficial conversion
feature is measured by comparing the effective conversion price, after considering the relative value of detachable instruments
included in the financing transaction, if any, to the fair value of the common shares at the commitment date to be received upon
conversion.
Derivative
financial instruments – The Company evaluates its financial instruments to determine if such instruments are derivatives
or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities,
the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in
the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a
Black-Scholes option pricing model, assuming maximum value, in accordance with ASC 815-15 “Derivative and Hedging”
to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.
Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash
settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Fair
Value of Financial Instruments – The Company measures its financial assets and liabilities in accordance with the requirements
of FASB ASC 820, “Fair Value Measurements and Disclosures”. ASC 820 clarifies the definition of fair value, prescribes
methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as
follows:
Level
1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets
are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information
on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities
and listed equities.
Level
2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly
observable as of the reported date and includes those financial instruments that are valued using models or other valuation methodologies.
These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities,
time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant
economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument,
can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options
and collars.
Level
3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may
be used with internally developed methodologies that result in management’s best estimate of fair value.
The
Company does not have any assets or liabilities that are required to be measured and recorded at fair value on a recurring basis.
The
carrying amounts of cash, accounts receivable, accounts payable, accrued liabilities and short-term debt approximate fair value
because of the short-term nature of these instruments. The carrying amount of long-term debt approximates fair value because the
debt is based on current rates at which the Company could borrow funds with similar maturities.
Goodwill
– The Company accounts for goodwill and intangible assets in accordance with ASC 350 “Intangibles Goodwill and Other”.
ASC 350 requires that goodwill and other intangibles with indefinite lives be tested for impairment annually or on an interim
basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value. The Company
performed impairment analysis using the qualitative analysis under ASC 350-20 and noted no impairment issues for 2018.
Revenue
Recognition – In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09
(Topic 606) “Revenue from Contracts with Customers.” Topic 606 supersedes the revenue recognition requirements in
Accounting Standards Codification Topic 605, “Revenue Recognition”, and requires entities to recognize revenue when
they transfer control of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled to in exchange for those goods or services. The Company adopted ASU 2014-09 using the modified retrospective
approach effective January 1, 2018, under which prior periods were not retrospectively adjusted. The adoption of Topic 606 does
not have a material impact to our consolidated financial statements, including the presentation of revenues in our Consolidated
Statements of Operations.
Trxade,
Inc. provides an online website service, a buying and selling marketplace for licensed Pharmaceutical Wholesalers to sell products
and services to licensed Pharmacies. The Company charges Suppliers a transaction fee, a percentage of the purchase price of the
Prescription Drugs and other products sold through its website service. The fulfillment of confirmed orders, including delivery
and shipment of Prescription Drugs and other products, is the responsibility of the Supplier and not of the Company. The Company
holds no inventory and assumes no responsibility for the shipment or delivery of any products or services from our website. The
Company considers itself an agent for this revenue stream and as such, reports revenue as net. Step One: Identify the contract
with the customer – Trxade, Inc.’s Terms and Use Agreement is acknowledged between the Wholesaler and Trxade, Inc.
which outlines the terms and conditions. The collection is probable based on the credit evaluation of the Wholesaler. Step Two:
Identify the performance obligations in the contract – The Company provides to the Supplier access to the online website,
uploading of catalogs of products and Dashboard access to review status of inventory posted and processed orders. The Agreement
requires the supplier to provide a catalog of pharmaceuticals for posting on the platform, deliver the pharmaceuticals and upon
shipment remit the stated platform fee. Step Three: Determine the transaction price – The Fee Agreement outlines the fee
based on the type of product, generic, brand or non-drug. There are no discounts for volume of transactions or early payment of
invoices. Step Four: Allocate the transaction price – The Fee Agreement outlines the fee. There is no difference between
contract price and “stand-alone selling price”. Step Five: Recognize revenue when or as the entity satisfies a performance
obligation – Revenue is recognized the day the order has been processed by the Supplier.
Integra
Pharma Solutions, LLC is a licensed wholesaler and sells to licensed pharmacies brand, generic and non-drug products. The Company
takes orders for product and creates invoices for each order and recognizes revenue at the time the Customer receives the product.
Customer returns are not material. Step One: Identify the contract with the customer – The Company requires that an application
and a credit card for payment is completed by the Customer prior to the first order. Each transaction is evidenced by an order
form sent by the customer and an invoice for the product is sent by the Company. The collection is probable based on the application
and credit card information provided prior to the first order. Step Two: Identify the performance obligations in the contract
– Each order is distinct and evidenced by the shipping order and invoice. Step Three: Determine the transaction price –
The consideration is variable if product is returned. The variability is determined based on the return policy of the product
manufacturer. There are no sales or volume discounts. The transaction price is determined at the time of the order evidenced by
the invoice. Step Four: Allocate the transaction price – There is no difference between contract price and “stand-alone
selling price”. Step Five: Recognize revenue when or as the entity satisfies a performance obligation - The Revenue is recognized
when the Customer receives the product.
Community
Specialty Pharmacy, LLC is in the retail pharmacy business. The Company fills prescriptions for drugs written by a doctor and
recognizes revenue at the time the patient confirms delivery of the prescription. Customer returns are not material. Step One:
Identify the contract with the customer – The prescription is written by a doctor for a Customer and delivered to the Company.
The prescription identifies the performance obligations in the contract. The Company fills the prescription and delivers to the
Customer the prescription, fulfilling the contract. The collection is probable because there is confirmation that the customer
has insurance for the reimbursement to the Company prior to filling of the prescription. Step Two: Identify the performance obligations
in the contract – Each prescription is distinct to the Customer. Step Three: Determine the transaction price – The
consideration is not variable. The transaction price is determined to be the price of the prescription at the time of delivery
which considers the expected reimbursements from third party payors (e.g., pharmacy benefit managers, insurance companies and
government agencies). Step Four: Allocate the transaction price – The price of the prescription invoiced represents the
expected amount of reimbursement from third party payors. There is no difference between contract price and “stand-alone
selling price”. Step Five: Recognize revenue when or as the entity satisfies a performance obligation – Revenue is
recognized upon the delivery of the prescription.
Cost
of Goods Sold – The company recognized cost of goods sold in 2018 from activities in Integra Pharma Solutions, LLC and Community
Specialty Pharmacy, LLC, which were not active in 2017.
Stock-Based
Compensation – The Company accounts for stock-based compensation to non-employees in accordance with the provision of ASC
505, “Equity Based Payments to Non-Employees” (“ASC 505”), which requires that such equity instruments
are recorded at their fair value on the measurement date. The measurement of stock-based compensation is subject to periodic adjustment
as the underlying instruments vest.
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.
Income
Taxes – The Company accounts for income taxes utilizing ASC 740, “Income Taxes” (SFAS No. 109). ASC 740 requires
the measurement of deferred tax assets for deductible temporary differences and operating loss carry forwards, and of deferred
tax liabilities for taxable temporary differences. Measurement of current and deferred tax liabilities and assets is based on
provisions of enacted tax law. The effects of future changes in tax rates are not included in the measurement. The Company recognizes
the amount of taxes payable or refundable for the current year and recognizes deferred tax liabilities and assets for the expected
future tax consequences of events and transactions that have been recognized in the Company’s financial statements or tax
returns. The Company currently has substantial net operating loss carry forwards. The Company has recorded a 100% valuation allowance
against net deferred tax assets due to uncertainty of their ultimate realization. Valuation allowances are established when necessary
to reduce deferred tax assets to the amount expected to be realized. Tax years from 2015 forward are open to examination by the
Internal Revenue Service.
Income
(loss) Per Share – Basic net income (loss) per common share is computed by dividing net loss available to Common Stockholders
by the weighted average number of common shares outstanding. Diluted net loss per common share is computed similar to basic net
loss 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 treasury
stock method and as if converted methods are used to determine the dilutive shares for our options and warrants and convertible
notes, respectively.
The
following table sets forth the computation of basic and diluted income per common share for the years ended December 31, 2018
and 2017:
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
9,038
|
|
|
$
|
288,983
|
|
|
|
|
|
|
|
|
|
|
Numerator
for basic and diluted income available to common shareholders
|
|
$
|
9,038
|
|
|
$
|
288,983
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator
for basic income per common share – Weighted average common shares outstanding
|
|
|
32,260,622
|
|
|
|
31,955,416
|
|
Dilutive
effect of Common Stock Equivalents
|
|
|
2,697,880
|
|
|
|
2,130,835
|
|
Denominator
for diluted income per common share – adjusted weighted average common shares outstanding
|
|
|
34,958,502
|
|
|
|
34,086,251
|
|
Basic
and Diluted income per common share
|
|
$
|
0.00
|
|
|
$
|
0.01
|
|
Concentration
of Credit Risks and Major Customers - Financial instruments that potentially subject the company to credit risk consist principally
of cash and cash equivalents and receivables. The Company places its cash and cash equivalents with financial institutions. Deposits
are insured to Federal Deposit Insurance Corp limits. During the years ended December 31, 2018 and 2017, sales to two customers
each represent greater than 10% of revenue.
Recent
Accounting Pronouncements – The Company has implemented all new relevant accounting pronouncements that are in effect through
the date of these financial statements. The pronouncements did not have any material impact on the financial statements unless
otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued
that might have a material impact on its consolidated financial position or results of operations.
In
February 2016, the FASB issued ASU 2016-02, Leases, which will amend current lease accounting to require lessees to recognize
(i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted
basis, and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of,
a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors;
however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model. This standard
will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The
Company adopted the provisions of this ASU at January 1, 2019.
NOTE
3 – SHORT-TERM DEBT AND RELATED PARTIES DEBT
Convertible
Promissory Note
Convertible
promissory notes were issued in the aggregate amount of $200,000 in April and May 2015. The term of the notes was one year. Simple
interest of 10% was payable at the maturity date of the note. Prior to maturity the notes may be converted for Common Stock at
a conversion price of $1.50. The holders of the notes were granted warrants at one share of Common Stock for every $4.00 of the
note principal amount, which totaled a warrant to purchase 50,000 shares of Common Stock. These warrants were issued at a strike
price of $1.50 and an expiration date of five years from date of issuance. The Company used the Black-Scholes pricing model to
estimate the fair value of the warrants issued along with convertible notes on the date of grant. The Company accounted for the
relative fair value of the warrants issued and a total debt discount $53,546 was recorded.
In
April and May 2016, $50,000 of the $200,000 in convertible promissory notes (plus $5,000 in interest) was repaid. A one-year extension
was executed on the remaining notes and the interest owed, totaling $15,000 became part of the adjusted principal of notes and
the balance of $165,000 is due May 2017. In connection with the one-year extension of the maturity date of the outstanding notes,
the holders of the notes were granted warrants at one Common Stock for $4.00 of the note amount and warrants to purchase 41,250
shares of Common Stock were issued at a strike price of $1.50 and an expiration date of five years from date of issuance. The
amendment of the note was considered a debt extinguishment and a loss on extinguishment of debt was booked in the amount of $37,579.
In
April 2017, $165,000 in convertible promissory notes (plus $5,500 in interest) was amended. A two-year extension was executed
on the remaining notes and the interest owed, totaling $16,500 became part of the adjusted principal of the notes and the balance
of $181,500 is due May 2019. The conversion price was adjusted to $0.85 per share. In connection with the two-year extension of
the maturity date of the outstanding notes, the holders of the notes were granted warrants to purchase 18,150 shares of Common
Stock that was issued at a strike price of $0.65 and an expiration date of five years from date of issuance. The amendment of
the note was considered a debt extinguishment and a loss on extinguishment of debt was booked in the amount of $11,512.
The
Company evaluated the embedded conversion feature within the above convertible notes under ASC 815-15 and ASC 815-40 and determined
that the embedded conversion feature does not meet the definition of a derivative liability. Then the Company evaluated the conversion
feature for a beneficial conversion feature at inception. The Company accounted for the intrinsic value of a Beneficial Conversion
Feature inherent to the convertible note payable the conversion was not beneficial and a total debt discount from the issued warrants
of $53,546 was recorded in 2015 and $0 as of the date of the debt modification.
During
2017, debt discount of $0 was amortized. As of December 31, 2018 and 2017, short-tern convertible note has a balance of $181,500
and $0 respectively, net of $0 unamortized debt discount.
Promissory
Note
In
May 2016, a promissory note that was issued in May 2015 was renewed in the face amount of $250,000 and the term was extended an
additional year. The note has an original issuance discount of $45,000 and this amount was paid in cash at the renewal. During
2016, a debt discount of $45,000 was amortized. As of December 31, 2016, the promissory note has a balance of $250,000 with an
unamortized debt discount of $15,000.
During
2017 the debt discount of $15,000 was fully amortized and the balance of $250,000 was paid.
In
October 2016, a promissory note was issued in the face amount of $47,000. The term of the note was one year. Payments are made
daily and $3,917 of principal was paid in 2016. At December 31, 2016 the balance was $43,083.
In
2017 $43,083 of principal was paid and at December 31, 2017 the balance was $0.
In
September 2016, a promissory note was issued for $189,000. The term of the note is 494 days. The debt discount was $39,000 thus
the initial net proceeds were $150,000. At December 31, 2016, $139,602 was classified as short term with a discount of $25,306
and $10,739 was classified as long term with a discount of $152. Payments are made each weekday in the amount of $537. In 2017,
$139,602 was paid off by cash and debt discount of $25,306 was amortized.
As
of December 31, 2017, short term promissory notes have a balance of $10,739, net of $152 unamortized debt discount.
In
2018, $10,739 was paid off by cash and the debt discount of $152 was amortized.
As
of December 31, 2018, short term promissory notes have a balance of $0, net of $0 unamortized debt discount.
Related
Party Convertible Promissory Notes
In
August 2016, $40,000 in promissory notes were issued to Mr. Shilpa Patel, a relative of Mr. Prashant Patel. The term of the note
was one year. Simple interest of 10% is payable at the maturity date of the note. Prior to maturity the note may be converted
for Common Stock at a conversion price of $1.50.
In
August 2017, $40,000 in convertible promissory notes was amended. A one-year extension was executed to August 2018. In connection
with the one-year extension of the maturity date of the outstanding notes, the holder of the notes was granted warrants to purchase
10,000 shares of Common Stock that was issued at a strike price of $0.80 and an expiration date of five years from date of issuance.
The amendment of the note was considered a debt extinguishment and a loss on extinguishment of debt was booked in the amount of
$5,044.
In
August 2018, $40,000 in convertible promissory notes was amended. A one-year extension was executed to August 2019. In connection
with the one-year extension of the maturity date of the outstanding notes, the holder of the notes was granted warrants to purchase
10,000 shares of Common Stock that was issued at a strike price of $0.50 and an expiration date of five years from date of issuance.
The amendment of the note was considered a debt extinguishment and a loss on extinguishment of debt was booked in the amount of
$7,444.
The
Company evaluated the embedded conversion feature within the above convertible notes under ASC 815-15 and ASC 815-40 and determined
that the embedded conversion feature does not meet the definition of a derivative liability. Then the Company evaluated the conversion
feature for a beneficial conversion feature at inception. The Company accounted for the intrinsic value of a Beneficial Conversion
Feature inherent to the convertible note payable and $0 was recorded as of the grant date.
In
September and October 2016, convertible promissory notes were issued in the aggregate amount of $211,725 to a related party, Mr.
Nitel Patel, the brother of Mr. Prashant Patel. The term of the notes was one year. Simple interest of 10% is payable at the maturity
date of the notes. Prior to maturity the notes may be converted for Common Stock at a conversion price of $0.62. In connection
with the notes, the holders of the notes were granted warrants to purchase 52,861 shares of Common Stock. These warrants were
issued at a strike price of $0.62 and an expiration date of five years from date of issuance.
The
Company evaluated the embedded conversion feature within the above convertible notes under ASC 815-15 and ASC 815-40 and determined
that the embedded conversion feature does not meet the definition of a derivative liability. Then the Company evaluated the conversion
feature for a beneficial conversion feature at inception. The Company accounted for the intrinsic value of a Beneficial Conversion
Feature inherent to the convertible note payable and the beneficial feature was not beneficial and a total debt discount of $65,390
due to the warrants was recorded as of the grant date.
In
April 2017, a $61,725 related party note was renewed for a one-year extension at the same interest rate of 10%, due April 2018.
In April 2018, $61,725 was paid in cash for full payment.
In
September 2017, a $150,000 related party note was renewed for a six-month extension at the same interest rate of 10%, due in February
2018. In February 2018, $100,000 of the related party note was extended to July 2018 and then renewed for a year extension at
the same interest rate of 10%, due July 2019. The remaining $50,000 was paid in cash in February 2018.
During
2017, the remaining debt discount of $48,341 was fully amortized. As of December 31, 2017, the short-term related party convertible
notes had a principal balance of $251,725, net of an unamortized debt discount of $0.
As
of December 31, 2018, the short-term related party convertible notes had a principal balance of $140,000, net of an unamortized
debt discount of $0.
Related
Party Promissory Note
In
November 2016, Mr. Prashant Patel loaned the Company $10,000. The term of the loan is 90 days and is at zero percent interest.
The balance at December 31, 2016 was $10,000.
In
February 2017, $7,280 of accounts payable to Mr. Patel was added to the loan. The term of the loan was extended for 90 days and
is at zero interest rate. An additional $25,272 of accounts payable was added to the loan in the second quarter and the balance
of $42,552 was converted to long-term debt in July 2017 and will mature in July 2020. (See Note 4).
NOTE
4 – LONG TERM DEBT
In
2017, there are $181,500 in convertible promissory notes due in May 2019 as described in Note 3.
Related
Party Promissory Notes
In
June 2017, the Company satisfied an outstanding promissory note, dated May 8, 2016, as amended, in the principal amount of $250,000
(the “NPR Note”), made by between the Company and NPR INVESTMENT GROUP, LLC (the “Lender”). The NPR Note
included a personal guarantee from Suren Ajjarapu and Prashant Patel, who both serve on the Board of Directors of the Company
and are controlling stockholders of the Company. Further, Mr. Ajjarapu is the CEO and President of the Company and Mr. Patel is
Vice Chairman and Executive Director of Strategy.
In
connection with the foregoing satisfaction of the NPR Note above, the Company received funds in June 2017 and entered into a promissory
note agreement on July 1, 2017, whereby the Company borrowed $100,000 and $80,000 from Sansur Associates, LLC, a limited liability
company controlled by Mr. Ajjarapu, and Mr. Patel, respectively (the “Promissory Notes”). The term of each of these
N
otes is three years and they each bear interest at 6%, which is payable annually.
The
note due to Mr. Patel is $
122,552. It comprises
$80,000 for the NPR note, $17,280 for an existing promissory note and $25,272 assumption of credit card obligation related to
business expenses of the Company.
In
October 2018 in connection with the acquisition of Community Specialty Pharmacy, LLC a $300,000 promissory note was issued to
Nikul Panchal, accruing interest a simple interest of 10%, interest payable annually, and principal payable at maturity on October
15, 2021.
At
December 31, 2018 and 2017, total related party long term debt was $522,552 and $222,552, respectively.
Future
maturities of long-term debt in the next five years are as follows:
Due
in 2020
|
|
$
|
222,552
|
|
Due
in 2021
|
|
$
|
300,000
|
|
Due
in 2022
|
|
$
|
-
|
|
Due
in 2023
|
|
$
|
-
|
|
Total
Debt
|
|
$
|
522,052
|
|
NOTE
5 – STOCKHOLDERS’ EQUITY
2017
In
January 2017, under a Private Offer Memorandum, 250,000 shares of Common Stock were issued for $250,000 cash. The Common Stock
was sold at $1.00 per share. In connection with this Common Stock offering, warrants to purchase 87,500 shares of Common Stock
were issued with a strike price of $0.01 and an expiration date of five years.
In
February 2017, 25,000 shares were issued when warrants were exercised at $0.01 grant price for $250.
In
March 2017, 50,000 shares were issued for services performed for the Company and valued at fair value of $12,500.
2018
In
July 2018, under a Private Offer Memorandum, 300,000 shares of Common Stock were issued for $300,000 cash. The Common Stock was
sold at $1.00 per share. In connection with this Common Stock offering, warrants to purchase 161,538 shares of Common Stock were
issued with a strike price of $0.01 and an expiration date of five years.
In
November 2018, under a Private Offer Memorandum, 1,000,000 shares of Common Stock were issued for $500,000 cash. The Common Stock
was sold at $0.50 per share.
NOTE
6 - WARRANTS
In
2017, 87,500 warrants were issued related to common shares sold for cash (See Note 5). Likewise, 28,150 were issued for renewal
of convertible debt (see Note 3) and 25,000 warrants were exercised. No warrants were forfeited in 2017.
In
2018, 161,538 warrants were issued related to common shares sold for cash (see Note 5), 10,000 were issued for renewal of convertible
debt (see Note 3), 405,507 were issued related to the acquisition of Community Specialty Pharmacy, LLC, none were exercised and
435,000 were forfeited.
The
following table summarizes the assumptions used to estimate the fair value of warrants granted during the years ended December
31, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
Expected
dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Weighted-average
expected volatility
|
|
|
231-632
|
%
|
|
|
200
|
%
|
Weighted-average
risk-free interest rate
|
|
|
2.55-2.75
|
%
|
|
|
1.81-1.84
|
%
|
Expected
life of warrants
|
|
|
5-8
years
|
|
|
|
5
years
|
|
The
Company’s outstanding and exercisable warrants as of December 31, 2018 and 2017 are presented below:
|
|
Number
Outstanding
|
|
|
Weighted
Average Exercise Price
|
|
|
Contractual
Life in Years
|
|
|
Intrinsic
Value
|
|
Warrants
Outstanding as of December 31, 2016
|
|
|
2,647,446
|
|
|
$
|
0.24
|
|
|
|
4.24
|
|
|
$
|
930,751
|
|
Warrants
granted
|
|
|
115,650
|
|
|
$
|
0.18
|
|
|
|
5.0
|
|
|
|
-
|
|
Warrants
forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Warrants
exercised
|
|
|
(25,000
|
)
|
|
$
|
0.01
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
Outstanding as of December 31, 2017
|
|
|
2,738,096
|
|
|
$
|
0.24
|
|
|
|
3.28
|
|
|
$
|
937,567
|
|
Warrants
granted
|
|
|
577,045
|
|
|
$
|
0.02
|
|
|
|
7.11
|
|
|
|
|
|
Warrants
forfeited
|
|
|
(435,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Warrants
exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
Outstanding as of December 31, 2018
|
|
|
2,880,141
|
|
|
$
|
0.08
|
|
|
|
3.74
|
|
|
$
|
782,385
|
|
NOTE
7 - OPTIONS
The
Company maintains a stock option plan under which certain employees and management are awarded option grants based on a combination
of performance and tenure. All options may be exercised for a period up to four ½ years following the grant date, after
which they expire. Options are vested up to 5 years from the grant date. The Board has authorized the use of 2,000,000 shares
for option grants.
Stock
options were granted during 2018 and 2017 to employees totaling, 560,400 and 263,846 respectively. These options vest over a period
of 4 to 5 years, are granted with an exercise price of between $0.41 and $1.02 per share and have a term of 10 years. The last
options expire April 2028.
Under
the Black-Scholes option price model, fair value of the options granted in 2018 and 2017 were $278,358 and $169,100, respectfully.
In
April 2017, 253,846 options were granted with an exercise price of $0.65 and a term of 10 years from the grant date. The options
vest over a period of one and four years.
In
April 2017, four option grants, totaling 650,000 options, were amended to extend the exercise terms to 10 years from the date
of grant. Incremental option expense recognized as a result of the amendment amounted to $69,611.
In
April 2018, 560,400 options were granted with an exercise price of $0.50 and a term of 10 years from the grant date. The options
vest over a period of four to five years.
The
Company uses the Black-Scholes option pricing model to estimate the fair value of stock-based awards on the date of grant. The
following table summarizes the assumptions used to estimate the fair value of stock options granted during the years ended December
31, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
Expected
dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Weighted-average
expected volatility
|
|
|
192-265
|
%
|
|
|
200
|
%
|
Weighted-average
risk-free interest rate
|
|
|
2.08-2.73
|
%
|
|
|
1.92
|
%
|
Expected
life of warrants
|
|
|
4-5
years
|
|
|
|
4.74
-7.50 years
|
|
Total
compensation cost related to stock options was $169,828 and $267,835 for the years ended December 31, 2018 and 2017, respectively.
As of December 31, 2018, there was $192,007 of unrecognized compensation costs related to stock options, which is expected to
be recognized over a weighted average period of 6.98 years. The following table represents stock option activity for the two years
ended December 31, 2018:
|
|
Number
Outstanding
|
|
|
Weighted
Average Exercise Price
|
|
|
Contractual
Life in Years
|
|
|
Intrinsic
Value
|
|
Options
Outstanding as of December 31, 2016
|
|
|
1,044,500
|
|
|
$
|
0.92
|
|
|
|
3.38
|
|
|
$
|
-
|
|
Options
Exercisable as of December 31, 2016
|
|
|
584,000
|
|
|
$
|
1.05
|
|
|
|
3.02
|
|
|
|
|
|
Options
granted
|
|
|
263,846
|
|
|
|
0.64
|
|
|
|
9.05
|
|
|
|
-
|
|
Options
forfeited
|
|
|
(35,000
|
)
|
|
|
1.02
|
|
|
|
8.25
|
|
|
|
-
|
|
Options
expired
|
|
|
(75,000
|
)
|
|
|
1.13
|
|
|
|
4.54
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
Outstanding as of December 31, 2017
|
|
|
1,197,846
|
|
|
$
|
0.97
|
|
|
|
6.96
|
|
|
$
|
-
|
|
Options
Exercisable as of December 31, 2017
|
|
|
781,300
|
|
|
$
|
1.02
|
|
|
|
6.30
|
|
|
$
|
-
|
|
Options
granted
|
|
|
560,400
|
|
|
|
0.50
|
|
|
|
9.26
|
|
|
|
|
|
Options
forfeited
|
|
|
(25,400
|
)
|
|
|
0.46
|
|
|
|
9.06
|
|
|
|
|
|
Options
expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
Outstanding as of December 31, 2018
|
|
|
1,732,846
|
|
|
$
|
1.19
|
|
|
|
6.98
|
|
|
$
|
-
|
|
Options
Exercisable as of December 31, 2018
|
|
|
1,107,259
|
|
|
$
|
0.96
|
|
|
|
5.91
|
|
|
$
|
-
|
|
NOTE
8 – INCOME TAXES
On
December 22, 2017 H.R. 1, originally known as the Tax Cuts and Jobs Act, (the “Tax Act”) was enacted. Among the significant
changes to the U.S. Internal Revenue Code, the Tax Act lowers the U.S. federal corporate income tax rate (“Federal Tax Rate”)
from 35% to 21% effective January 1, 2018.
The
statutory tax rate is the percentage imposed by law; the effective tax rate is the percentage of income actually paid by a company
after taking into account tax deductions, exemptions, credits and operating loss carry forwards.
At
December 31, 2018 and 2017 deferred tax assets consist of the following:
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
Federal
loss carry forwards
|
|
$
|
922,850
|
|
|
$
|
963,833
|
|
Less:
valuation allowance
|
|
|
(922,850
|
)
|
|
|
(963,833
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The
Company has established a valuation allowance equal to the full amount of the deferred tax asset primarily due to uncertainty
in the utilization of the net operating loss carry forwards.
The
estimated net operating loss carry forwards of approximately $4,400,000 will be available based on the new carryover rules in
section 172(a) passed with the Tax Cuts and Jobs Acts.
NOTE
9 – RELATED PARTIES
In
January 2017 Mr. Ajjarapu and Mr. Patel suspended their executive salaries of $165,000 and $125,000, for a period of five and
six months, respectively. In January 2018, Mr. Ajjarapu and Mr. Patel’s executive salaries were amended to $200,000 and
$150,000, respectively. All of our executives are at-will employees or consultants. Each of Messrs. Ajjarapu and Patel are parties
to an at-will executive employment agreement.
The
Company owed management wages to Mr. Prashant Patel at December 31, 2018 of $0 and December 31, 2017 of $62,500, respectively.
In
October 2018 in connection with the acquisition of Community Specialty Pharmacy, LLC a $300,000 promissory note was issued to
Nikul Panchal, accruing interest a simple interest of 10%, interest payable annually, and principal payable at maturity on October
15, 2021.
NOTE
10 – COMMITMENTS AND CONTINGENCIES
The
Company leases two premises in Land O’ Lakes, Florida under an operating lease that expires in 2021 and in Tampa, Florida
under an operating lease that expires in 2023. Future minimum rental payments under these non-cancelable operating leases as of
December 31, 2018 are:
2019
|
|
$
|
156,024
|
|
2020
|
|
$
|
160,709
|
|
2021
|
|
$
|
165,506
|
|
2022
|
|
$
|
49,080
|
|
2023
|
|
$
|
41,934
|
|
Total
|
|
$
|
573,253
|
|
NOTE
11 – SEGMENT REPORTING
The
Company classifies its business interests into reportable segments which are Trxade, Inc., Community Specialty Pharmacy, LLC,
and Other. Operating segments are defined as the components of an enterprise about which separate financial information is available
that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.
Our 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.
Year
Ended December 31, 2018
|
|
Trxade,
Inc.
|
|
|
Community
Specialty Pharmacy, LLC
|
|
|
Other
|
|
Revenue
|
|
$
|
3,407,822
|
|
|
$
|
395,418
|
|
|
$
|
28,538
|
|
Gross
Profit
|
|
$
|
3,407,822
|
|
|
$
|
(34,971
|
)
|
|
$
|
9,878
|
|
Segment
Assets
|
|
$
|
822,412
|
|
|
$
|
112,123
|
|
|
$
|
1,293,052
|
|
Segment
Profit/Loss
|
|
$
|
1,371,615
|
|
|
$
|
(116,588
|
)
|
|
$
|
(1,245,989
|
)
|
The
Company had no reportable segments in 2017. See Note 12.
NOTE
12 – BUSINESS COMBINATION
On
October 15, 2018, the Company entered into and consummated the purchase of 100% of the equity interests of Community Specialty
Pharmacy, LLC, a Florida limited liability company, (“CSP”), pursuant to the terms and conditions of the Membership
Interest Purchase Agreement, entered into by and among the Company as the buyer, and CSP, and Nikul Panchal, the equity owner
of CSP (collectively, the “Seller”). The purchase price for the 100% equity interest in CSP was $300,000 in cash,
a promissory note issued by the Company of $300,000 (see Note 4), and warrants to purchase 405,507 shares of the Common Stock
of the Company which vested at the acquisition date, are exercisable for eight (8) years from the issuance date at a strike price
of $0.01 per share, and subject to exercise restrictions which lapse over a period of three (3) years.
The
Company recorded the acquisition under the guidance of ASC 805 “Business Combinations”. All the assets acquired and
liabilities assumed are recorded at their corresponding fair values. The excess of the purchase price over the net assets acquired
resulted in goodwill of $725,973. The following table is a summary of the allocation of the purchase price of $770,291 consisting
of $300,000 in cash, a promissory note from the Company of $300,000, and
the fair value
for the warrants issued calculated under the Black-Scholes calculation at $170,291.
|
|
Purchase
Price Allocation
|
|
Purchase
Price
|
|
$
|
770,291
|
|
Cash
|
|
|
(49,728
|
)
|
Accounts
Receivable
|
|
|
(114,899
|
)
|
Inventory
|
|
|
(76,156
|
)
|
Prepaid
|
|
|
(3,000
|
)
|
Accounts
Payable
|
|
|
199,312
|
|
Accrued
Expenses
|
|
|
153
|
|
Goodwill
|
|
$
|
725,973
|
|
The
accompanying unaudited pro forma combined statements of operations presents the accounts of Trxade and CSP for the years ended
December 31, 2018 and 2017, respectively, assuming the acquisition occurred on January 1, 2017.
2018
Summary Statement of Operations
|
|
Trxade
|
|
|
CSP
|
|
|
Combined
|
|
Revenue
|
|
$
|
3,436,360
|
|
|
$
|
2,387,636
|
|
|
$
|
5,823,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
125,626
|
|
|
$
|
(6,723
|
)
|
|
$
|
118,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income per common share – basic
|
|
$
|
0.00
|
|
|
|
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income per common share - diluted
|
|
$
|
0.00
|
|
|
|
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares - basic
|
|
|
32,260,622
|
|
|
|
|
|
|
|
32,260,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares - diluted
|
|
|
34,958,502
|
|
|
|
|
|
|
|
34,958,502
|
|
2017
Summary Statement of Operations
|
|
Trxade
|
|
|
CSP
|
|
|
Combined
|
|
Revenue
|
|
$
|
2,931,280
|
|
|
$
|
2,633,914
|
|
|
$
|
5,565,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
288,983
|
|
|
$
|
(63,132
|
)
|
|
$
|
225,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income per common share – basic
|
|
$
|
0.01
|
|
|
|
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income per common share - diluted
|
|
$
|
0.01
|
|
|
|
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares - basic
|
|
|
31,955,416
|
|
|
|
|
|
|
|
31,955,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares - diluted
|
|
|
34,086,251
|
|
|
|
|
|
|
|
34,086,251
|
|
NOTE
13 – SUBSEQUENT EVENTS
In
January 2019, Trxade Group, Inc. through its wholly owned subsidiary Alliance Pharma Solution, LLC (“Alliance”) entered
into a transaction to form SyncHealth MSO, LLC (“SyncHealth”). It will be owned by PanOptic Health, LLC (“PanOptic”)
and Alliance. Alliance will transfer $250,000 for the acquisition of the remaining 49% and the option to acquire the remaining
ownership from PanOptic shareholders. Pursuant to the operating agreement PanOptic initially owns 70% of SyncHealth and Alliance
owns 30%; however, pursuant to the Letter Agreement, PanOptic will transfer to Alliance an additional 6% of the SyncHealth units
on May 1, 2019, an additional 6% on August 1, 2019, an additional 7% on November 1, 2019 and at Alliance’s option, the balance
of 51% on January 31, 2020. The Company has transferred $250,000 and has a 30% equity interest.
In
February 2019, convertible promissory notes issued in 2015 for $150,000 were amended to reduce the conversion price from $0.85
to $0.50 and the remaining principal and accrued interest total of $211,983 were converted to 423,966 common shares.
In
February 2019, 16,666 of warrants issued in 2014 at $0.01 were converted for $166 to 16,666 of common shares.
Trxade
Group, Inc.
Consolidated
Balance Sheets
March
31, 2019 and December 31, 2018
(unaudited)
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
Assets
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
533,929
|
|
|
$
|
869,557
|
|
Accounts
Receivable, net
|
|
|
728,796
|
|
|
|
433,627
|
|
Inventory
|
|
|
62,223
|
|
|
|
79,966
|
|
Prepaid
Assets
|
|
|
166,443
|
|
|
|
82,927
|
|
Total
Current Assets
|
|
|
1,491,391
|
|
|
|
1,466,077
|
|
|
|
|
|
|
|
|
|
|
Property
Plant and Equipment, Net
|
|
|
13,756
|
|
|
|
15,006
|
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
21,636
|
|
|
|
20,531
|
|
Equity
method investment
|
|
|
221,028
|
|
|
|
-
|
|
Right
of use leased assets
|
|
|
825,697
|
|
|
|
-
|
|
Goodwill
|
|
|
725,973
|
|
|
|
725,973
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
3,299,481
|
|
|
$
|
2,227,587
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
$
|
411,766
|
|
|
$
|
400,544
|
|
Accrued
Liabilities
|
|
|
177,610
|
|
|
|
138,323
|
|
Current
Portion Lease Liabilities
|
|
|
79,072
|
|
|
|
-
|
|
Short
Term Convertible Notes Payable
|
|
|
-
|
|
|
|
181,500
|
|
Short
term Convertible Payable – Related Parties
|
|
|
140,000
|
|
|
|
140,000
|
|
Total
Current Liabilities
|
|
|
808,448
|
|
|
|
860,367
|
|
|
|
|
|
|
|
|
|
|
Long
Term Liabilities
|
|
|
|
|
|
|
|
|
Notes
Payable – Related Parties
|
|
|
522,552
|
|
|
|
522,552
|
|
Other
Long-term Liabilities – Leases
|
|
|
750,456
|
|
|
|
-
|
|
Total
Liabilities
|
|
|
2,081,456
|
|
|
|
1,382,919
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
Series
A Preferred Stock, $0.00001 par value; 10,000,000 shares authorized; none issued and outstanding as of March 31, 2019 and
December 31, 2018, respectfully
|
|
|
-
|
|
|
|
-
|
|
Common
Stock, $0.00001 par value; 100,000,000 shares authorized; 33,726,459 and 33,285,827 shares issued and outstanding, as of March
31, 2019 and December 31, 2018, respectively
|
|
|
337
|
|
|
|
332
|
|
Additional
Paid-in Capital
|
|
|
9,203,534
|
|
|
|
8,955,411
|
|
Retained
Deficit
|
|
|
(7,985,846
|
)
|
|
|
(8,111,075
|
)
|
Total
Shareholders’ Equity
|
|
|
1,218,025
|
|
|
|
844,668
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholders’ Equity
|
|
$
|
3,299,481
|
|
|
$
|
2,227,587
|
|
The
accompanying notes are an integral part of the unaudited consolidated financial statements.
Trxade
Group, Inc.
Consolidated Statements of Operations
Three Months Ended March 31, 2019 and 2018
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,512,521
|
|
|
$
|
852,923
|
|
Cost
of Sales
|
|
|
365,839
|
|
|
|
-
|
|
Gross
Profit
|
|
|
1,146,682
|
|
|
|
852,923
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
General
and Administrative
|
|
|
974,923
|
|
|
|
754,195
|
|
|
|
|
|
|
|
|
|
|
Operating
Income
|
|
|
171,759
|
|
|
|
98,728
|
|
|
|
|
|
|
|
|
|
|
Share
in Equity Losses in Investment
|
|
|
(28,972
|
)
|
|
|
-
|
|
Interest
Expense
|
|
|
(17,558
|
)
|
|
|
(16,459
|
)
|
Net
Income
|
|
$
|
125,229
|
|
|
$
|
82,269
|
|
|
|
|
|
|
|
|
|
|
Net
Income per Common Share – Basic:
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
Net
Income per Common Share – Diluted:
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
Weighted
average Common Shares Outstanding - Basic
|
|
|
33,364,167
|
|
|
|
31,985,827
|
|
|
|
|
|
|
|
|
|
|
Weighted
average Common Shares Outstanding - Diluted
|
|
|
35,988,334
|
|
|
|
34,063,391
|
|
The
accompanying notes are an integral part of the unaudited consolidated financial statements.
Trxade
Group, Inc.
Consolidated
Statements of Changes in Shareholders’ Equity (Deficit)
Three
Months Ended March 31, 2019 and March 31, 2018
(unaudited)
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Additional
Paid-in-
|
|
|
Accumulated
|
|
|
Total
Shareholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
Balance
at December 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
33,285,827
|
|
|
$
|
332
|
|
|
$
|
8,955,411
|
|
|
$
|
(8,111,075
|
)
|
|
$
|
844,668
|
|
Common
Stock issued for convertible debt and accrued interest
|
|
|
-
|
|
|
|
-
|
|
|
|
423,966
|
|
|
|
4
|
|
|
|
211,979
|
|
|
|
-
|
|
|
|
211,983
|
|
Warrants
exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
16,666
|
|
|
|
1
|
|
|
|
165
|
|
|
|
-
|
|
|
|
166
|
|
Options
Expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35,979
|
|
|
|
-
|
|
|
|
35,979
|
|
Net
Income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
125,229
|
|
|
|
126,229
|
|
March
31, 2019
|
|
|
-
|
|
|
|
-
|
|
|
|
33,726,459
|
|
|
|
337
|
|
|
|
9,203,534
|
|
|
|
(7,985,846
|
)
|
|
|
1,218,025
|
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Additional
Paid-in-
|
|
|
Accumulated
|
|
|
Total
Shareholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
(Deficit)
|
|
Balance
at December 31, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
|
31,985,827
|
|
|
$
|
320
|
|
|
$
|
7,807,860
|
|
|
$
|
(8,120,113
|
)
|
|
$
|
(311,933
|
)
|
Options
Expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,456
|
|
|
|
-
|
|
|
|
37,456
|
|
Net
Income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
82,269
|
|
|
|
82,269
|
|
March
31, 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
31,985,827
|
|
|
|
320
|
|
|
|
7,845,316
|
|
|
|
(8,037,844
|
)
|
|
|
(192,208
|
)
|
The
accompanying notes are an integral part of the unaudited consolidated financial statements.
Trxade
Group, Inc.
Consolidated
Statements of Cash Flows
Three
months ended March 31, 2019 and 2018
(unaudited)
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Operating
Activities:
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
125,229
|
|
|
$
|
82,269
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net income to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
Expense
|
|
|
1,250
|
|
|
|
-
|
|
Options
expense
|
|
|
35,979
|
|
|
|
37,456
|
|
Share
in Equity Losses in Investment
|
|
|
28,972
|
|
|
|
-
|
|
Amortization
of right to use asset
|
|
|
21,744
|
|
|
|
-
|
|
Amortization
of Debt Discount
|
|
|
-
|
|
|
|
152
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
Receivable
|
|
|
(295,169
|
)
|
|
|
(7,300
|
)
|
Prepaid
Assets and other Current Assets
|
|
|
(84,621
|
)
|
|
|
(50,211
|
)
|
Inventory
|
|
|
17,743
|
|
|
|
-
|
|
Lease
Liability
|
|
|
(17,913
|
)
|
|
|
-
|
|
Accounts
Payable
|
|
|
11,222
|
|
|
|
(12,864
|
)
|
Accrued
Liabilities and Other Liabilities
|
|
|
29,770
|
|
|
|
17,161
|
|
Net
Cash provided by (used in) operating activities
|
|
|
(125,794
|
)
|
|
|
66,663
|
|
|
|
|
|
|
|
|
|
|
Investing
Activities:
|
|
|
|
|
|
|
|
|
Purchase
of equity method investment
|
|
|
(210,000
|
)
|
|
|
-
|
|
Net
cash Used in Investing activities
|
|
|
(210,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Financing
Activities:
|
|
|
|
|
|
|
|
|
Repayments
of Short-term Convertible Debt – Related Parties
|
|
|
-
|
|
|
|
(50,000
|
)
|
Repayments
of Short-Term Promissory Notes
|
|
|
-
|
|
|
|
(10,739
|
)
|
Proceeds
from exercise of Warrants
|
|
|
166
|
|
|
|
-
|
|
Net
Cash provided by (used in) financing activities
|
|
|
166
|
|
|
|
(60,739
|
)
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in Cash
|
|
|
(335,628
|
)
|
|
|
5,924
|
|
Cash
at Beginning of the Year
|
|
|
869,557
|
|
|
|
183,914
|
|
Cash
at March 31, 2019 and 2018
|
|
$
|
533,929
|
|
|
$
|
189,838
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Cash Flow Information
|
|
|
|
|
|
|
|
|
Cash
Paid for Interest
|
|
$
|
1,704
|
|
|
$
|
8,930
|
|
Cash
Paid for Income Taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-Cash
Transactions
|
|
|
|
|
|
|
|
|
Common
Stock Issued for Conversion of Note and Accrued Interest
|
|
$
|
211,983
|
|
|
$
|
-
|
|
ROU
assets and operating lease obligations recognized
|
|
$
|
847,441
|
|
|
$
|
-
|
|
Equity
method investment recorded to accrued liabilities
|
|
$
|
40,000
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of the unaudited consolidated financial statements.
Trxade
Group, Inc.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2019 and 2018
NOTE
1 – ORGANIZATION AND BASIS OF PRESENTATION
Trxade
Group, Inc. (“we”, “our”, “Trxade”, the “Company”) owns 100% of Trxade, Inc.,
Integra Pharma Solutions, LLC, Community Specialty Pharmacy, LLC and Alliance Pharma Solutions, LLC. The merger of Trxade, Inc.
and Trxade Group, Inc. occurred in May 2013. Community Specialty Pharmacy was acquired in October 2018.
Trxade,
Inc. operates a web-based market platform that enables commerce among healthcare buyers and sellers of pharmaceuticals, accessories
and services.
Integra
Pharma Solutions, LLC is a licensed pharmaceutical wholesaler and sells brand, generic and non-drug products.
Community
Specialty Pharmacy, LLC is an accredited independent retail pharmacy with a focus on specialty medications. The company operates
with innovative pharmacy model which offers home delivery services to any patient thereby providing convenience.
Alliance
Pharma Solutions, LLC has developed same day Pharma delivery software – Delivmeds.com and invested in SyncHealth MSO, LLC
a managed services organization during January 2019.
Basis
of Presentation
- The accompanying unaudited interim consolidated financial statements of Trxade Group, Inc. have been prepared
in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and
Exchange Commission and should be read in conjunction with the audited financial statements and notes thereto contained in the
Company’s Form 10K.
In
the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial
position and the results of operations for the interim periods presented have been reflected herein. The results of operations
for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial
statements that would substantially duplicate the disclosures contained in the audited financial statements for the year ended
December 31, 2018 as reported in the Company’s Annual Report on Form 10K have been omitted.
Equity
Investments
– Investments are evaluated in accordance with ASC 323-10 Investments – Equity Method and Joint Ventures
– and the proper method for accounting implemented.
Income
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 while the dilutive effect of our
convertible notes is computed using the if-converted method.
The
following table sets forth the computation of basic and diluted Income per Share:
|
|
March
31, 2019
|
|
|
March
31, 2018
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
125,229
|
|
|
$
|
82,269
|
|
|
|
|
|
|
|
|
|
|
Numerator
for basic and diluted EPS - income available to common Shareholders
|
|
$
|
125,229
|
|
|
$
|
82,269
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator
for basic EPS – Weighted average shares
|
|
|
33,364,167
|
|
|
|
31,985,827
|
|
Dilutive
Effect of Warrants
|
|
|
2,624,167
|
|
|
|
2,077,564
|
|
Denominator
for diluted EPS – adjusted Weighted average shares and assumed Conversions
|
|
|
35,988,334
|
|
|
|
34,063,391
|
|
Basic
and Diluted income(loss) per common share
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
Recent
Accounting Pronouncements
– The Company has implemented all new relevant accounting pronouncements that are in effect
through the date of these financial statements. The pronouncements did not have any material impact on the financial statements
unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have
been issued that might have a material impact on its consolidated financial position or results of operations.
Effective
January 1, 2019, the Company adopted ASU No. 2016-02,
Leases (Topic 842
) (“ASU 2016-02”) using the required
modified retrospective approach. The most significant changes under the new guidance include clarification of the definition of
a lease, and the requirements for lessees to recognize a Right of Use (“ROU”) asset and a lease liability for all
qualifying leases with terms longer than twelve months in the consolidated balance sheet. In addition, under Topic 842, additional
disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing and uncertainty
of cash flows arising from leases. See Footnote #8 below for more detail on the Company’s accounting with respect to leases.
Effective
January 1, 2019, the Company adopted ASU No. 2018-07, Compensation – Stock Based Compensation (Topic 718): Improvements
to Nonemployee Share-Based Payment Accounting (“ASU 2018-7”), which aligns accounting for share-based payments issued
to nonemployees to that of employees under the existing guidance of Topic 718, with certain exceptions. This update supersedes
previous guidance for equity-based payments to nonemployees under Subtopic 505-50, Equity – Equity-Based Payments to Non-Employees.
The adoption of ASU 2018-07 did not have a material impact on the Company’s consolidated financial statements.
NOTE
2 – SHORT-TERM DEBT AND RELATED PARTIES DEBT
Convertible
Promissory Note
In
February 2019, convertible promissory notes issued in 2015 for $181,500 were amended to a conversion price of $0.50 and the principal
and accrued interest total of $211,983 were then converted to 423,966 common shares.
As
of March 31, 2019 and December 31, 2018, short-tern convertible notes payable has a balance of $0 and $181,500 respectively, net
of $0 unamortized debt discount.
Related
Party Convertible Promissory Note
As
of March 31, 2019, $40,000 in convertible promissory notes were due to Mr. Shilpa Patel, a relative of Mr. Prashant Patel. Simple
interest of 10% is payable at the maturity date of the note, which is August 8, 2019. Prior to maturity the note may be converted
for common stock at a conversion price of $1.50.
As
of March 31, 2019, $100,000 in convertible promissory notes were due to Mr. Nitel Patel, the brother of Mr. Prashant Patel. Simple
interest of 10% is payable at the maturity date of the notes, which is July 7, 2019. Prior to maturity the notes may be converted
for common stock at a conversion price of $0.62
NOTE
3 – LONG TERM DEBT – RELATED PARTIES
In
October 2018 in connection with the acquisition of Community Specialty Pharmacy, LLC a $300,000 promissory note was issued to
Nikul Panchal, accruing interest a simple interest of 10%, interest payable annually, and principal payable at maturity in October
2021.
As
of March 31, 2019, $122,552 and $100,000 in promissory notes was due to Mr. Prashant Patel and Mr. Suren Ajjarapu, respectively.
The notes are due July 1, 2020 and each bear an interest rate of 6%.
NOTE
4 – SHAREHOLDERS’ EQUITY
In
February 2019, convertible promissory notes issued in 2015 for $181,500 were amended to a conversion price of $0.50 and the principal
and accrued interest total of $211,983 were then converted to 423,966 common shares.
In
February 2019, 16,666 of warrants issued in 2014 at $0.01 per share were exercised for 16,666 of common shares. $166 was received
in cash.
NOTE
5 - WARRANTS
For
the three-month period ended March 31, 2019, 16,666 warrants were exercised, See NOTE 4 – SHAREHOLDERS’ EQUITY, none
were granted or forfeited.
The
Company’s outstanding and exercisable warrants as of March 31, 2019 are presented below:
|
|
Number
Outstanding
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Contractual
Life
in
Years
|
|
|
Intrinsic
Value
|
|
Warrants
Outstanding as of December 31, 2018
|
|
|
2,880,141
|
|
|
$
|
0.08
|
|
|
|
3.74
|
|
|
$
|
782,385
|
|
Warrants
granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Warrants
forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Warrants
exercised
|
|
|
(16,666
|
)
|
|
$
|
0.01
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
Outstanding as of March 31, 2019
|
|
|
2,863,475
|
|
|
$
|
0.08
|
|
|
|
3.32
|
|
|
$
|
1,233,358
|
|
NOTE
6 – OPTIONS
The
Company maintains a stock option plan under which certain employees are awarded option grants based on a combination of performance
and tenure. The stock option plan provides for the grant of up to 2,000,000 shares. All options may be exercised for a period
up to four 1/2 years following the grant date, after which they expire. Options are vested up to 5 years from the grant date.
For
the three-month period ended March 31, 2019, no options were issued, forfeited or expired due to employee resignation.
Total
compensation cost related to stock options was $35,979 and $37,456 for the three months ended March 31, 2019 and 2018 respectively.
The
following table represents stock option activity for the three-month period ended March 31, 2019:
|
|
Number
Outstanding
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Contractual
Life
in
Years
|
|
|
Intrinsic
Value
|
|
Options
Outstanding as of December 31, 2018
|
|
|
1,732,846
|
|
|
$
|
1.19
|
|
|
|
6.98
|
|
|
$
|
-
|
|
Options
Exercisable as of December 31, 2018
|
|
|
1,107,259
|
|
|
$
|
0.96
|
|
|
|
5.91
|
|
|
|
|
|
Options
granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options
forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options
expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
Outstanding as of March 31, 2019
|
|
|
1,732,846
|
|
|
$
|
0.82
|
|
|
|
6.74
|
|
|
$
|
-
|
|
Options
Exercisable as of March 31, 2019
|
|
|
1,128,946
|
|
|
$
|
0.95
|
|
|
|
5.71
|
|
|
$
|
-
|
|
NOTE
7 – LEASES
The
Company elected the practical expedient under ASU 2018-11 “Leases: Targeted Improvements” which allows the Company
to apply the transition provision for Topic 842 at the Company’s adoption date instead of at the earlies comparative period
presented in the financial statements. Therefore, the Company recognized and measured leases existing at January 1, 2019 but without
retrospective application. In addition, the Company elected the optional practical expedient permitted under the transition guidance
which allows the Company to carry forward the historical accounting treatment for existing leases upon adoption. No impact was
recorded to the beginning retained earnings for Topic 842. The Company has two operating leases for corporate offices. The following
table outlines the details:
|
|
Lease
1
|
|
|
Lease
2
|
|
Initial
Lease Term
|
|
|
December 2017 to December 2021
|
|
|
|
November 2018 to November 2023
|
|
Renewal
Term
|
|
|
January
2021 to December 2024
|
|
|
|
November 2023 to November 2028
|
|
Initial
Recognition of Right to use assets at January 1, 2019
|
|
$
|
534,140
|
|
|
$
|
313,301
|
|
Incremental
Borrowing Rate
|
|
|
10
|
%
|
|
|
10
|
%
|
The
table below reconciles the fixed component of the undiscounted cash flows for each of the first five years and the total remaining
years to the operating lease liabilities recorded in the Consolidated Balance Sheet as of March 31, 2019
Amounts
due within twelve months of March 31
|
|
|
|
2019
|
|
$
|
117,074
|
|
2020
|
|
|
160,709
|
|
2021
|
|
|
165,506
|
|
2022
|
|
|
170,473
|
|
2023
|
|
|
175,607
|
|
Thereafter
|
|
|
395,319
|
|
Total
minimum lease payments
|
|
|
1,184,688
|
|
Less:
effect of discounting
|
|
|
(355,160
|
)
|
Present
value of future minimum lease payments
|
|
|
829,528
|
|
Less:
current obligations under leases
|
|
|
79,072
|
|
Long-term
lease obligations
|
|
$
|
750,456
|
|
For
the three months ended March 31, 2019 amortization of assets were $21,744.
For
the three months ended March 31, 2019, amortization of liabilities were $17,913.
NOTE
8 – SEGMENT REPORTING
The
Company classifies its business interests into reportable segments which are Trxade, Community and Other.
Three
Months Ended March 31, 2019
|
|
Trxade,
Inc.
|
|
|
Community
Specialty Pharmacy, LLC
|
|
|
Other
|
|
|
Total
|
|
Revenue
|
|
$
|
1,043,810
|
|
|
$
|
442,423
|
|
|
$
|
26,288
|
|
|
$
|
1,512,521
|
|
Segment
Assets
|
|
$
|
1,474,690
|
|
|
$
|
186,496
|
|
|
$
|
1,638,295
|
|
|
$
|
3,299,481
|
|
Segment
Profit/Loss
|
|
$
|
542,151
|
|
|
$
|
(6,797
|
)
|
|
$
|
(410,125
|
)
|
|
$
|
125,229
|
|
The
Company had no reportable segments for three months ended March 31, 2018. See NOTE 9 – BUSINESS COMBINATION
NOTE
9 – BUSINESS COMBINATION
On
October 15, 2018, the Trxade Group, Inc. (“Company”) entered into and consummated the purchase of 100% of the equity
interests of Community Specialty Pharmacy, LLC, a Florida limited liability company, (“CSP”), pursuant to the terms
and conditions of the Membership Interest Purchase Agreement, entered into by and among the Company as the buyer, and CSP, and
Nikul Panchal, the equity owner of CSP (collectively, the “Seller”). The purchase price for the 100% equity interest
in CSP was $300,000 in cash, a promissory note from the Company of $300,000 (see Note 3), and warrants to purchase 405,507 shares
of the common stock of the Company which vested at the acquisition date, are exercisable for eight (8) years from the issuance
date at a strike price of $0.01 per share, and subject to exercise restrictions which lapse over three (3) years.
The
Company recorded the acquisition under ASC 805 “Business Combination. All the assets acquired and liabilities assumed are
recorded at their corresponding fair values. The excess of the purchase price over the net assets acquired resulted in goodwill
of $725,973. The following table is a summary of the allocation of the purchase price of $770,291 consisting of $300,000 in cash,
a promissory note from the Company of $300,000, and
the fair value of the warrants issued
calculated under the Black-Scholes calculation at $170,291.
|
|
Purchase
Price Allocation
|
|
Purchase
Price
|
|
$
|
770,291
|
|
Cash
|
|
|
(49,728
|
)
|
Accounts
Receivable
|
|
|
(114,899
|
)
|
Inventory
|
|
|
(76,156
|
)
|
Prepaid
|
|
|
(3,000
|
)
|
Accounts
Payable
|
|
|
199,312
|
|
Accrued
Expenses
|
|
|
153
|
|
Goodwill
|
|
$
|
725,973
|
|
The
accompanying unaudited pro forma statements of operations presents the accounts of Trxade and CSP for the three months ended March
31, 2018, assuming the acquisition occurred on January 1, 2018.
2018
Summary Statement of Operations
|
|
Trxade
|
|
|
CSP
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
852,923
|
|
|
$
|
645,217
|
|
|
$
|
1,498,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
82,269
|
|
|
$
|
76,985
|
|
|
$
|
159,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income per common share – basic
|
|
$
|
0.00
|
|
|
|
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income per common share - diluted
|
|
$
|
0.00
|
|
|
|
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares - basic
|
|
|
31,985,827
|
|
|
|
|
|
|
|
31,985,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares - diluted
|
|
|
34,063,391
|
|
|
|
|
|
|
|
34,063,391
|
|
NOTE
10 – EQUITY METHOD INVESTMENT
In
January 2019, Trxade Group, Inc. through its wholly owned subsidiary Alliance Pharma Solution, LLC (Alliance) entered into a transaction
to form SyncHealth MSO, LLC (“SyncHealth”). SyncHealth is owned by PanOptic Health, LLC (PanOptic) and Alliance. Alliance
contributed $250,000 for the acquisition of a 49% equity interest in SyncHealth and the option to acquire the remaining ownership
from PanOptic shareholders. Prior to March 31, 2019, $210,000 was paid with the remaining $40,000 paid in April 2019. Pursuant
to the operating agreement, PanOptic owns 70% of SyncHealth and Alliance owns 30%; however, pursuant to the Letter Agreement,
PanOptic will transfer to Alliance an additional 6% of SyncHealth’s membership units on May 1, 2019 , an additional
6% on August 1, 2019 and an additional 7% on November 1, 2019 and at Alliance’s option, the 51% balance on January 31, 2020,
upon transfer of Trxade Group, Inc. stock between 2,273,329 and 14,776,638 based on 2018 Gross Revenue Quotas.
In
accordance with ASC 323-10 Investments – Equity Method and Joint Ventures – the equity method for accounting has been
implemented.
For
the three months ended March 31, 2019, the Company recorded its equity share in the losses of SyncHealth amounting to $28,972.
NOTE
11 – SUBSEQUENT EVENTS
In
April 2019, 505,000 options were granted with an exercise price of $0.41 and a term of 10 years from the grant date. The options
vest over a period of one to five years.
31,949,712
SHARES OF COMMON STOCK
TRXADE
GROUP INC.
PROSPECTUS
June
20 , 2019
Neither
we nor the selling shareholders have authorized any dealer, salesperson or other person to give any information or to make any
representations not contained in this Prospectus or any Prospectus supplement. You must not rely on any unauthorized information.
This Prospectus is not an offer to sell these securities in any jurisdiction where an offer or sale is not permitted. The information
in this Prospectus is current as of the date of this Prospectus. You should not assume that this Prospectus is accurate as of
any other date.
Part
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
ITEM
13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The
following table sets forth an estimate of the registrant’s expenses, other than any sales commissions or discounts, in connection
with the issuance and distribution of the securities being registered hereby. All amounts are estimates except the SEC registration
fee.
Securities
and Exchange Commission registration fee
|
|
$
|
4,669.50
|
|
Accounting
fees and expenses
|
|
|
5,000.00
|
|
Legal
fees and expenses
|
|
|
37,500.00
|
|
Miscellaneous
|
|
|
10,000.00
|
|
Total
|
|
$
|
57,169.50
|
|
*
|
Indicates
expenses that have been estimated for filing purposes only.
|
ITEM
14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section
145 of the Delaware General Corporation Law authorizes a corporation’s board of directors to grant, and authorizes a court
to award, indemnity to officers, directors, and other corporate agents.
On
the completion of this offering, as permitted by Section 102(b)(7) of the Delaware General Corporation Law, the Company’s
amended and restated certificate of incorporation will include provisions that eliminate the personal liability of its directors
and officers for monetary damages for breach of their fiduciary duty as directors and officers.
In
addition, as permitted by Section 145 of the Delaware General Corporation Law, the amended and restated certificate of incorporation
and amended and restated bylaws of the Company will provide that:
|
●
|
The
Company shall indemnify its directors and officers for serving the Company in those capacities or for serving other business
enterprises at the Company’s request, to the fullest extent permitted by Delaware law. Delaware law provides that a
corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to
be in or not opposed to the best interests of the Company and, with respect to any criminal action or proceeding, had no reasonable
cause to believe such person’s conduct was unlawful.
|
|
|
|
|
●
|
The
Company may, in its discretion, indemnify employees and agents in those circumstances where indemnification is permitted by
applicable law.
|
|
|
|
|
●
|
The
Company is required to advance expenses, as incurred, to its directors and officers in connection with defending a proceeding,
except that such director or officer shall undertake to repay such advances if it is ultimately determined that such person
is not entitled to indemnification.
|
|
|
|
|
●
|
The
Company will not be obligated pursuant to the bylaws to indemnify a person with respect to proceedings initiated by that person,
except with respect to proceedings authorized by the Company’s board of directors or brought to enforce a right to indemnification.
|
|
|
|
|
●
|
The
rights conferred in the bylaws are not exclusive, and the Company is authorized to enter into indemnification agreements with
its directors, officers, employees and agents and to obtain insurance to indemnify such persons.
|
|
|
|
|
●
|
The
Company may not retroactively amend the bylaw provisions to reduce its indemnification obligations to directors, officers,
employees and agents.
|
The
Company’s policy is to enter into separate indemnification agreements with each of its directors and officers that provide
the maximum indemnity allowed to directors and executive officers by Section 145 of the Delaware General Corporation Law and also
to provide for certain additional procedural protections. The Company also maintains directors and officers insurance to insure
such persons against certain liabilities.
These
indemnification provisions and the indemnification agreements entered into between the Company and its officers and directors
may be sufficiently broad to permit indemnification of the Company’s officers and directors for liabilities (including reimbursement
of expenses incurred) arising under the Securities Act of 1933, as amended (Securities Act).
ITEM
15. RECENT SALES OF UNREGISTERED SECURITIES
During
the year ended 2016
Under
a Private Offer Memorandum, 200,000 shares of common stock were issued for $300,000 cash, which included 100,000 shares in June
2016 and 100,000 shares in August 2016. The common stock was sold at $1.50 per share. In connection with this common stock offering
warrants to purchase 50,000 shares of common stock were issued at a strike price of $0.01 and an expiration date of five years.
Warrants were exercised for 25,000 shares of common stock at $.01 for $240.
In
September and October 2016, convertible promissory notes were issued in the aggregate amount of $211,725 to a related party, Nitel
Patel, the brother of Prashant Patel, our President and major stockholder. The term of the notes was one year. Simple interest
of 10% is payable at the maturity date of the notes. Prior to maturity the notes may be converted for common stock at a conversion
price of $0.62. In connection with the notes, the holders of the notes were granted warrants to purchase 52,861 shares of common
stock. These warrants were issued at a strike price of $0.62 and an expiration date of five years from date of issuance.
In
October 2016 and December 2016 additional secured convertible promissory notes totaling $300,000 were issued in connection with
similarly issued notes, first issued in October 2015. The term of the notes was three years, and these notes, together with other
similarly issued notes, were cancelled in connection with the sale of Westminster (described in note 4) in December 2016. The
holder of the note was granted a warrant to purchase a total of 183,335 shares of common stock at a strike price of $0.01 and
an expiration date of five years from date of issuance.
On
December 31, 2016, the Company entered into and consummated the sale of 100% of its equity interests in its wholly-owned subsidiary,
Westminster Pharmaceuticals, LLC, a Delaware limited liability company (“Westminster”). The purchase price for Westminster
included the cancellation of $1,500,000 of indebtedness with the buyer under the secured promissory note and the issuance of a
warrant to purchase 1,500,000 shares of the Company’s common stock. The warrants were issued at a strike price of $0.01
per share and have an expiration date of five years from date of grant under the term and conditions of a warrant agreement.
Stock
Options were granted during 2016 to employees totaling 740,000 shares. These options vest in up to 5 years and are granted with
an exercise price of between $.75 - $1.60 and the expiration date up to five years after the last vesting period. The last options
expire December 2026.
During
the year ended 2017
In
January 2017, pursuant to a Private Offering Memorandum, 250,000 shares of common stock were issued for $250,000 cash. The common
stock was sold at $1.00 per share. In connection with this common stock offering warrants to purchase 87,500 shares of common
stock were issued with a strike price of $0.01 and an expiration date of five years.
In
February 2017, the Company issued 25,000 shares of common stock when warrants were exercised at $0.01 with strike price for $250.
In March 2017, the Company issued 50,000 shares of common stock for services performed for the Company and valued at fair value
of $12,500.
Stock
options were granted during 2017 to employees totaling 263,846 shares. These options vest over a period of 5 years, are granted
with an exercise price of between $0.41 - $1.02 per share and have a term of 10 years. The last options expire October 2027.
During
the year end 2018
In
July 2018, under a Private Offer Memorandum, 300,000 shares of common stock were issued for $300,000 cash. The common stock was
sold at $1.00 per share. In connection with this common stock offering, warrants to purchase 161,538 shares of common stock were
issued with a strike price of $0.01 and an expiration date of five years.
In
November 2018, under a Private Offer Memorandum, 1,000,000 shares of common stock were issued for $500,000 cash. The common stock
was sold at $0.50 per share.
In
2018, 161,538 warrants were issued related to common shares sold for cash, 10,000 were issued for renewal of convertible debt,
405,507 were issued related to the acquisition of Community Specialty Pharmacy, LLC, none were exercised and 435,000 were forfeited.
Stock
options were granted during 2018 to employees totaling 560,400 shares. These options vest over a period of 4 to 5 years, are granted
with an exercise price of between $0.41 - $1.02 per share and have a term of 10 years. The last options expire April 2028.
During
the Past Year
In
February 2019, convertible promissory notes issued in 2015 for $150,000 were amended to a conversion price of $0.50 and principal
and accrued interest totaling $211,983 were then converted to 423,966 common shares. In addition, 16,666 of warrants that were
issued in 2014 with an exercise price of $0.01 were converted to 16,666 of common shares.
In
April 2019, options to purchase 505,000 shares of common stock were approved by the Compensation Committee of the Board of Directors
and issued to employees, contractors and board members under our 2014 Equity Incentive Plan. The options were granted with an
exercise price of $0.41 and a term of 10 years from the grant date. The options vest over a period of one to five years.
The
use of proceeds associated with the above listed sales of unregistered securities was for general working capital purposes.
The
issuances and grants described above were exempt from registration pursuant to Rule 701 promulgated under Section 3(b) of the
Securities Act as transactions by an issuer not involving any public offering pursuant to benefit plans and contracts relating
to compensation as provided under Rule 701, or were exempt private placements under Section 4(2), Rule 506 of Regulation D and/or
Regulation S of the Securities Act, since the foregoing issuances and grants did not involve a public offering, the recipients
took the securities for investment and not resale, we took take appropriate measures to restrict transfer, and the recipients
were (a) “accredited investors”; (b) had access to similar documentation and information as would be required in a
Registration Statement under the Act; (c) were non-U.S. persons; and/or (d) were officers or directors of the Company.
ITEM
16. EXHIBITS
INDEX
TO EXHIBITS
|
|
|
|
Incorporated
by Reference
|
|
Filed
Herewith
|
Exhibit
No.
|
|
Description
|
|
Form
|
|
File
No.
|
|
Exhibit
|
|
Filing
Date
|
|
|
2.01
|
|
Membership
Interest Purchase Agreement
|
|
8-K
|
|
000-55218
|
|
2.01
|
|
Oct
16, 2018
|
|
|
2.02
|
|
Promissory
Note
|
|
8-K
|
|
000-55218
|
|
2.02
|
|
Oct
16, 2018
|
|
|
2.03
|
|
Revocable
Warrant
|
|
8-K
|
|
000-55218
|
|
2.03
|
|
Oct
16, 2018
|
|
|
2.04
|
|
Purchase
and Sale Agreement
|
|
8-K
|
|
000-55218
|
|
2.01
|
|
Jan
5, 2017
|
|
|
2.05
|
|
Warrant
Agreement
|
|
8-K
|
|
000-55218
|
|
2.02
|
|
Jan
5, 2017
|
|
|
3.01
|
|
Second
Amended and Restated Certificate of Incorporation of Trxade Group, Inc.
|
|
14C
|
|
000-55218
|
|
Appendix
A
|
|
May
18, 2015
|
|
|
3.02
|
|
Amended
and Restated Bylaws of Trxade Group, Inc.
|
|
10-12G/A
|
|
000-55218
|
|
3.1
|
|
July
24, 2014
|
|
|
5.1
|
|
Opinion
of Counsel
|
|
S-1
|
|
000-55218
|
|
5.1
|
|
filed
herewith
|
|
X
|
10.01
|
|
Indemnification
Agreement
|
|
10K
|
|
000-55218
|
|
10.1
|
|
March
22, 2019
|
|
|
10.02
|
|
Contribution
Agreement
|
|
8-K
|
|
000-55218
|
|
10.1
|
|
Jan
22, 2019
|
|
|
10.03
|
|
Technology
Integration Agreement
|
|
8-K
|
|
000-55218
|
|
10.2
|
|
Jan
22, 2019
|
|
|
10.04
|
|
Operating
Agreement
|
|
8-K
|
|
000-55218
|
|
10.3
|
|
Jan
22, 2019
|
|
|
10.05
|
|
Shareholder
Agreement
|
|
8-K
|
|
000-55218
|
|
10.4
|
|
Jan
22, 2019
|
|
|
10.06
|
|
Subscription
Agreement
|
|
8-K
|
|
000-55218
|
|
10.5
|
|
Jan
22, 2019
|
|
|
10.07
|
|
Letter
Agreement
|
|
8-K
|
|
000-55218
|
|
10.6
|
|
Jan
22, 2019
|
|
|
10.08
|
|
Form
of Securities Purchase Agreement
|
|
8-K
|
|
000-55218
|
|
10.1
|
|
Nov
14, 2018
|
|
|
10.09
|
|
Form
of Securities Purchase Agreement
|
|
8-K
|
|
000-55218
|
|
10.1
|
|
July
13, 2018
|
|
|
10.1
|
|
Form
of Investment Warrant Agreement
|
|
8-K
|
|
000-55218
|
|
10.2
|
|
July
13, 2018
|
|
|
10.11
|
|
Promissory
Note with Sansur Associates LLC
|
|
8-K
|
|
000-55218
|
|
10.1
|
|
July
5, 2017
|
|
|
10.12
|
|
Promissory
Note with Prashant Patel
|
|
8-K
|
|
000-55218
|
|
10.2
|
|
July
5, 2017
|
|
|
10.13
|
|
Form
of Indemnification Agreement
|
|
8-K
|
|
000-55218
|
|
10.1
|
|
Aug
25, 2016
|
|
|
10.14
|
|
Amendment
to Convertible Note Agreement and Note
|
|
8-K
|
|
000-55218
|
|
10.1
|
|
June
3, 2016
|
|
|
10.15
|
|
Amendment
to Ajjarapu Executive Employment Agreement
|
|
10-K
|
|
000-55218
|
|
10.14
|
|
March
28, 2016
|
|
|
10.16
|
|
Note
Purchase Agreement
|
|
8-K
|
|
000-55218
|
|
10.1
|
|
Oct
27, 2015
|
|
|
10.17
|
|
Form
of Note
|
|
8-K
|
|
000-55218
|
|
10.2
|
|
Oct
27, 2015
|
|
|
10.18
|
|
Form
of Warrant
|
|
8-K
|
|
000-55218
|
|
10.3
|
|
Oct
27, 2015
|
|
|
10.19
|
|
Indemnification
Agreement
|
|
8-K
|
|
000-55218
|
|
10.1
|
|
Mar
18, 2015
|
|
|
10.2
|
|
Indemnification
Agreement
|
|
8-K
|
|
000-55218
|
|
10.1
|
|
Dec
23, 2014
|
|
|
10.21
|
|
Subscription
Agreement
|
|
8-K
|
|
000-55218
|
|
10.1
|
|
Sep
26, 2014
|
|
|
10.22
|
|
Warrant
Agreement
|
|
8-K
|
|
000-55218
|
|
10.2
|
|
Sep
26, 2014
|
|
|
10.23
|
|
Registration
Rights Agreement
|
|
8-K
|
|
000-55218
|
|
10.3
|
|
Sep
26, 2014
|
|
|
10.24
|
|
RxTPL
Logistics Services Agreement
|
|
10-12G/A
|
|
000-55218
|
|
10.9
|
|
Sept
5, 2016
|
|
|
10.25
|
|
Employment
Agreement - Suren Ajjarapu
|
|
10-12G/A
|
|
000-55218
|
|
10.5
|
|
July
24, 2014
|
|
|
10.26
|
|
Employment
Agreement - Prashant Patel
|
|
10-12G/A
|
|
000-55218
|
|
10.6
|
|
July
24, 2014
|
|
|
10.27
|
|
Related
Parties - Promissory Note Patel
|
|
10-12G/A
|
|
000-55218
|
|
10.7
|
|
July
24, 2014
|
|
|
10.28
|
|
Related
Parties - Promissory Note Sansur
|
|
10-12G/A
|
|
000-55218
|
|
10.8
|
|
July
24, 2014
|
|
|
10.29
|
|
Bylaws
of Trxade Group, Inc.
|
|
10-12G
|
|
000-55218
|
|
3.1
|
|
June
11, 2014
|
|
|
10.30
|
|
2014
Equity Incentive Plan
|
|
10-12G
|
|
000-55218
|
|
10.3
|
|
June
11, 2014
|
|
|
10.31
|
|
Merger
and Reorganization Agreement of XCELLINK INTERNATIONAL, INC., a Delaware corporation (predecessor to Trxade Group, Inc. a
Delaware corporation) and Trxade Group, Inc., a Nevada corporation
|
|
10-12G
|
|
000-55218
|
|
10.1
|
|
June
11, 2014
|
|
|
10.32
|
|
Form
of Indemnification Agreement entered into between Trxade Group, Inc. and its directors and certain officers
|
|
10-12G
|
|
000-55218
|
|
10.4
|
|
June
11, 2014
|
|
|
10.33
|
|
Series
A Preferred Stock Purchase Agreement
|
|
10-12G
|
|
000-55218
|
|
10.2
|
|
June
11, 2014
|
|
|
14.1
|
|
Code
of Ethics
|
|
10-K
|
|
000-55218
|
|
14.1
|
|
Mar
23, 2015
|
|
|
23.1
|
|
Consent
of Independent Registered Public Accounting Firm
|
|
S-1/A
|
|
333-231246
|
|
23.1
|
|
filed
herewith
|
|
X
|
ITEM
17. UNDERTAKINGS
The
undersigned registrant hereby undertakes:
1.
|
To
file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
|
|
i.
|
To
include any Prospectus required by section 10(a)(3) of the Securities Act of 1933;
|
|
|
|
|
ii.
|
To
reflect in the Prospectus any facts or events arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information
set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low
or high end of the estimated maximum Offering range may be reflected in the form of Prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate
Offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.
|
|
|
|
|
iii.
|
To
include any material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
|
Provided
however, that:
|
A.
|
Paragraphs
(a)(1)(i) and (a)(1)(ii) of this section do not apply if the registration statement is
on Form S-8, and the information required to be included in a post-effective amendment
by those paragraphs is contained in reports filed with or furnished to the Commission
by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange
Act of 1934; and
|
|
|
|
|
B.
|
Paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this section do not apply if the registration statement
is on Form S-3 or Form F-3 and the information required to be included in a post-effective amendment by those paragraphs is contained
in reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that is contained in a form of Prospectus filed pursuant to Rule 424(b) that is part of the registration statement.
|
2.
|
That,
for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered therein, and this Offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
|
|
|
3.
|
To
remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold
at the termination of this Offering.
|
|
|
4.
|
If
the registrant is a foreign private issuer, to file a post-effective amendment to the registration statement to include any
financial statements required by Item 8.A. of Form 20-F at the start of any delayed offering or throughout a continuous offering.
Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be furnished, PROVIDED that
the registrant includes in the Prospectus, by means of a post-effective amendment, financial statements required pursuant
to this paragraph (a)(4) and other information necessary to ensure that all other information in the Prospectus is at least
as current as the date of those financial statements. Notwithstanding the foregoing, with respect to registration statements
on Form F-3, a post-effective amendment need not be filed to include financial statements and information required by Section
10(a)(3) of the Act or Rule 3-19 of this chapter if such financial statements and information are contained in periodic reports
filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the Form F-3.
|
5.
|
That,
for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
|
|
i.
|
If
the registrant is relying on Rule 430B (§230.430B of this chapter):
|
|
A.
|
Each
Prospectus filed by the registrant pursuant to Rule 424(b)(3)shall be deemed to be part of the registration statement as of
the date the filed Prospectus was deemed part of and included in the registration statement; and
|
|
|
|
|
B.
|
Each Prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration
statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of
providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in
the registration statement as of the earlier of the date such form of Prospectus is first used after effectiveness or the date
of the first contract of sale of securities in this Offering described in the Prospectus. As provided in Rule 430B, for liability
purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date
of the registration statement relating to the securities in the registration statement to which that Prospectus relates, and this
Offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that
no statement made in a registration statement or Prospectus that is part of the registration statement or Prospectus that is part
of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or
modify any statement that was made in the registration statement or Prospectus that was part of the registration statement or made
in any such document immediately prior to such effective date; or
|
|
ii.
|
If the registrant is subject to Rule 430C, each Prospectus filed pursuant to Rule 424(b) as part of a registration
statement relating to an offering, other than registration statements relying on Rule 430B or other than Prospectuses filed in
reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used
after effectiveness. Provided, however, that no statement made in a registration statement or Prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that
was made in the registration statement or Prospectus that was part of the registration statement or made in any such document immediately
prior to such date of first use.
|
6.
|
That,
for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial
distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned
registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the
purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned
registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
|
|
i.
|
Any
preliminary Prospectus or Prospectus of the undersigned registrant relating to this Offering required to be filed pursuant
to Rule 424;
|
|
|
|
|
ii.
|
Any
free writing Prospectus relating to this Offering prepared by or on behalf of the undersigned registrant or used or referred
to by the undersigned registrant;
|
|
|
|
|
iii.
|
The
portion of any other free writing Prospectus relating to this Offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the undersigned registrant; and
|
|
|
|
|
iv.
|
Any
other communication that is an offer in this Offering made by the undersigned registrant to the purchaser.
|
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant
of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the city of Land O’ Lakes, State of Florida on the 20th
day of June, 2019.
|
TRXADE
GROUP, INC.
|
|
|
|
|
/s/
Suren Ajjarapu
|
|
By:
|
Suren
Ajjarapu, President, Chief Executive and Principal Executive Officer, Chief Financial and Principal Financial Officer, Principal
Accounting Officer, Treasurer and Chairman of the Board of Directors
|
Pursuant
to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons
in the capacities and on the date indicated.
Signature(s)
|
|
Title(s)
Date
|
|
|
|
|
/s/
Suren Ajjarapu
|
|
June
20 , 2019
|
By:
|
Suren
Ajjarapu
|
|
President,
Chief Executive and Principal Executive Officer, Chief Financial and Principal Financial Officer, Principal Financial Accounting
Officer, Treasurer and Chairman of the Board of Directors
|
POWER
OF ATTORNEY
KNOW
ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Mr. Suren Ajjarapu
acting with full powers of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities,
to sign any and all amendments to this Registration Statement on Form S-1 (including post-effective amendments), and to sign any
registration statement for the same offering covered by this Registration Statement that is to be effective upon filing pursuant
to Rule 462(b) promulgated under the Securities Act, and all post-effective amendments thereto, and to file the same, with all
exhibits thereto and all documents in connection therewith, with the SEC, granting unto said attorneys-in-fact and agents, with
full power of each to act alone, full power and authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith, as fully for all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or his or their substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933 this registration statement has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Suren Ajjarapu
|
|
Chairman
of the Board, Chief Executive Officer and Secretary
|
|
June
20 , 2019
|
Suren
Ajjarapu
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
/s/
Howard A. Doss
|
|
Chief
Financial Officer (Principal Financial and Accounting Officer)
|
|
June
20 , 2019
|
Howard
A. Doss
|
|
|
|
|