As
filed with the Securities and Exchange Commission on October 15, 2019
Registration
No. 333-
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
S-1
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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5122
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46-3673928
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(State
or other jurisdiction of
incorporation
or organization)
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(Primary
Standard Industrial
Classification
Code Number)
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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
(Address, including zip code, and telephone number,
including
area code, of registrant’s principal executive offices)
Suren
Ajjarapu
Chief Executive Officer
Trxade Group, Inc.
3840 Land O’ Lakes Boulevard
Land
O’ Lakes, Florida 34639
(800)
261-0281
(Name,
address, including zip code, and telephone number,
including
area code, of agent for service of process)
Copies
To:
David
M. Loev, Esq.
John
S. Gillies, Esq.
The
Loev Law Firm, PC
6300
West Loop South, Suite 280
Bellaire,
Texas 77401
Telephone:
(713) 524-4110
Facsimile:
(713) 524-4122
Email:
dloev@loevlaw.com; john@loevlaw.com
Approximate
date of commencement of proposed sale to the public: From time to time after this Registration Statement becomes effective.
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, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated
filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2
of the Exchange Act.
Large
accelerated filer [ ]
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Accelerated
filer [ ]
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Non-accelerated
filer [X]
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Smaller
reporting company [X]
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Emerging
growth company [X]
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If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. [ ]
CALCULATION
OF REGISTRATION FEE
Title
of Each Class of
Securities to be Registered
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Amount
to be
Registered(1)
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Proposed Maximum
Offering Price
Per Share(2)
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Proposed Maximum
Aggregate
Offering Price
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Amount of
Registration Fee
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Common
Stock, $0.00001 par value per share
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4,910,000
shares
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$
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1.03
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$
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5,057,300.00
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$
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656.44
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(1)
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Pursuant
to Rule 416 under the Securities Act of 1933, as amended (the “Securities Act”), this Registration Statement
shall also cover any additional shares of the Registrant’s common stock that become issuable by reason of any stock
split, stock dividends, recapitalization, or other similar transactions.
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(2)
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Estimated
solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under the Securities Act based upon the
last sale reported of the Registrant’s common stock as reported on the OTCQB Market on October 11, 2019.
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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 or until the Registration Statement shall become effective on
such date as the Securities and Exchange Commission acting pursuant to said Section 8(a), may determine.
SUBJECT
TO COMPLETION, DATED OCTOBER 15, 2019
TRXADE
GROUP, INC.
4,910,000
Shares of Common Stock
This
prospectus relates to the resale by the selling stockholders named herein of 4,910,000 shares of common stock, par value
$0.00001 per share, which we refer to as common stock, of Trxade Group, Inc., which we refer to as us, we, the Company, the Registrant
or Trxade, representing 4,910,000 outstanding shares of common stock, held by the selling stockholders named herein. The
shares of common stock being offered by the selling stockholders (which term includes their respective donees, pledgees, transferees,
or other successors-in-interest) have been issued pursuant to private offering transactions which closed on July 30, 2019 (2,000,000
shares) and September 30, 2019 (2,910,000 shares), which are described in greater detail under “Private
Placement of Common Stock”, beginning on page 28. The selling stockholders are described in greater detail under
“Selling Stockholders”, beginning on page 33.
The
shares of common stock described in this prospectus may be offered for sale from time to time by the selling stockholders named
herein. The selling stockholders may offer and sell the shares in a variety of transactions as described under the heading “Plan
of Distribution” beginning on page 31, including transactions on any stock exchange, market or facility on which
our common stock may be traded, in privately negotiated transactions or otherwise at market prices prevailing at the time of sale,
at prices related to such market prices or at negotiated prices. We have no basis for estimating either the number of shares of
our common stock that will ultimately be sold by the selling stockholders or the prices at which such shares will be sold.
We
are not selling any securities covered by this prospectus and will not receive any of the proceeds from the sale of such shares
by the selling stockholders. We are bearing all of the expenses in connection with the registration of the shares of common stock,
but all selling and other expenses incurred by the selling stockholders, including commissions and discounts, if any, attributable
to the sale or disposition of the shares will be borne by them.
The
selling stockholders and intermediaries through whom such securities are sold may be deemed “underwriters”
within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), with respect to the securities
offered hereby, and any profits realized or commissions received may be deemed underwriting compensation.
A
current prospectus must be in effect at the time of the sale of the shares of common stock discussed above. The selling stockholders
will be responsible for any commissions or discounts due to brokers or dealers. We will pay all of the other offering expenses.
Each
selling stockholder or dealer selling the common stock is required to deliver a current prospectus upon the sale. In addition,
for the purposes of the Securities Act of 1933, as amended, the selling stockholders may be deemed to be underwriters.
Our
common stock will be considered a “penny stock”, and subject to the requirements of Rule 15g-9, promulgated
under the Exchange Act of 1934, as amended. “Penny stock” is generally defined as any equity security not traded
on an exchange or quoted on NASDAQ that has a market price of less than $5.00 per share. Under such rule, broker-dealers who recommend
low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice
requirements, including a requirement that they make an individualized written suitability determination for the purchaser and
receive the purchaser’s consent prior to the transaction. The Securities Enforcement Remedies and Penny Stock Reform Act
of 1990, also requires additional disclosure in connection with any trades involving a stock defined as a penny stock.
The
required penny stock disclosures include the required delivery, prior to any transaction, of a disclosure schedule explaining
the penny stock market and the risks associated with it. Such requirements could severely limit the market liquidity of the securities
and the ability of purchasers to sell their securities in the secondary market. In addition, various state securities laws impose
restrictions on transferring “penny stocks” and as a result, investors in the common stock may have their ability
to sell their shares of the common stock impaired.
We
are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012 (the
“JOBS Act”) and, as such, have elected to comply with certain reduced public company reporting requirements
for future filings.
Our
common stock is quoted on the OTCQB Market under the symbol “TRXD”. The closing price for our common stock
on October 11, 2019, was $1.10 per share.
Investing
in our securities involves risks. You should carefully consider the risk factors beginning on page 8 of this prospectus
and set forth in the documents incorporated by reference herein before making any decision to invest in our securities.
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 8. 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 common stock is considered an illiquid investment and subject to many risks.
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 , 2019.
TABLE
OF CONTENTS
ABOUT
THIS PROSPECTUS
This
prospectus is part of a registration statement that we filed with the Securities and Exchange Commission (the “SEC”
or the “Commission”). This prospectus relates to the resale by the selling stockholders listed in this prospectus
of up to 4,910,000 shares of our common stock. We will not receive any proceeds from the resale of any of the shares by
the selling stockholders. We have agreed to pay for the expenses related to the registration of the shares being offered by the
selling stockholders.
You
should read this prospectus, together with additional information described under “Where You Can Find More Information”,
beginning on page 75, before making an investment decision.
This
prospectus does not contain all the information provided in the registration statement we filed with the SEC. For further information
about us or our securities offered hereby, you should refer to that registration statement, which you can obtain from the SEC
as described below under “Where You Can Find More Information”, beginning on page 75.
You
should rely only on the information contained in this prospectus. We have not authorized any other person to provide you with
different information. If anyone provides you with different or inconsistent information, you should not rely on it. This
prospectus is not an offer to sell or the solicitation of an offer to buy any securities other than the securities to which it
relates and is not an offer to sell or the solicitation of an offer to buy securities in any jurisdiction to any person to whom
it is unlawful to make an offer or solicitation in that jurisdiction.
We
will disclose any material changes in our affairs in a post-effective amendment to the registration statement of which this prospectus
is a part, or a prospectus supplement. We do not imply or represent by delivering this prospectus that Trxade Group, Inc., or
its business, financial condition or results of operations, are unchanged after the date on the front of this prospectus is correct
at any time after such date, provided that we will amend or supplement this prospectus to disclose any material events which occur
after the date of such prospectus to the extent required by applicable law.
Persons
outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions
relating to, the offering of the securities and the distribution of this prospectus outside of the United States.
Our
logo and some of our trademarks and tradenames are used in this prospectus. This prospectus also includes trademarks, tradenames
and service marks that are the property of others. Solely for convenience, trademarks, tradenames and service marks referred to
in this prospectus may appear without the ®, ™ and SM symbols. References to our trademarks, tradenames and service
marks are not intended to indicate in any way that we will not assert to the fullest extent under applicable law our rights or
the rights of the applicable licensors if any, nor that respective owners to other intellectual property rights will not assert,
to the fullest extent under applicable law, their rights thereto. We do not intend the use or display of other companies’
trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
The
market data and certain other statistical information used throughout this prospectus are based on independent industry publications,
reports by market research firms or other independent sources that we believe to be reliable sources. Industry publications and
third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to
be reliable, although they do not guarantee the accuracy or completeness of such information. We are responsible for all of the
disclosure contained in this prospectus, and we believe these industry publications and third-party research, surveys and studies
are reliable. While we are not aware of any misstatements regarding any third-party information presented in this prospectus,
their estimates, in particular, as they relate to projections, involve numerous assumptions, are subject to risks and uncertainties,
and are subject to change based on various factors, including those discussed under the section entitled “Risk Factors”
beginning on page 8 of this prospectus. These and other factors could cause our future performance to differ materially
from our assumptions and estimates. Some market and other data included herein, as well as the data of competitors as they relate
to Trxade Group, Inc., is also based on our good faith estimates.
Unless
the context otherwise requires, references in this prospectus to “we,” “us,” “our,”
the “Registrant”, the “Company,” “Trxade” and “Trxade Group”
refer to Trxade Group, Inc. and its subsidiaries. In addition, unless the context otherwise requires, “Exchange Act”
refers to the Securities Exchange Act of 1934, as amended; “SEC” or the “Commission” refers
to the United States Securities and Exchange Commission; and “Securities Act” refers to the Securities Act
of 1933, as amended. All dollar amounts in this prospectus are in U.S. dollars unless otherwise stated. You should read the entire
prospectus before making an investment decision to purchase our securities.
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 and Section 21E of the Securities 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.
You
should also consider carefully the statements under “Risk Factors” and other sections of this prospectus, which address
additional facts that could cause our actual results to differ from those set forth in the forward-looking statements. We caution
investors not to place significant reliance on the forward-looking statements contained in this prospectus.
PROSPECTUS
SUMMARY
The
following summary highlights material information found in more detail elsewhere in the prospectus. It does not contain all of
the information you should consider. As such, before you decide to buy our common stock, in addition to the following summary,
we urge you to carefully read the entire prospectus, especially the risks of investing in our common stock as discussed under
“Risk Factors.”
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 (800) 261-0281.
We began operations as
Trxade Group, Inc., a Nevada corporation (“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 focusing on serving the nation’s approximately 22,000 independent pharmacies
with an annual purchasing power of $76 billion (according to the National Community of Pharmacists Association’s 2018 Digest).
Our national supplier partners are able to fulfill orders on our platform immediately and provide pharmacies with cost saving
payment terms and next day delivery capabilities in compliance with all state boards of pharmacy and federal regulations.
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 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 former 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 have continued 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, as part of the SyncHealth MSO, LLC joint venture, technology was
being developed to assist independent retail pharmacies to better compete with large national pharmacies on exposure,
pricing, distribution and logistics. To date, we have not realized any income from the technology and presently
we are in discussions to dissolve this relationship.
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 since 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, and http://www.delivmeds.com, information
on our website is not incorporated by reference into this prospectus.
Status
of 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 cost 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 to continuously 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.
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.
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 Technology. Early
2019 as part of the SyncHealth MSO, LLC joint venture technology development began that would
assist independent retail pharmacies to compete better with large national pharmacies on exposure, pricing,
distribution and logistics. To date, we have not realized any income from this product and currently we are
in discussions to dissolve this relationship.
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 Drug Enforcement Administration (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
in branded medications lost their patent protection from 2008 to 2018, according to an article in Drug Topics from August 2004,
called “Big Pharma uses effective strategies to battle generic competitors”, by Martin Sipkoff), 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 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.
Penny
Stock Rules
Our
common stock will be considered a “penny stock”, and subject to the requirements of Rule 15g-9, promulgated
under the Exchange Act. “Penny stock” is generally defined as any equity security not traded on an exchange
or quoted on NASDAQ that has a market price of less than $5.00 per share. Under such rule, broker-dealers who recommend low-priced
securities to persons other than established customers and accredited investors must satisfy special sales practice requirements,
including a requirement that they make an individualized written suitability determination for the purchaser and receive the purchaser’s
consent prior to the transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990, also requires additional
disclosure in connection with any trades involving a stock defined as a penny stock.
The
required penny stock disclosures include the required delivery, prior to any transaction, of a disclosure schedule explaining
the penny stock market and the risks associated with it. Such requirements could severely limit the market liquidity of the securities
and the ability of purchasers to sell their securities in the secondary market. In addition, various state securities laws impose
restrictions on transferring “penny stocks” and as a result, investors in the common stock may have their ability
to sell their shares of the common stock impaired.
Implications
of Being an Emerging Growth Company
As
a company with less than $1.0 billion in revenue during our last completed fiscal year, we qualify as an “emerging growth
company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company
may take advantage of certain reduced reporting requirements that are otherwise applicable generally to public companies. These
reduced reporting requirements include:
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an
exemption from compliance with the auditor attestation requirement on the effectiveness of our internal control over financial
reporting;
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an
exemption from compliance with any requirement that the Public Company Accounting Oversight Board, or PCAOB, may adopt regarding
mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit
and the financial statements;
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reduced
disclosure about our executive compensation arrangements;
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an
exemption from the requirements to obtain a non-binding advisory vote on executive compensation or stockholder approval of
any golden parachute arrangements;
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extended
transition periods for complying with new or revised accounting standards; and
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the
ability to present more limited financial data, including presenting only three years of selected financial data in the registration
statement, of which this prospectus is a part.
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We
will remain an emerging growth company until the earliest to occur of: (i) the end of the first fiscal year in which our annual
gross revenue is $1.0 billion or more; (ii) the end of the fiscal year in which the market value of our common stock that is held
by non-affiliates is at least $700 million as of the last business day of our most recently completed second fiscal quarter; (iii)
the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities;
and (iv) the last day of the end of our 2024 fiscal year (5 years from our first public offering). We may choose to take advantage
of some, but not all, of the available benefits under the JOBS Act.
We
are choosing to irrevocably “opt out” of the extended transition periods available under Section 107 of the
JOBS Act for complying with new or revised accounting standards, but we currently intend to take advantage of the other exemptions
discussed above. Accordingly, the information contained herein may be different than the information you receive from other public
companies in which you invest.
THIS
OFFERING
The
selling stockholders named in this prospectus may offer and sell up to 4,910,000
shares of our common stock,
par value $0.00001 per share. Our common stock is currently quoted on the OTC Markets Group Inc.’s OTCQB® tier
Venture Market (the “OTCQB”) under the trading symbol, “TRXD.” We
will not receive any of the proceeds of sales by our selling stockholders of any of the common stock covered by this prospectus.
Shares
of Common Stock Offered by the Selling Stockholders:
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4,910,000
shares of common stock.
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Shares of Common Stock Outstanding Prior to, and after, this Offering:
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39,986,459 shares of common stock.
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Use
of Proceeds:
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We
will not receive any of the proceeds from the sale or other disposition by the selling stockholders or their transferees of
the shares of common stock covered hereby.
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Risk
factors:
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The
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.
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Trading
symbol:
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Our
common stock is quoted on the OTCQB under the trading symbol “TRXD”.
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In
this prospectus, unless otherwise indicated, the number of shares of our common stock and other capital stock, and the other information
based thereon, is as of October 11, 2019 and excludes:
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shares
issuable upon the exercise of outstanding warrants, options and convertible notes.
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Additionally,
unless otherwise stated, all information in this prospectus:
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reflects
all currency in United States dollars.
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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 prospectus. 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.
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 six-month periods ended June 30, 2019 and 2018 were $3,428,935 and $1,690,611, respectively.
We
incurred positive net income for the years ended December 31, 2018 and 2017 of $9,038 and $288,983, respectively and $183,210
and $102,782 for the six months ended June 30, 2019 and 2018, 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.
We
may be subject to claims that we violated intellectual property rights of others, which are extremely costly to defend and could
require us to pay significant damages and limit our ability to operate.
Companies
in the Internet and technology industries, and other patent and trademark holders seeking to profit from royalties in connection
with grants of licenses, own large numbers of patents, copyrights, trademarks and trade secrets and frequently enter into litigation
based on allegations of infringement or other violations of intellectual property rights. There may be intellectual property rights
held by others, including issued or pending patents and trademarks, that cover significant aspects of our technologies, content,
branding or business methods. Any intellectual property claims against us, regardless of merit, could be time-consuming and expensive
to settle or litigate and could divert our management’s attention and other resources. These claims also could subject us
to significant liability for damages and could result in our having to stop using technology, content, branding or business methods
found to be in violation of another party’s rights. We might be required or may opt to seek a license for rights to intellectual
property held by others, which may not be available on commercially reasonable terms, or at all. If we cannot license or develop
technology, content, branding or business methods for any allegedly infringing aspect of our business, we may be unable to compete
effectively. Even if a license is available, we could be required to pay significant royalties, which could increase our operating
expenses. We may also be required to develop alternative non-infringing technology, content, branding or business methods, which
could require significant effort and expense and be inferior. Any of these results could harm our operating results.
Our
websites may encounter technical problems and service interruptions.
Our
websites may in the future experience slower response times or interruptions as a result of increased traffic or other reasons.
These delays and interruptions resulting from failure to maintain Internet service connections to our site could frustrate visitors
and reduce our future web site traffic, which could have a material adverse effect on our business.
If
we do not successfully implement any acquisition strategies, our operating results and prospects could be harmed.
We
face competition within our industry for acquisitions of businesses, technologies and assets, and, in the future, such competition
may become more intense. As such, even if we are able to identify an acquisition that we would like to consummate, we may not
be able to complete the acquisition on commercially reasonable terms or at all because of such competition. Furthermore, if we
enter into negotiations that are not ultimately consummated, those negotiations could result in diversion of management time and
significant out-of-pocket costs. Even if we are able to complete such acquisitions, we may additionally expend significant amounts
of cash or incur substantial debt to finance them, which indebtedness could result in restrictions on our business and use of
available cash. In addition, we may finance or otherwise complete acquisitions by issuing equity or convertible debt securities,
which could result in dilution of our existing stockholders. If we fail to evaluate and execute acquisitions successfully, we
may not be able to realize their benefits. If we are unable to successfully address any of these risks, our business, financial
condition or operating results could be harmed.
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 such commitments may not be obtained on favorable terms, if at all. Any
additional equity financing will be dilutive to our stockholders, and debt financing, if available, may involve restrictive covenants
with respect to dividends, raising future capital, and other financial and operational matters. If we are unable to obtain additional
financing as needed, we may be required to reduce the scope of our operations or our anticipated expansion, which could have a
material adverse effect on us.
We
have identified a material weakness in our internal control over financial reporting which could, if not remediated, adversely
affect our ability to report our financial condition, cash flows and results of operations in a timely and accurate manner and/or
increase the risk of future misstatements, which could have a material adverse effect on our business, financial condition, cash
flows and results of operations and could cause the market value of our shares of common stock and/or debt securities to decline.
Our
management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined
in Rule 13a-15(f) under the Exchange Act. Based on reviews conducted by management, we have concluded that a material weakness
in the Company’s internal controls over financial reporting. A material weakness is a deficiency, or a combination of deficiencies,
in internal controls over financial reporting such that there is a reasonable possibility that a material misstatement of our
annual or interim financial statements will not be prevented or detected on a timely basis.
The
Company has identified certain remediation actions and is in the process of implementing them, but such efforts are not complete
and remain ongoing. If we do not complete our remediation in a timely manner or if our remedial measures are insufficient to address
the material weaknesses, or if additional material weaknesses in our internal controls are discovered or occur in the future,
it may materially adversely affect our ability to report our financial condition and results of operations in a timely and accurate
manner and there will continue to be an increased risk of future misstatements. Although we regularly review and evaluate internal
controls systems to allow management to report on the effectiveness of our internal controls over financial reporting, we may
discover additional weaknesses in our internal controls over financial reporting or disclosure controls and procedures. The next
time we evaluate our internal controls over financial reporting and disclosure controls and procedures, if we identify one or
more new material weaknesses or have been unable to timely remediate our existing material weaknesses, we would be unable to conclude
that our internal controls over financial reporting or disclosure controls and procedures are effective. If we are unable to conclude
that our internal controls over financial reporting or our disclosure controls and procedures are effective, or if our independent
registered public accounting firm expresses an opinion that our internal controls over financial reporting is ineffective, we
may not be able to report our financial condition and results of operations in a timely and accurate manner, which could have
a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market
value of our shares of common stock to decline. In addition, any potential future restatements could subject us to additional
adverse consequences, including sanctions by the SEC, stockholder litigation and other adverse actions. Moreover, we may be the
subject of further negative publicity focusing on such financial statement adjustments and resulting restatement and negative
reactions from our stockholders, creditors or others with whom we do business. The occurrence of any of the foregoing could have
a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market
value of our shares of common stock to decline.
Failure
to adequately manage our growth may seriously harm our business.
We
plan to grow our business as rapidly as possible. If we do not effectively manage our growth, the quality of our services may
suffer, which could negatively affect our reputation and demand for our services. Our growth may place a significant strain on
our managerial, administrative, operational, and financial resources and our infrastructure. Our future success will depend, in
part, upon the ability of our senior management to manage growth effectively. This will require us to, among other things:
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implement
additional management information systems;
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further
develop our operating, administrative, legal, financial, and accounting systems and controls;
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hire
additional personnel;
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develop
additional levels of management within our company;
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locate
additional office space;
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maintain
close coordination among our engineering, operations, legal, finance, sales and marketing, and client service and support
organizations; and
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manage
our expanding international operations.
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As
a result, we may lack the resources to deploy our services on a timely and cost-effective basis. Failure to accomplish any of
these requirements could impair our ability to deliver services in a timely fashion or attract and retain new customers.
The
public health crisis involving the abuse of prescription opioid pain medication could have a material negative effect on our business.
Our
Pharmaceutical segment distributes prescription opioid pain medications. In recent years, the abuse of prescription opioid pain
medication has become a public health crisis.
A
significant number of counties, municipalities and other plaintiffs, including a number of state attorneys general, have filed
lawsuits against pharmaceutical manufacturers, pharmaceutical wholesale distributors, retail chains and others relating to the
manufacturing, marketing or distribution of prescription opioid pain medications. The defense and resolution of future lawsuits
and events relating to these lawsuits could have a material adverse effect on our results of operations, financial condition,
cash flows or liquidity or have adverse reputational or operational effects on our business.
Other
legislative, regulatory or industry measures related to the public health crisis involving the abuse of prescription opioid pain
medication and the distribution of these medications could affect our business in ways that we may not be able to predict. For
example, several states have now adopted taxes or other fees on the sale of opioids, and several other states have proposed similar
legislative initiatives. These laws and proposals vary in the tax amounts imposed and the means of calculation. Liabilities for
taxes or assessments under any such laws could have an adverse impact on our results of operations unless we are able to mitigate
them through operational changes or commercial arrangements where permitted.
Our
business is subject to rigorous regulatory and licensing requirements.
As
described in greater detail in the “Description of Business” section, our business is highly regulated in the
United States, at both the federal and state level, and in foreign countries. If we fail to comply with regulatory requirements,
or if allegations are made that we fail to comply, our results of operations and financial condition could be adversely affected.
To
lawfully operate our businesses, we are required to obtain and hold permits, product registrations, licenses and other regulatory
approvals from, and to comply with operating and security standards of, numerous governmental bodies. For example, as a wholesale
distributor of controlled substances, we must hold valid DEA registrations and state-level licenses, meet various security and
operating standards, and comply with the Controlled Substances Act (CSA). Failure to maintain or renew necessary permits, product
registrations, licenses or approvals, or to comply with required standards, could have an adverse effect on our results of operations
and financial condition.
Products
that we source and distribute must comply with regulatory requirements. Noncompliance or concerns over noncompliance may result
in suspension of our ability to distribute or import products, product bans, recalls or seizures, or criminal or civil sanctions,
which, in turn, could result in product liability claims and lawsuits, including class actions.
Changes
to the U.S. healthcare environment may not be favorable to us.
Over
a number of years, the U.S. healthcare industry has undergone significant changes designed to increase access to medical care,
improve safety and patient outcomes, contain costs and increase efficiencies. These changes include adoption of the Patient Protection
and Affordable Care Act, a general decline in Medicare and Medicaid reimbursement levels, efforts by healthcare insurance companies
to limit or reduce payments to pharmacies and providers, the basis for payments beginning to transition from a fee-for-service
model to value-based payments and risk-sharing models, and the industry shifting away from traditional healthcare venues like
hospitals and into clinics, physician offices and patients’ homes.
We
expect the U.S. healthcare industry to continue to change significantly in the future. Possible changes include repeal and replacement
of major parts of the Patient Protection and Affordable Care Act, further reduction or limitations on governmental funding at
the state or federal level, efforts by healthcare insurance companies to further limit payments for products and services or changes
in legislation or regulations governing prescription pharmaceutical pricing, healthcare services or mandated benefits. These possible
changes, and the uncertainty surrounding these possible changes, may cause healthcare industry participants to reduce the number
of products and services they purchase from us or the price they are willing to pay for our products and services, which could
adversely affect us.
Our
business and operations depend on the proper functioning of information systems, critical facilities and distribution networks.
We
rely on our and third-party service providers’ information systems for a wide variety of critical operations, including
to obtain, rapidly process, analyze and manage data to:
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facilitate
the purchase and distribution of inventory items from distribution centers;
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receive,
process and ship orders on a timely basis;
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manage
accurate billing and collections for thousands of customers;
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process
payments to suppliers; and
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generate
financial information.
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Our
business also depends on the proper functioning of our critical facilities and our distribution networks. Our results of operations
could be adversely affected if our or a service provider’s information systems, critical facilities or distribution networks
are disrupted (including disruption of access), are damaged or fail, whether due to physical disruptions, such as fire, natural
disaster, pandemic or power outage, or due to cyber-security incidents, ransomware or other actions of third parties, including
labor strikes, political unrest and terrorist attacks. Manufacturing disruptions also can occur due to regulatory action, production
quality deviations, safety issues or raw material shortages or defects, or because a key product or component is manufactured
at a single manufacturing facility with limited alternate facilities.
Consolidation
in the U.S. healthcare industry may negatively impact our results of operations.
In
recent years, U.S. healthcare industry participants, including distributors, manufacturers, suppliers, healthcare providers, insurers
and pharmacy chains, have consolidated or formed strategic alliances. Consolidations create larger enterprises with greater negotiating
power, and also could result in the possible loss of a customer where the combined enterprise selects one distributor from two
incumbents. If this consolidation trend continues, it could adversely affect our results of operations.
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 the 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 are expected to 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 market, 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.
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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,
these rights may not 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. Any of the changes discussed above may 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 Centers for Medicare & Medicaid Services
(CMS), and other comparable agencies. Although we have enhanced our procedures to ensure compliance, a regulatory agency or tribunal
may conclude that our operations are not compliant with applicable laws and regulations. In addition, we may be unable 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, our ultimate expenditure of funds (and their
uses) may 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 stockholder’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 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 obtaining 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, management may not
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, these technology initiatives may not be deployed as planned or may not 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, we
may be unable to achieve our targets for sales growth, and our operations may not 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 is 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 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 eXtensible
Business Reporting Language (XBRL) and EDGAR (Electronic Data Gathering, Analysis, and Retrieval) 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.
If
we make any acquisitions, they may disrupt or have a negative impact on our business.
If
we make acquisitions in the future, funding permitting, which may not be available on favorable terms, if at all, we could have
difficulty integrating the acquired company’s assets, personnel and operations with our own. We do not anticipate that any
acquisitions or mergers we may enter into in the future would result in a change of control of the Company. In addition, the key
personnel of the acquired business may not be willing to work for us. We cannot predict the effect expansion may have on our core
business. Regardless of whether we are successful in making an acquisition, the negotiations could disrupt our ongoing business,
distract our management and employees and increase our expenses. In addition to the risks described above, acquisitions are accompanied
by a number of inherent risks, including, without limitation, the following:
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the
difficulty of integrating acquired products, services or operations;
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the
potential disruption of the ongoing businesses and distraction of our management and the management of acquired companies;
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difficulties
in maintaining uniform standards, controls, procedures and policies;
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the
potential impairment of relationships with employees and customers as a result of any integration of new management personnel;
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the
potential inability or failure to achieve additional sales and enhance our customer base through cross-marketing of the products
to new and existing customers;
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the
effect of any government regulations which relate to the business acquired;
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potential
unknown liabilities associated with acquired businesses or product lines, or the need to spend significant amounts to retool,
reposition or modify the marketing and sales of acquired products or operations, or the defense of any litigation, whether
or not successful, resulting from actions of the acquired company prior to our acquisition; and
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potential
expenses under the labor, environmental and other laws of various jurisdictions.
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Our
business could be severely impaired if and to the extent that we are unable to succeed in addressing any of these risks or other
problems encountered in connection with an acquisition, many of which cannot be presently identified. These risks and problems
could disrupt our ongoing business, distract our management and employees, increase our expenses and adversely affect our results
of operations.
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 per share; 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,
for the last two years with expectation of earning the same or higher income in the current year, 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.
If
the selling stockholders sell a large number of shares all at once or in blocks, the market price of our shares would most likely
decline.
Up
to 4,910,000 shares of common stock may be resold by the selling stockholders through this prospectus. Should the selling
stockholders decide to sell their shares at a price below the market price as quoted on OTCQB, or any exchange on which our common
stock might be listed in the future, the price may continue to decline. A steep decline in the price of our common stock upon
being quoted on OTCQB, or any exchange on which our common stock might be listed in the future, would adversely affect our ability
to raise additional equity capital, and even if we were successful in raising such capital, the terms of such raise may be substantially
dilutive to current stockholders.
Stockholders
may be diluted significantly through our efforts to obtain financing and satisfy obligations through the issuance of additional
shares of our common stock.
Wherever
possible, our Board of Directors will attempt to use non-cash consideration to satisfy obligations. In many instances, we believe
that the non-cash consideration will consist of restricted shares of our common stock or where shares are to be issued to our
officers, directors and applicable consultants. Our Board of Directors has authority, without action or vote of the stockholders,
to issue all or part of the authorized but unissued shares of common stock. In addition, we may attempt to raise capital by selling
shares of our common stock, possibly at a discount to market. These actions will result in dilution of the ownership interests
of existing stockholders, which may further dilute common stock book value, and that dilution may be material. Such issuances
may also serve to enhance existing management’s ability to maintain control of the Company because the shares may be issued
to parties or entities committed to supporting existing management.
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 in 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 generally 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
certificate of incorporation contains 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.
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 October 11, 2019, we had 38,986,459 shares of our common stock issued and outstanding and the following securities,
which are exercisable into shares of our common stock, were outstanding:
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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;
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2,081,846 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
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a maximum of 14,776,638 shares of our common stock which may be issued to PanOptic, subject to PanOptic and
SyncHealth meeting all of the revenue covenants, in connection with our Joint Venture. We are currently in discussions to
dissolve this relationship.
Shares
issued to PanOptic will cause significant dilution to existing stockholders.
On
January 17, 2019, we entered into a transaction, effective as of January 1, 2019, with PanOptic Health, LLC (“PanOptic”)
to: create a new entity, SyncHealth MSO, LLC (“SyncHealth”), owned by our wholly-owned subsidiary, Alliance
Pharma Solutions, LLC (“Alliance”) and PanOptic. Pursuant to the terms of the agreement, PanOptic is due up
to 14,776,638 shares of our common stock in the event certain quotas are met as of January 1, 2020 and January 31, 2020. Specifically,
PanOptic is due 2,273,329 shares if gross revenue recognized by the Company from SyncHealth is at least $5 million from January
1, 2019, through April 30, 2019; 2,273,329 shares if Gross Revenue is at least $8 million from May 1, 2019 to July 31, 2019; 2,652,217
shares if Gross Revenue is at least $12 million from August 1, 2019 through October 31, 2019; and the remaining balance of up
to 14,776,638 shares of our common stock if (i) Gross Revenue is at least $50 million from January 1, 2019 to December 31, 2019;
or (ii) SyncHealth generates at least $12.5 million in EBIDTA during the same period. The issuance of the shares of common stock
to PanOptic, if earned, will cause significant dilution to existing stockholders. As of September 30, 2019, none of the quotas
have been achieved and none of the shares are due. To date, we have not realized any income from the technology and presently
we are in discussions to dissolve this relationship.
FINRA
sales practice requirements may also limit a stockholder’s 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. 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.
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 certificate 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, must be current
in their reports under Section 13 of the Exchange Act and must meet certain other requirements, 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.
There
is not presently an active market for shares of our common stock, and therefore, you may be unable to sell any shares of our common
stock in the event that you need a source of liquidity.
Our
common stock is traded on the OTCQB quotation system, which is a FINRA-sponsored entity and operated inter-dealer automated quotation
system for equity securities not included in a national exchange. Quotation of our securities on the OTCQB limits the liquidity
and price of our common stock more than if our common stock were quoted or listed on the NYSE or the NASDAQ, which are national
securities exchanges. Although our common stock is quoted on the OTCQB, our common stock trades infrequently and in low volumes
on the OTCQB. A public trading market in our common stock having the desired characteristics of depth, liquidity and orderliness
depends on the presence in the market of willing buyers and sellers of our common stock at any time. This presence depends on
the individual decisions of investors and general economic and market conditions over which we have no control. In the event an
active market does not develop, you may be unable to sell your shares of common stock at or above the price you paid for them
or at any 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.
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 66% 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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Stockholders
who hold unregistered shares of our common stock will be subject to resale restrictions pursuant to Rule 144, due to the fact
that we are deemed to be a former “shell company.”
Pursuant
to Rule 144 of the Securities Act (“Rule 144”), a “shell company” is defined as a company
that has no or nominal operations; and, either no or nominal assets; assets consisting solely of cash and cash equivalents; or
assets consisting of any amount of cash and cash equivalents and nominal other assets. While we do not believe that we are currently
a “shell company”, we were previously a “shell company” and are deemed to be a former “shell
company” pursuant to Rule 144, and as such, sales of our securities pursuant to Rule 144 may not be able to be made
unless we continue to be subject to Section 13 or 15(d) of the Exchange Act, and have filed all of our required periodic reports
for at least the previous one year period prior to any sale pursuant to Rule 144. As a result, it may be harder for us to fund
our operations and pay our consultants with our securities instead of cash. Our status as a former “shell company”
could prevent us from raising additional funds, engaging consultants, and using our securities to pay for any acquisitions (although
none are currently planned).
The
interests of stockholders 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 stockholders, 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 stockholders. Our ability to issue shares without stockholder
approval serves to enhance existing management’s ability to maintain control of our company.
Our
certificate of incorporation provides for indemnification of officers and directors at our expense and limits their liability,
which may result in a major cost to us and hurt the interests of our stockholders because corporate resources may be expended
for the benefit of officers or directors.
Our
Certificate of Incorporation provides 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 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.
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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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 Stock Exchange 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.
Three
out of five of our directors are independent directors, and certain of 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.
We
plan to apply for listing of our common stock on the Nasdaq Capital Market. We may be unable to list our common stock, and if
listed, our common stock may not continue to meet Nasdaq Capital Market listing requirements. If we fail to comply with the continuing
listing standards of the Nasdaq Capital Market, our securities could be delisted.
We
plan to apply for our common stock to be eligible to be listed on the Nasdaq Capital Market. However, our application may not
be approved, and an active trading market for our common stock may not develop or continue. If, after listing, we fail to satisfy
the continued listing requirements of the Nasdaq Capital Market, such as the corporate governance requirements or the minimum
closing bid price requirement, the Nasdaq Capital Market may take steps to delist our common stock. Such a delisting would likely
have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when
you wish to do so. In the event of a delisting, actions taken by us to restore compliance with listing requirements may not be
successful to allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common
stock, prevent our common stock from dropping below the Nasdaq Capital Market minimum bid price requirement or prevent future
non-compliance with the Nasdaq Capital Market’s listing requirements.
We
will incur significant costs to ensure compliance with U.S. and Nasdaq Capital Market reporting and corporate governance requirements.
We
will incur significant costs associated with our public company reporting requirements and with applicable U.S. and Nasdaq Capital
Market corporate governance requirements (assuming our common stock is approved for listing on the Nasdaq Capital Market), including
requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the SEC and the Nasdaq Capital Market. We expect
all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some
activities more time consuming and costly. We also expect that these applicable rules and regulations may make it more difficult
and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits
and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult
for us to attract and retain qualified individuals to serve on our Board of Directors or as executive officers.
Risks
Relating To The JOBS Act:
The
JOBS Act allows us to postpone the date by which we must comply with certain laws and regulations and to reduce the amount of
information provided in reports filed with the SEC. We cannot be certain if the reduced disclosure requirements applicable to
“emerging growth companies” will make our common stock less attractive to investors.
We
are and we will remain an “emerging growth company” until the earliest to occur of (i) the last day of the
fiscal year during which our total annual revenues equal or exceed $1 billion (subject to adjustment for inflation), (ii) the
last day of the end of our 2024 fiscal year (5 years from our first public offering), (iii) the date on which we have, during
the previous three-year period, issued more than $1 billion in non-convertible debt securities, or (iv) the date on which we are
deemed a “large accelerated filer” (with at least $700 million in public float) under the Exchange Act. For
so long as we remain an “emerging growth company” as defined in the JOBS Act, we may take advantage of certain
exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth
companies” as described in further detail in the risk factors below. We cannot predict if investors will find our common
stock less attractive because we will rely on some or all of these exemptions. If some investors find our common stock less attractive
as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. If we avail
ourselves of certain exemptions from various reporting requirements, as is currently our plan, our reduced disclosure may make
it more difficult for investors and securities analysts to evaluate us and may result in less investor confidence.
Our
election not to opt out of JOBS Act extended accounting transition period may not make our financial statements easily comparable
to other companies.
Pursuant
to the JOBS Act, as an “emerging growth company”, we can elect to opt out of the extended transition period
for any new or revised accounting standards that may be issued by the Public Company Accounting Oversight Board (PCAOB) or the
SEC. We have elected not to opt out of such extended transition period which means that when a standard is issued or revised and
it has different application dates for public or private companies, we, as an “emerging growth company”, can
adopt the standard for the private company. This may make a comparison of our financial statements with any other public company
which is not either an “emerging growth company” nor an “emerging growth company” which
has opted out of using the extended transition period difficult or impossible as possible different or revised standards may be
used.
The
JOBS Act also allows us to postpone the date by which we must comply with certain laws and regulations intended to protect investors
and to reduce the amount of information provided in reports filed with the SEC.
The
JOBS Act is intended to reduce the regulatory burden on “emerging growth companies”. The Company meets the
definition of an “emerging growth company” and so long as it qualifies as an “emerging growth company,”
it will, among other things:
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be
exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that its independent registered public accounting
firm provide an attestation report on the effectiveness of its internal control over financial reporting;
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be
exempt from the “say on pay” provisions (requiring a non-binding stockholder vote to approve compensation
of certain executive officers) and the “say on golden parachute” provisions (requiring a non-binding stockholder
vote to approve golden parachute arrangements for certain executive officers in connection with mergers and certain other
business combinations) of The Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and certain
disclosure requirements of the Dodd-Frank Act relating to compensation of Chief Executive Officers;
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be
permitted to omit the detailed compensation discussion and analysis from proxy statements and reports filed under the Securities
Exchange Act of 1934, as amended and instead provide a reduced level of disclosure concerning executive compensation; and
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be
exempt from any rules that may be adopted by the PCAOB requiring mandatory audit firm rotation or a supplement to the auditor’s
report on the financial statements.
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The
Company currently intends to take advantage of all of the reduced regulatory and reporting requirements that will be available
to it so long as it qualifies as an “emerging growth company”. The Company has elected not to opt out of the
extension of time to comply with new or revised financial accounting standards available under Section 102(b)(1) of the JOBS Act.
Among other things, this means that the Company’s independent registered public accounting firm will not be required to
provide an attestation report on the effectiveness of the Company’s internal control over financial reporting so long as
it qualifies as an “emerging growth company”, which may increase the risk that weaknesses or deficiencies in
the internal control over financial reporting go undetected. Likewise, so long as it qualifies as an “emerging growth
company”, the Company may elect not to provide certain information, including certain financial information and certain
information regarding compensation of executive officers, which it would otherwise have been required to provide in filings with
the SEC, which may make it more difficult for investors and securities analysts to evaluate the Company. As a result, investor
confidence in the Company and the market price of its common stock may be adversely affected.
Notwithstanding
the above, we are also currently a “smaller reporting company”, meaning that we are not an investment company,
an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and have a
public float of less than $75 million and annual revenues of less than $50 million during the most recently completed fiscal year.
In the event that we are still considered a “smaller reporting company”, at such time are we cease being an
“emerging growth company”, the disclosure we will be required to provide in our SEC filings will increase,
but will still be less than it would be if we were not considered either an “emerging growth company” or a
“smaller reporting company”. Specifically, similar to “emerging growth companies”, “smaller
reporting companies” are able to provide simplified executive compensation disclosures in their filings; are exempt
from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms
provide an attestation report on the effectiveness of internal control over financial reporting; and have certain other decreased
disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited
financial statements in annual reports. Decreased disclosures in our SEC filings due to our status as an “emerging growth
company” or “smaller reporting company” may make it harder for investors to analyze the Company’s
results of operations and financial prospects.
For
all of the foregoing reasons and others set forth herein, an investment in our securities in involves a high degree of risk.
PRIVATE
PLACEMENT OF COMMON STOCK
On
July 10, 2019 we entered into a securities Purchase Agreement with R.S.N., LLC with respect to the private placement of 2,000,000
share of our common stock at a purchase price of $0.50 per share, for gross proceeds of $1,000,000. This transaction closed on
July 30, 2019.
On
September 30, 2019, we closed the sale of securities pursuant to Securities Purchase Agreements entered into with certain accredited
investors with respect to the private placement of 2,910,000 shares of our common stock at a purchase price of $0.50 per share,
for gross proceeds of $1,455,000. Subscribers included Bedford Falls Capital, which is controlled by Gary Augusta, our director
(1,000,000 shares); Nitesh Patel, who is the cousin of Prashant Patel, our director and President (40,000 shares); Shilpa
Patel, who is the spouse of Nitesh Patel, the brother of Prashant Patel our director and President (20,000 shares); and
Nitil Patel, the brother of Prashant Patel, our director and President (200,000 shares).
USE
OF PROCEEDS
We
are registering the shares of common stock for the benefit of the selling stockholders. 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 stockholders 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 stockholders 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 Stockholders” and “Plan of Distribution” described below.
DETERMINATION
OF OFFERING PRICE
The
selling stockholders 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 certificate of incorporation
and bylaws. This description is only a summary. You should also refer to our certificate 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 October 11, 2019, there were 38,986,459 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
certificate of incorporation and bylaws. For additional detail about our capital stock, please refer to our certificate of incorporation
and bylaws.
Common
stock
We
are authorized to issue 100,000,000 shares of common stock, $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 stockholders. 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 are undesignated and
unissued. We had no preferred shares outstanding at December 31, 2018 or as of the date of this prospectus.
Under
the terms of our certificate 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 Delaware General Corporation Law
We
are subject to Section 203 of 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 2/3 percent 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 stockholders’ 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 Market 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 covered by the registration statement of which this prospectus is a part, which are
held by the selling stockholders, to permit the resale of these shares of common stock by the selling stockholders from time to
time from after the date of this prospectus.
Each
selling stockholder may, from time to time, sell any or all of their shares of common stock covered hereby on the over-the-counter
market, any national securities exchange or quotation service on which the shares of our common stock may be listed or quoted
at the time of sale, in the over-the counter market, in privately negotiated transactions, through the writing of options, whether
such options are listed on an options exchange or otherwise, short sales or in a combination of such 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 Stockholder 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 stockholders 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 stockholders may pledge or grant a security interest in some or all of the shares of common stock owned by them and, if
they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of
common stock from time to time pursuant to this prospectus.
The
selling stockholders also may transfer and donate the shares of common stock in other circumstances in which case the transferees,
donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
The
selling stockholders 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 stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling stockholders (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 stockholders 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 stockholders reserve 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 stockholders of the shares of common stock.
In
connection with the sale of the shares of common stock or interests therein, the selling stockholders 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 stockholders 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 stockholders 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 stockholders 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 stockholders, 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 stockholders 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 stockholder has informed us that it is not a registered broker-dealer
or an affiliate of a registered broker-dealer.
Under
the securities laws of some states, the shares of common stock may be sold in such states only through registered or licensed
brokers or dealers. In addition, in some states the shares of common stock may not be sold unless such shares have been registered
or qualified for sale in such state or an exemption from registration or qualification is available and is complied with. There
can be no assurance that any selling stockholder will sell any or all of the shares of common stock registered pursuant to the
registration statement, of which this prospectus forms a part.
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 stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act,
and the selling stockholders may be entitled to contribution. We may be indemnified by the selling stockholders 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 stockholders specifically for use in this prospectus, or we may be entitled to contribution.
The
selling stockholders 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 stockholders 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 stockholders or any other person. We will
make copies of this prospectus available to the selling stockholders 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 stockholders, 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.
The
selling stockholders may not sell any or all of the shares of common stock we registered on behalf of the selling stockholders
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 registered herein will
be freely tradable in the hands of persons other than our affiliates.
SELLING
STOCKHOLDERS
This
prospectus covers the resale from time to time by the selling stockholders identified in the table below of up to 4,910,000 shares
of common stock through this prospectus, which were sold pursuant to private offering transactions which closed on July
30, 2019 (2,000,000 shares) and September 30, 2019 (2,910,000 shares), for an aggregate of $1,455,000 in cash ($0.50 per
share), which are described in greater detail under “Private Placement of Common Stock”, beginning on
page 28.
We
are registering the shares to permit the selling stockholders 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 38,986,459 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 stockholder, the number and percentage
of shares of our common stock beneficially owned by each selling stockholder 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 stockholder 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
stockholder after the offering of the shares (assuming all of the offered shares are sold by the selling stockholder).
There
are no agreements between the Company and any selling stockholder pursuant to which the shares subject to this registration statement
were issued. None of the selling stockholders 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 in the footnotes below.
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.
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Number of Shares of Common
Stock Beneficially Owned Prior to this
Offering (1)
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Number of Shares of Common Stock Being
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Beneficial Ownership of Common
Stock After Registration Assuming All Shares Are Sold (#)
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Name of Selling Stockholder
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Number
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Percentage
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Offered
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Number
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Percentage
|
|
R.S.N., LLC
|
|
|
(2)
|
|
|
|
3,000,000
|
|
|
|
7.69
|
%
|
|
|
3,000,000
|
|
|
|
-
|
|
|
|
-
|
|
Bedford Falls Capital
|
|
|
(3)
|
|
|
|
1,034,422
|
|
|
|
2.65
|
%
|
|
|
1,000,000
|
|
|
|
34,422
|
|
|
|
*
|
%
|
Phil Hayden
|
|
|
|
|
|
|
400,000
|
|
|
|
1.03
|
%
|
|
|
400,000
|
|
|
|
-
|
|
|
|
-
|
|
Nitesh Patel
|
|
|
(4)
|
|
|
|
60,000
|
|
|
|
*
|
%
|
|
|
40,000
|
|
|
|
-
|
|
|
|
-
|
|
Shilpa Patel
|
|
|
(5)
|
|
|
|
60,000
|
|
|
|
*
|
%
|
|
|
20,000
|
|
|
|
-
|
|
|
|
-
|
|
Punil & Awani Patel
|
|
|
|
|
|
|
200,000
|
|
|
|
*
|
%
|
|
|
200,000
|
|
|
|
-
|
|
|
|
-
|
|
Dr. Fadi Saba
|
|
|
|
|
|
|
250,000
|
|
|
|
*
|
%
|
|
|
250,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,910,000
|
|
|
|
|
|
|
|
|
|
*
Less than one percent (1%).
#
Assumes the sale of all shares offered herein.
(1)
“Beneficial ownership” means that a person, directly or indirectly, has or shares voting or investment power
with respect to a security or has the right to acquire such power within 60 days. The percentage is based upon 38,986,459
shares of our common stock outstanding as of October 11, 2019.
(2)
Darshan Ram and Savitri Ram are husband and wife and joint owners of R.S.N., LLC, a Delaware limited liability company (“RSN”),
and as such, Darshan Ram and Savitri Ram indirectly share voting and dispositive power over the securities directly held by RSN.
As a result, each of Darshan Ram and Savitri Ram may be deemed to have beneficial ownership of such securities.
(3)
Gary Augusta, a member of the Board of Directors of the Company controls and serves as President of Bedford Falls Capital LLC,
which shares he is deemed to beneficially own. Beneficial ownership totals do not include warrants to purchase 300,000 shares
of the Company’s common stock at an exercise price of $0.01 per share, of which warrants to purchase 150,000 shares vest
on April 1, 2020 and warrants to purchase 150,000 shares vest on April 1, 2021, held by Flacane Advisors Inc., which
entity is controlled by Gary Augusta, the vesting of which is subject to Flacane Advisors Inc.’s continued service to the
Company.
(4)
Nitesh Patel is a cousin of Prashant Patel, our director and President.
(5)
Shipla Patel is spouse of Nitesh Patel, who is a cousin of Prashant Patel, our director and President.
CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information regarding the beneficial ownership of our common stock as of October 11, 2019 (the
“Date of Determination”) by (i) each Named Executive Officer, as such term is defined below under “Executive
and Director Compensation”, (ii) each member of our Board of Directors, (iii) each person deemed to be the beneficial
owner of more than five percent (5%) of our common stock, and (iv) all of our executive officers and directors as a group. Unless
otherwise indicated, each person named in the following table is assumed to have sole voting power and investment power with respect
to all shares of our common stock listed as owned by such person. The address of each person is deemed to be the address of the
Company unless otherwise noted.
Beneficial
ownership is determined in accordance with the rules of the SEC and includes voting and/or investing power with respect to securities.
These rules generally provide that shares of common stock subject to options, warrants or other convertible securities that are
currently exercisable or convertible, or exercisable or convertible within 60 days of the Date of Determination, are deemed to
be outstanding and to be beneficially owned by the person or group holding such options, warrants or other convertible securities
for the purpose of computing the percentage ownership of such person or group, but are not treated as outstanding for the purpose
of computing the percentage ownership of any other person or group. The percentages are based upon 38,986,459 shares of our
common stock outstanding as of October 11, 2019.
To
our knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, as of the
Date of Determination, (a) the persons named in the table have sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by them, subject to applicable community property laws; and (b) no person owns more than
5% of our common stock. Unless otherwise indicated, the address for each of the officers or directors listed in the table below
is 3840 Land O’ Lakes Blvd, Land O Lakes, FL 34639.
Name and Address of Beneficial Owner
|
|
Number of Shares Beneficially Owned
|
|
|
Percentage Beneficially Owned
|
|
|
|
|
|
|
|
|
Directors and Named Executive Officers:
|
|
|
|
|
|
|
|
|
Suren Ajjarapu, Chairman, CEO (1)
|
|
|
13,843,750
|
|
|
|
35.4
|
%
|
Prashant Patel, Director, COO, and President (2)
|
|
|
12,350,000
|
|
|
|
31.6
|
%
|
Donald G. Fell, Director (3)
|
|
|
218,173
|
|
|
|
*
|
|
Howard Doss, CFO (4)
|
|
|
326,313
|
|
|
|
*
|
|
Michael L Peterson, Director (5)
|
|
|
183,173
|
|
|
|
*
|
|
Gary Augusta, Director (6)
|
|
|
1,034,422
|
|
|
|
2.7
|
%
|
|
|
|
|
|
|
|
|
|
All executive officers and directors as a Group (six persons)
|
|
|
27,955,831
|
|
|
|
71.3
|
%
|
|
|
|
|
|
|
|
|
|
Greater than 5% Stockholders
|
|
|
|
|
|
|
|
|
Gajan Mahendiran (7)
|
|
|
2,760,002
|
|
|
|
6.8
|
%
|
R.S.N., LLC (8)
|
|
|
3,000,000
|
|
|
|
7.7
|
%
|
*
Less than one 1%
(1)
Includes (i) 7,143,750 shares owned directly by Mr. Ajjarapu, (ii) 4,050,000 shares owned by Mr. Ajjarapu’s wife,
which Mr. Ajjarapu claims beneficial ownership of, (iii) 1,275,000 shares owned by the Surendra Ajjarapu Revocable Trust of 2007,
which Mr. Ajjarapu claims beneficial ownership of, as Trustee, and (iv) 1,275,000 shares owned by the Sandhya Ajjarapu Revocable
Trust of 2007 and options to purchase 100,000 shares of common stock granted in 2019, that are exercisable within 60 days of the
Date of Determination, which Mr. Ajjarapu claims beneficial ownership of, as Trustee.
(2)
Includes (i) 7,350,000 shares owned directly by Mr. Patel, (ii) 2,500,000 shares owned by Rina Patel, Mr. Patel’s
wife, which Mr. Patel claims beneficial ownership of, (iii) 2,400,000 shares owned by the Patel Trust; and (iv) options to purchase
100,000 shares of common stock granted in 2019, that are exercisable within 60 days of the Date of Determination, which Mr. Patel
claims beneficial ownership of, as Trustee.
(3)
Includes 218,173 shares of common stock issuable upon the exercise of stock options that are exercisable within 60 days
of the Date of Determination.
(4)
Includes 326,313 shares of common stock issuable upon the exercise of stock options that are exercisable within 60 days
of the Date of Determination.
(5)
Includes 183,173 shares of common stock issuable upon the exercise of stock options that are exercisable within 60 days
of the Date of Determination.
(6)
Does not include warrants to purchase 300,000 shares of the Company’s common stock at an exercise price of $0.01 per
share, of which warrants to purchase 150,000 shares April 1, 2020 and warrants to purchase 150,000 shares vest on April
1, 2021, held by Flacane Advisors Inc., which entity is controlled by Gary Augusta, the vesting of which is subject to Flacane
Advisors Inc.’s continued service to the Company. Includes 1,000,000 shares of common stock held by Bedford Falls Capital LLC,
an entity which Mr. Augusta controls and serves as President of, and which shares he is deemed to beneficially own.
(7)
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 Date of Determination, and which are held jointly with Mr.
Mahendiran’ s wife, as tenants by entirety. Address: 4427 Corral Road, Warrenton, Virginia 20187.
(8)
The securities held by R.S.N., LLC are beneficially owned by Darshan Ran and Savitri Ran, its Members. Address: 744 Broadway
Avenue, Orillia, Ontario, Canada.
Change
of Control
The
Company is not aware of any arrangements which may at a subsequent date result in a change of control of the Company.
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.
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 an 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 the IRS may not agree with such statements and conclusions or a court may 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:
|
-
|
an
individual who is a citizen or resident of the United States;
|
|
-
|
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;
|
|
-
|
an
estate, the income of which is subject to U.S. federal income taxation regardless of its source; or
|
|
-
|
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.
|
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 United 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
MATTERS
This
Form S-1 registration statement was prepared by The Loev Law Firm, PC, Bellaire, Texas. The financial statements attached hereto
for the years ended December 31, 2018 and 2017, were audited by MaloneBailey, LLP. The Loev Law Firm, PC, and MaloneBailey, LLP
do not have any interest contingent or otherwise in the Company.
EXPERTS
The
audited financial statements of Trxade Group, Inc. and its subsidiaries as of December 31, 2018 and, 2017, and
for the years then ended, included 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.
No
expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion
upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering
of the common stock was employed on a contingency basis, or had, or is to receive, any interest, directly or indirectly, in our
Company or any of our parents or subsidiaries, nor was any such person connected with us or any of our parents or subsidiaries,
if any, as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
DESCRIPTION
OF 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 prospectus.
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.”
Background
of Trxade
PharmaCycle
LLC, a Nevada limited liability company (“PharmaCycle”), was formed in August 2010 by Prashant Patel, our President,
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, our Chief Executive Officer and President, respectively. 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 (prior to the reverse split discussed below) 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 (prior to the reverse split discussed below).
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 continuing as the surviving
corporation. The Merger closed on January 8, 2014. Under the terms of the Merger Agreement, we amended our certificate of incorporation
changed our name to “Trxade Group, Inc.,” and changed our trading symbol to XCEL.
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 for one thousand (1:1,000) 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, were exchanged for 104,160 post-Reverse Split 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 Florida. 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. Suren Ajjarapu,
our CEO, 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
arrangement, we have the option to acquire 100% of SyncHealth MSO, LLC. To date, we have not realized any income from
the technology and presently we are in discussions to dissolve this relationship.
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 provided 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 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 terms and
conditions of our warrant agreement with the buyer.
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, a non-executive officer of the Company (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 in the amount of $300,000, and warrants to
purchase 405,507 shares of 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.
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 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.
To date, we have not realized any income from the technology and presently we are in discussions to dissolve this relationship.
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, and
http://www.delivmeds.com. Information on our website is not incorporated by reference into
this prospectus.
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.
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 technology was developed early 2019 as part of the SyncHealth MSO, LLC joint venture to develop technology
that would assist independent retail pharmacies to compete better with large national pharmacies on pricing, distribution
and logistics. To date, we have not generated any income from this product and currently we are in discussions to dissolve
this relationship.
All
of 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 in branded medications lost their patent
protection from 2008 to 2018, according to an article in Drug Topics from August 2004, called “Big Pharma uses effective
strategies to battle generic competitors”, by Martin Sipkoff), 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 and 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 Independent Pharmacy
Cooperative (IPC) and American Pharmacy Cooperative, Inc. (APCI) 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 prospectus, 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” (Serial Number 86021305),
“RxGuru” (Serial Number 86024745) 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 which went into effect in 2018, requires 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.
Jumpstart
Our Business Startups Act
In
April 2012, the Jumpstart Our Business Startups Act (“JOBS Act”) was enacted into law. The JOBS Act provides,
among other things:
●
|
Exemptions
for “emerging growth companies” from certain financial disclosure and governance requirements for up to
five years and provides a new form of financing to small companies;
|
|
|
●
|
Amendments
to certain provisions of the federal securities laws to simplify the sale of securities and increase the threshold number
of record holders required to trigger the reporting requirements of the Securities Exchange Act of 1934, as amended;
|
|
|
●
|
Relaxation
of the general solicitation and general advertising prohibition for Rule 506 offerings;
|
|
|
●
|
Adoption
of a new exemption for public offerings of securities in amounts not exceeding $50 million; and
|
|
|
●
|
Exemption
from registration by a non-reporting company of offers and sales of securities of up to $1,000,000 that comply with rules
to be adopted by the SEC pursuant to Section 4(6) of the Securities Act and exemption of such sales from state law registration,
documentation or offering requirements.
|
In
general, under the JOBS Act a company is an “emerging growth company” if its initial public offering (“IPO”)
of common equity securities was affected after December 8, 2011 and the company had less than $1 billion of total annual gross
revenues during its last completed fiscal year. A company will no longer qualify as an “emerging growth company”
after the earliest of
|
(i)
|
the
completion of the fiscal year in which the company has total annual gross revenues of $1 billion or more,
|
|
|
|
|
(ii)
|
the
completion of the fiscal year of the fifth anniversary of the company’s IPO;
|
|
|
|
|
(iii)
|
the
company’s issuance of more than $1 billion in nonconvertible debt in the prior three-year period, or
|
|
|
|
|
(iv)
|
the
company becoming a “larger accelerated filer” as defined under the Securities Exchange Act of 1934, as
amended.
|
The
JOBS Act provides additional new guidelines and exemptions for non-reporting companies and for non-public offerings. Those exemptions
that impact the Company are discussed below.
Financial
Disclosure. The financial disclosure in a registration statement filed by an “emerging growth company”
pursuant to the Securities Act, will differ from registration statements filed by other companies as follows:
|
(i)
|
audited
financial statements required for only two fiscal years (provided that “smaller reporting companies” such
as the Company are only required to provide two years of financial statements);
|
|
(ii)
|
selected
financial data required for only the fiscal years that were audited (provided that “smaller reporting companies”
such as the Company are not required to provide selected financial data as required by Item 301 of Regulation S-K); and
|
|
(iii)
|
executive
compensation only needs to be presented in the limited format now required for “smaller reporting companies”.
|
However,
the requirements for financial disclosure provided by Regulation S-K promulgated by the Rules and Regulations of the SEC already
provide certain of these exemptions for smaller reporting companies. The Company is a smaller reporting company. Currently a smaller
reporting company is not required to file as part of its registration statement selected financial data and only needs to include
audited financial statements for its two most current fiscal years with no required tabular disclosure of contractual obligations.
The
JOBS Act also exempts the Company’s independent registered public accounting firm from having to comply with any rules adopted
by the Public Company Accounting Oversight Board (“PCAOB”) after the date of the JOBS Act’s enactment,
except as otherwise required by SEC rule.
The
JOBS Act further exempts an “emerging growth company” from any requirement adopted by the PCAOB for mandatory
rotation of the Company’s accounting firm or for a supplemental auditor report about the audit.
Internal
Control Attestation. The JOBS Act also provides an exemption from the requirement of the Company’s independent registered
public accounting firm to file a report on the Company’s internal control over financial reporting, although management
of the Company is still required to file its report on the adequacy of the Company’s internal control over financial reporting.
Section
102(a) of the JOBS Act exempts “emerging growth companies” from the requirements in §14A(e) of the Securities
Exchange Act of 1934 for companies with a class of securities registered under the Securities Exchange Act of 1934, as amended,
to hold stockholder votes for executive compensation and golden parachutes.
Other
Items of the JOBS Act. The JOBS Act also provides that an “emerging growth company” can communicate with
potential investors that are qualified institutional buyers or institutions that are accredited to determine interest in a contemplated
offering either prior to or after the date of filing the respective registration statement. The JOBS Act also permits research
reports by a broker or dealer about an “emerging growth company” regardless of whether such report provides
sufficient information for an investment decision. In addition, the JOBS Act precludes the SEC and FINRA from adopting certain
restrictive rules or regulations regarding brokers, dealers and potential investors, communications with management and distribution
of research reports on the “emerging growth company’s” initial public offerings (IPOs).
Section
106 of the JOBS Act permits “emerging growth companies” to submit registration statements under the Securities
Act of 1933, as amended, on a confidential basis provided that the registration statement and all amendments thereto are publicly
filed at least 21 days before the issuer conducts any road show. This is intended to allow “emerging growth companies”
to explore the IPO option without disclosing to the market the fact that it is seeking to go public or disclosing the information
contained in its registration statement until the company is ready to conduct a roadshow.
Election
to Opt Out of Transition Period. Section 102(b)(1) of the JOBS Act exempts “emerging growth companies”
from being required to comply with new or revised financial accounting standards until private companies (that is, those that
have not had a Securities Act registration statement declared effective or do not have a class of securities registered under
the Exchange Act) are required to comply with the new or revised financial accounting standard.
The
JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that
apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out
of the transition period.
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 28 full-time employees. 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 Exchange Act, under which we file periodic reports, proxy and
information statements and other information with the Commission. 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. https://www.trxadegroup.com). Information
on our website is not incorporated by reference into this prospectus. 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.
DESCRIPTION
OF PROPERTY
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 for approximately $100,000 per year under a three-year lease agreement, beginning January 1, 2018. Our office space
occupies approximately 6,300 square feet. We entered into a lease for Integra Pharma Solutions, LLC at 6308 Benjamin Road, Tampa,
Florida 33634 for approximately $42,000 per year under a five-year lease agreement, effective October 17, 2018, occupying approximately
6,300 square feet. 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 COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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 stockholders. Therefore, the current and potential market for our common stock is limited and
the liquidity of our shares may be severely limited. We cannot provide any assurance that a meaningful trading market will ever
develop.
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.
Holders
According
to the records of our transfer agent, as of September 30, 2019 were approximately 64 record holders 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”. Our common stock trades on a limited and sporadic basis and should not be deemed to constitute an established
public trading market. There may not be liquidity in the common stock.
The
following table sets forth the high and low sale prices for each quarter within the fiscal years ended December 31, 2018 and 2017
and the first, second and third quarters of fiscal 2019, and the portion of the fourth quarter of 2019 from October 1, 2019 to
October 14, 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
|
|
High Sales Price
|
|
|
Low Sales Price
|
|
2017
|
|
First Quarter
|
|
$
|
1.00
|
|
|
$
|
0.25
|
|
|
|
Second Quarter
|
|
$
|
0.80
|
|
|
$
|
0.30
|
|
|
|
Third Quarter
|
|
$
|
0.52
|
|
|
$
|
0.41
|
|
|
|
Fourth Quarter
|
|
$
|
0.70
|
|
|
$
|
0.22
|
|
2018
|
|
First Quarter
|
|
$
|
0.75
|
|
|
$
|
0.22
|
|
|
|
Second Quarter
|
|
$
|
1.00
|
|
|
$
|
0.35
|
|
|
|
Third Quarter
|
|
$
|
0.75
|
|
|
$
|
0.43
|
|
|
|
Fourth Quarter
|
|
$
|
0.60
|
|
|
$
|
0.23
|
|
2019
|
|
First Quarter
|
|
$
|
0.59
|
|
|
$
|
0.35
|
|
|
|
Second Quarter
|
|
$
|
0.74
|
|
|
$
|
0.35
|
|
|
|
Third Quarter
|
|
$
|
1.60
|
|
|
$
|
0.54
|
|
|
|
Fourth Quarter (through October 14, 2019)
|
|
$
|
1.48
|
|
|
$
|
1.00
|
|
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 stockholders. 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
prospectus.
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
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 the Company, and the 2013 Equity Incentive Plan of Trxade Group, Inc., a Nevada corporation and predecessor
in interest to the Company.
Stock
Transfer Agent
Our
transfer agent is Action Stock Transfer Corp., 2469 E. Fort Union Boulevard, Suite 214, Salt Lake City, Utah 84121.
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:
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Overview.
Discussion of our business and overall analysis of financial and other highlights affecting us, to provide context for the
remainder of MD&A.
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●
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Liquidity
and Capital Resources. An analysis of changes in our balance sheets and cash flows and discussion of our financial condition.
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●
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Results
of Operations. An analysis of our financial results comparing the twelve months ended December 31, 2018 and 2017 and six-month
periods ended June 30, 2019 and 2018.
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●
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Critical
Accounting Policies. Accounting estimates that we believe are important to understanding the assumptions and judgments
incorporated in our reported financial results and forecasts.
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The
following discussion should be read in conjunction with our consolidated financial statements and accompanying notes included
elsewhere in this prospectus. 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 prospectus, particularly under “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 prospectus.
The
following discussion is based upon our Consolidated Financial Statements included elsewhere in this prospectus, 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.
Liquidity
and Capital Resources as of and for the Year Ended December 31, 2018
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 periods 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.
Six-Month
Period Ended June 30, 2019 Compared to Six-Month Period Ended June 30, 2018
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Six-Months Ended
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June 30, 2019
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June 30, 2018
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|
|
|
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|
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Revenues
|
|
$
|
3,428,935
|
|
|
$
|
1,690,611
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|
Cost of Sales
|
|
|
1,118,977
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|
|
|
-
|
|
|
|
|
|
|
|
|
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Gross Profit
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|
|
2,309,958
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1,690,611
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Operating Expenses:
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|
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General and Administrative
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1,905,504
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|
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1,472,365
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Warrants and Options Expense
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99,990
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|
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88,072
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Total Operating Expense
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2,005,494
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|
|
|
1,560,437
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Share in Equity Losses in Investment
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(87,822
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)
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-
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Interest Expense
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|
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(33,432
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)
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|
|
(27,392
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)
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|
|
|
|
|
|
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Income from Operations
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$
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183,210
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|
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$
|
102,782
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Substantially
all of our revenues during the six-months ended June 30, 2018 was from Trxade platform revenue. Revenues increased in the six-months
ended June 30, 2019 by $1,738,324 with the addition of Community Specialty Pharmacy, LLC, our partially-owned accredited independent
retail pharmacy.
General
and administrative expenses increased for the six-months ended June 30, 2019 to $1,905,504 compared to $1,472,365 for the comparable
period in 2018. There was an increase in rent and employee cash compensation directly as a result of the acquisition of Community
Specialty Pharmacy, LLC.
Warrant
and options expense in the 2019 and 2018 periods represent compensation costs related to the issuance of employee stock options.
Three
Month Period Ended June 30, 2019 Compared to Three Month Period Ended June 30, 2018
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Three Months Ended
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June 30, 2019
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June 30, 2018
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|
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|
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Revenues
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$
|
1,916,414
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|
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$
|
837,688
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Cost of Sales
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|
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753,138
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|
|
|
-
|
|
|
|
|
|
|
|
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Gross Profit
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1,163,276
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|
|
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837,688
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Operating Expenses:
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|
|
|
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|
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General and Administrative
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|
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966,560
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|
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755,626
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Warrants and Options Expense
|
|
|
64,011
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|
|
|
50,616
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Total Operating Expense
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|
|
1,030,571
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|
|
|
806,242
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|
|
|
|
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Share in Equity Losses in Investment
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|
|
(58,850
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)
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|
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Interest Expense
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|
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(15,874
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)
|
|
|
(10,933
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)
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|
|
|
|
|
|
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Income from Operations
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$
|
57,981
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|
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$
|
20,513
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Substantially
all of our revenues during the three months ended June 30, 2018 were from Trxade platform revenue. Revenues increased by $1,078,726
in the three months ended June 30, 2019 with the addition of Community Specialty Pharmacy, LLC.
General
and administrative expenses increased for the three months ended June 30, 2019 to $966,560 compared to $755,164 for the comparable
period in 2018. There was an increase in rent and employee cash compensation directly as a result of the acquisition of Community
Specialty Pharmacy, LLC.
Warrant
and options expense in the 2019 and 2018 periods represent compensation costs related to the issuance of employee stock options.
Fiscal
Year Ended December 31, 2018 Compared to Fiscal Year Ended December 31, 2017
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Fiscal Year Ended
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December 31, 2018
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December 31, 2017
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Revenues
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$
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3,831,778
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$
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2,931,280
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Cost of Sales
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|
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449,049
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|
|
-
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|
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Gross Profit
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3,382,729
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|
|
|
2,931,280
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Operating Expenses:
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|
|
|
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|
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Technology
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|
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949,948
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863,324
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General and Administrative
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|
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2,350,569
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|
|
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1,405,026
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Warrants and Options Expense
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|
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169,828
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|
|
|
267,835
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Total Operating Expense
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|
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3,470,345
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|
|
|
2,536,185
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|
|
|
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Other Income
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|
|
161,639
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|
|
|
67,500
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Loss on Extinguishment of Debt
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|
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(7,444
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)
|
|
|
(16,556
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)
|
Interest Expense
|
|
|
(57,541
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)
|
|
|
(157,056
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)
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
9,038
|
|
|
$
|
288,983
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|
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 $3,831,778 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 for the year ended December 31, 2018 from $863,324 for the year ended December 31, 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 periods represent compensation costs 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.
Liquidity
and Capital Resources
Cash
and Cash Equivalents
Cash
and cash equivalents were $540,034 at June 30, 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 of
the periods below were as follows:
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June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
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Cash
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|
$
|
540,034
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|
|
$
|
869,557
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Current assets (excluding cash)
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|
|
1,412,236
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|
|
|
596,520
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Current liabilities (excluding short term debt)
|
|
|
945,163
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|
|
|
538,867
|
|
Short term debt
|
|
|
140,000
|
|
|
|
321,500
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|
Working Capital
|
|
|
867,107
|
|
|
|
605,710
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|
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 an investment in SyncHealth, LLC of $250,000. Cash decreased by $329,523.
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 believes 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.
On
July 10, 2019 we entered into a securities Purchase Agreement with R.S.N., LLC, with respect to the private placement of 2,000,000
share of our common stock at a purchase price of $0.50 per share, for gross proceeds of $1,000,000. This transaction closed on
July 30, 2019.
On
September 30, 2019, we closed the sale of securities pursuant to Securities Purchase Agreements entered into with certain accredited
investors with respect to the private placement of 2,910,000 shares of our common stock at a purchase price of $0.50 per share,
for gross proceeds of $1,455,000. Subscribers included Bedford Falls Capital, which is controlled by Gary Augusta, our director
(1,000,000 shares); Nitesh Patel, who is the cousin of Prashant Patel, our director and President (40,000 shares); Shilpa Patel,
who is the spouse of Nitesh Patel, the brother of Prashant Patel our director and President (20,000 shares); and Nitil
Patel, the brother of Prashant Patel, our director and President, (200,000 shares).
Further,
on September 30, 2019, the Company converted $175,000 of principal under various outstanding promissory notes, including
$100,000 owed to Mr. Nitil Patel, the brother of Mr. Prashant Patel, our director and President, and $75,000 owed to Nikul
Panchal, a non-executive officer of the Company and noteholder, into 350,000 shares common stock of the Company at $0.50 per share
under the terms of the Securities Purchase Agreement referenced above.
The
combined total of the transactions detailed above was $2,630,000 of investment and conversion of principal under various
Promissory Notes into an aggregate total of 5,260,000 shares of common stock.
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 investment 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
U.S. 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 six-months ended June 30, 2019 and 2018:
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|
Six-Months Ended
|
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
Net Income
|
|
$
|
183,210
|
|
|
$
|
102,782
|
|
Net Cash Provided by (used in) operations:
|
|
|
|
|
|
|
|
|
Operating Activities
|
|
|
(79,689
|
)
|
|
|
146,456
|
|
Investing Activities
|
|
|
(250,000
|
)
|
|
|
-
|
|
Financing Activities
|
|
|
166
|
|
|
|
(122,464
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
(329,523
|
)
|
|
$
|
23,992
|
|
Cash
used in operations for the six-months ended June 30, 2019 was $79,689. This compared to $146,456 provided in operating activities
for the six-months ended June 30, 2018. This decrease was due to inventory purchases and an increase in Accounts Receivables.
Investing
activities in 2019 include the $250,000 investment in SyncHealth MSO, LLC.
Financing
activities in 2018 included $122,464 payment of Notes.
Financing
activities in 2019 included $166 proceeds from warrant exercise.
Off-Balance
Sheet Arrangements
We
had no outstanding off-balance sheet arrangements as of June 30, 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.”
The
Company 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 – the Company’s Terms and Use Agreement is acknowledged between the Wholesaler and the Company 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. Effective January 1, 2019, the company adopted
ASU 2018-07 for the accounting of share-based payments granted to non-employees for goods and services.
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
Under
the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer,
Mr. Ajjarapu and Mr. Doss, respectively, conducted an evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of June 30, 2019. Based on this
evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that as of June 30, 2019, our disclosure controls
and procedures were not effective.
As
a result of the formative stage of our development, the Company has not fully implemented the necessary internal controls required
to maintain effective disclosure controls. The matters involving internal controls and procedures that the Company’s management
considered to be material weaknesses under the standards of the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) were: (1) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements
and application of accounting principles generally accepted in the United States of America (“GAAP”) and SEC
disclosure requirements; and (2) ineffective controls over period end financial disclosure and reporting processes.
Management
believes that the material weaknesses set forth above did not have an effect on the Company’s financial results reported
herein. We are committed to improving our financial organization. As part of this commitment, we have recently increased our personnel
resources and technical accounting expertise as we develop the internal and financial resources of the Company. In addition, the
Company plans to prepare and implement sufficient written policies and checklists which will set forth procedures for accounting
and financial reporting with respect to the requirements and application of GAAP and SEC disclosure requirements.
Management
believes that preparing and implementing sufficient written policies and checklists will remedy the following material weaknesses
(i) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application
of GAAP and SEC disclosure requirements; and (ii) ineffective controls over period end financial close and reporting processes.
We
have improved our financial organization as we have increased our personnel resources and technical accounting expertise. We will
continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial
reporting on an ongoing basis.
Management’s
Report on Internal Control Over Financial Reporting
Management
of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with GAAP, but because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. The Company’s internal control over financial reporting includes those policies
and procedures that are designed to:
●
|
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 GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management
and 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.
|
Management
assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018. In making
this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
in Internal Control — Integrated Framework. Based on our assessment, management believes that the Company’s internal
controls over financial reporting were not effective as of December 31, 2018. Specifically, management’s evaluation was
based on the following material weaknesses which existed as of December 31, 2018:
|
●
|
Financial
Reporting Systems: The Company did not maintain a fully integrated financial consolidation and reporting system throughout
the period and as a result, extensive manual analysis, reconciliation and adjustments were required in order to produce financial
statements for external reporting purposes.
|
|
|
|
|
●
|
Segregation
of Duties: The Company does not currently have a sufficient complement of technical accounting and external reporting
personal commensurate to support standalone external financial reporting under public company or SEC requirements. Specifically,
the Company did not effectively segregate certain accounting duties due to the small size of its accounting staff and maintain
a sufficient number of adequately trained personnel necessary to anticipate and identify risks critical to financial reporting
and the closing process. In addition, there were inadequate reviews and approvals by the Company’s personnel of certain
reconciliations and other processes in day-to-day operations due to the lack of a full complement of accounting staff.
|
|
|
|
|
●
|
Insufficient
written policies and procedures for accounting and financial reporting with respect to the requirements and application of
accounting principles generally accepted in the United States of America (“GAAP”) and SEC disclosure requirements.
|
|
|
|
|
●
|
Ineffective
controls over period end financial disclosure and reporting processes.
|
The
Company has engaged additional accounting support to provide more resources and expand the technical accounting knowledge to assist
Mr. Doss and Mr. Ajjarapu in their responsibilities with respect to financing reporting.
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 June 30,
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 October 11, 2019:
Name
|
|
Position
|
|
Age
|
|
|
Director/Officer Since
|
Suren Ajjarapu
|
|
Chairman, Chief Executive Officer and Secretary
|
|
|
49
|
|
|
January 2014
|
Prashant Patel
|
|
Director, President and Chief Operating Officer
|
|
|
45
|
|
|
January 2014
|
Donald G. Fell
|
|
Director
|
|
|
73
|
|
|
January 2014
|
Howard A. Doss
|
|
Chief Financial Officer
|
|
|
66
|
|
|
January 2014
|
Michael L. Peterson
|
|
Director
|
|
|
57
|
|
|
August 2016
|
Gary Augusta
|
|
Director
|
|
|
52
|
|
|
October 2019
|
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 Chairman of the Board, Chief Executive Officer and Secretary since our acquisition of Trxade Group, Inc.,
a Nevada corporation (“Trxade Nevada”) (our predecessor company) on January 8, 2014, and as the Chairman of
the Board, Chief Executive Officer and Secretary of Trxade Nevada since its inception. Mr. Ajjarapu has also served as Chairman
of the Board for Feeder Creek Group, Inc., since March 2018. Feeder 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 holds an MS 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.
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, Florida area. Mr. Patel has been a President and Member of the Board of Trxade Nevada since
August 2010. Since October 2008, Mr. Patel has been Managing Member of 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,
United Kingdom.
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, Florida 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, Florida, Mr. Doss was City Executive for U.S. Trust in Sarasota, Florida, 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.
Donald
G. Fell, Director
Mr.
Fell has served as an Independent Director of our company since January 2014, as well as a director of Trxade Nevada since December.
He is presently Professor and Institute Director for the Davis, California-based Foundation for Teaching Economics and adjunct
professor of economics for the University of Colorado, Colorado Springs. From 1995 – 2012, Mr. Fell held positions with
the University of South Florida as a member of the Executive MBA faculty, Director of Executive and Professional Education and
Senior Fellow of the Public Policy Institute. He has also served as visiting professor of economics at the University of LaRochelle,
France, and as adjunct professor of economics at both Illinois State University and The Ohio State University. Mr. Fell holds
undergraduate and graduate degrees in economics from Indiana State University and is all but dissertation (ABD) in economics from
Illinois State University. Through his work with the Foundation for Teaching Economics and the University of Colorado, Colorado
Springs he has conducted graduate institutes on economic policy and environmental economics in 44 states, throughout Canada, the
Islands and Eastern Europe.
Michael
L. Peterson, Director
Mr.
Peterson has served as an independent Director of our company since August 2016. Since June 2018, Mr. Peterson has served as the
president of the Taipei Taiwan Mission of The Church of Jesus Christ of Latter-day Saints, in Taipei, Taiwan. Mr. Peterson served
as the CEO of Pedevco Corp. (NYSE American:PED), a public company engaged primarily in the acquisition, exploration, development
and production of oil and natural gas shale plays in the US from May 2016 to May 2018. Mr. Peterson served as CFO of Pedevco between
July 2012 and May 2016, and as Executive Vice President of Pacific Energy Development (Pedevco’s predecessor) from July
2012 to October 2014, and as Pedevco’s President from October 2014 to May 2018. Mr. Peterson joined Pacific Energy Development
as its Executive Vice President in September 2011, assumed the additional office of Chief Financial Officer in June 2012, and
served as a member of its board of directors from July 2012 to September 2013. Mr. Peterson formerly served as Interim President
and CEO (from June 2009 to December 2011) and as director (from May 2008 to December 2011) of Pacific Energy Development, as a
director (from May 2006 to July 2012) of Aemetis, Inc. (formerly AE Biofuels Inc.), a Cupertino, California-based global advanced
biofuels and renewable commodity chemicals company (AMTX.OB), and as Chairman and Chief Executive Officer of Nevo Energy, Inc.
(NEVE) (formerly Solargen Energy, Inc.), a Cupertino, California-based developer of utility-scale solar farms which he helped
form in December 2008 (from December 2008 to July 2012). From 2005 to 2006, Mr. Peterson served as a managing partner of American
Institutional Partners, a venture investment fund based in Salt Lake City. From 2000 to 2004, he served as a First Vice President
at Merrill Lynch, where he helped establish a new private client services division to work exclusively with high net worth investors.
From September 1989 to January 2000, Mr. Peterson was employed by Goldman Sachs & Co. in a variety of positions and roles,
including as a Vice President with the responsibility for a team of professionals that advised and managed over $7 billion in
assets. Mr. Peterson received his MBA at the Marriott School of Management and a BS in statistics/computer science from Brigham
Young University.
Gary
Augusta, Director
Mr.
Augusta has over 25 years of experience in finance, healthcare, engineering, technology and other innovative sectors including
leadership roles in mergers and acquisitions, capital markets and investments, corporate development including strategic planning
and partnership development, and as a member of public company boards of directors. Mr. Augusta is currently on the Board of Directors
of First Choice Healthcare Solutions Inc. (OTC: FCHS) and was a Board Director, including Executive Chairman for over four years,
of Apollo Medical Holdings, Inc. (NASDAQ: AMEH) from 2012 to November 2018. Under Mr. Augusta’s leadership, Apollo grew
from less than $10M in annual revenue and under a $3M market capitalization to a NASDAQ listed company with a market capitalization
of over $1 Billion. In addition to Board governance positions, Mr. Augusta was also President and lead growth and
capital initiatives during his tenure. Mr. Augusta has served as President of Bedford Falls Capital LLC since September 2018,
which invests in emerging growth companies, both public and private. Mr. Augusta also serves as President of Flacane Advisors
focusing on healthcare and technology capital investments, board roles and advisory services, a position he has held since January
2014. From January 2010 to December 2014, Mr. Augusta was President of SpaGus Ventures and SpaGus Capital Partners focusing on
healthcare and technology investments and advisory services. From March 2004 to December 2009, Mr. Augusta was President and CEO
of OCTANe, an innovation development company. From March 2001 to January 2004, Mr. Augusta was a Corporate Officer at Fluor, Inc.,
a Fortune 500 company, focusing on Corporate Development and M&A. From June 1994 to March 2000, Mr. Augusta was a Consultant
and Principal with AT Kearney, a leading global consulting firm. Mr. Augusta earned a BS in Mechanical Engineering from the University
of Rhode Island and a Master of Science and Management (MSM) from Georgia Institute of Technology (Georgia Tech).
CORPORATE
GOVERNANCE
Family
Relationships amongst Directors and Officers
There
are no family relationships among our directors or executive officers.
Arrangements
between Officers and Directors
To
our knowledge, there is no arrangement or understanding between any of our officers and any other person, including directors,
pursuant to which the officer was selected to serve as an officer.
Involvement
in Certain Legal Proceedings
None
of our executive officers or directors has been involved in any of the following events during the past ten years: (1) any bankruptcy
petition filed by or against any business of which such person was a general partner or executive officer either at the time of
the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being a named subject to
a pending criminal proceeding (excluding traffic violations and minor offenses); (3) being subject to any order, judgment, or
decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining,
barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; (4) being
found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have
violated a federal or state securities or commodities law; (5) being the subject of, or a party to, any Federal or State judicial
or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged
violation of (i) any Federal or State securities or commodities law or regulation; (ii) any law or regulation respecting financial
institutions or insurance companies, including, but not limited to, a temporary or permanent injunction, order of disgorgement
or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or (iii)
any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or (6) being the subject
of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization
(as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section (1a)(40) of the Commodity Exchange
Act), or any equivalent exchange, association, entity, or organization that has disciplinary authority over its members or persons
associated with a member.
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 currently has two committees: the audit committee and the compensation committee.
Board
Committee Membership
|
|
Independent
|
|
Audit
Committee
|
|
Compensation Committee
|
Suren Ajjarapu(1)
|
|
|
|
|
|
|
Prashant Patel
|
|
|
|
|
|
|
Donald G. Fell
|
|
X
|
|
M
|
|
C
|
Michael L. Peterson
|
|
X
|
|
C
|
|
M
|
Gary Augusta
|
|
X
|
|
|
|
|
(1)
Chairman of Board of Directors.
C
- Chairman of Committee.
M
- Member.
Audit
Committee
The
primary purpose of the audit committee is 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 serves 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.
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.
Additional
Committees of the Board of Directors and Exchange Compliance Charters
In
the event that our Board of Directors determines that the uplisting of our common stock to the Nasdaq Capital Market or the NYSE
American is imminent, the Board anticipates adopting new charters of the Audit Committee and Compensation Committee, and adopting
a formal charter for a Nominating and Corporate Governance Committee, which committee charters, and which committee members, will
comply with all applicable requirements of the Nasdaq Capital Market or the NYSE American. The Company plans to file a Current
Report on Form 8-K relating to the adoption of such new charters, when and if, such new charters are adopted by the Board.
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 Ethics
Our
Board of Directors has adopted a Code of Ethics that applies to all of our directors, officers and employees. The Code of 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 Blvd, Land O’ Lakes, Florida, 34639, Attention: Investor Relations. Each of our directors,
employees and officers are required to comply with the Code of Ethics.
Director
Nominations
We
do not currently have a standing nominating committee though we intend to form a corporate governance and nominating committee
as and when required to do so by law or the Nasdaq Capital Market or NYSE American rules. Our Board of Directors believes that
our independent directors can satisfactorily carry out the responsibility of properly selecting or approving director nominees
without the formation of a standing nominating committee at the current time. The independent directors will participate in the
consideration and recommendation of director nominees. As there is no standing nominating committee, we do not have a nominating
committee charter in place.
The
Board of Directors will also consider director candidates recommended for nomination by our stockholders during such times as
they are seeking proposed nominees to stand for election at the next annual meeting of stockholders (or, if applicable, a special
meeting of stockholders).
We
have not formally established any specific minimum qualifications that must be met or skills that are necessary for directors
to possess. In general, in identifying and evaluating nominees for director, our Board of Directors considers educational background,
diversity of professional experience, knowledge of our business, integrity, professional reputation, independence, wisdom and
the ability to represent the best interests of our stockholders.
Board
Leadership Structure
Our
Board of Directors has the responsibility for selecting the appropriate leadership structure for the Company. In making leadership
structure determinations, the Board of Directors considers many factors, including the specific needs of the business and what
is in the best interests of the Company’s stockholders. Our current leadership structure is comprised of a combined Chairman
of the Board and Chief Executive Officer (“CEO”), Mr. Ajjarapu. The Board of Directors believes that this leadership
structure is the most effective and efficient for the Company at this time. Mr. Ajjarapu possesses detailed and in-depth knowledge
of the issues, opportunities, and challenges facing the Company, and is thus best positioned to develop agendas that ensure that
the Board of Directors’ time and attention are focused on the most critical matters. Combining the Chairman of the Board
and CEO roles promotes decisive leadership, fosters clear accountability and enhances the Company’s ability to communicate
its message and strategy clearly and consistently to our stockholders, particularly during periods of turbulent economic and industry
conditions. The Board believes that its programs for overseeing risk, as described below, would be effective under a variety of
leadership frameworks and therefore do not materially affect its choice of structure.
Risk
Oversight
Effective
risk oversight is an important priority of the Board of Directors. Because risks are considered in virtually every business decision,
the Board of Directors discusses risk throughout the year generally or in connection with specific proposed actions. The Board
of Directors’ approach to risk oversight includes understanding the critical risks in the Company’s business and strategy,
evaluating the Company’s risk management processes, allocating responsibilities for risk oversight, and fostering an appropriate
culture of integrity and compliance with legal responsibilities. The directors exercise direct oversight of strategic risks to
the Company.
Board
of Directors Meetings
During
the fiscal year that ended on December 31, 2018, the Board held six meetings, the Audit Committee held four meetings, and the
Compensation Committee held one meeting. All directors attended at least 75% of the Board of Directors meetings and committee
meetings of the committees on which they served, during the fiscal year ended December 31, 2018.
Stockholder
Communications with the Board
In
connection with all other matters other than the nomination of members of our Board of Directors (as described above), our stockholders
and other interested parties may communicate with members of the Board of Directors by submitting such communications in writing
to our Secretary, 3840 Land O’ Lakes Blvd, Land O Lakes, Florida 34639, who, upon receipt of any communication other than
one that is clearly marked “Confidential,” will note the date the communication was received, open the communication,
make a copy of it for our files and promptly forward the communication to the director(s) to whom it is addressed. Upon receipt
of any communication that is clearly marked “Confidential,” our Secretary will not open the communication,
but will note the date the communication was received and promptly forward the communication to the director(s) to whom it is
addressed. If the correspondence is not addressed to any particular member of the Board of Directors, the communication will be
forwarded to a Board member to bring to the attention of the Board.
Compliance
with Section 16(a) of the Exchange Act
Section
16(a) of the Exchange Act requires our directors and officers, and persons who beneficially own more than 10% of a registered
class of the Registrant’s equity securities, to file reports of beneficial ownership and changes in beneficial ownership
of our securities with the SEC on Forms 3, 4 and 5. Officers, directors and greater than 10% stockholders are required by SEC
regulation to furnish us with copies of all Section 16(a) forms they file.
Based
solely upon our review of the Section 16(a) filings that have been furnished to us and representations by our directors and executive
officers (where applicable), we believe that all filings required to be made under Section 16(a) during the fiscal year ended
December 31, 2018 were timely made.
EXECUTIVE
AND DIRECTOR COMPENSATION
The
following table sets forth certain information concerning compensation earned by or paid to certain persons who we refer to as
our “Named Executive Officers” for services provided for the fiscal years ended December 31, 2018 and 2017.
Our Named Executive Officers include persons who (i) served as our principal executive officer or acted in a similar capacity
during the years ended December 31, 2018 and 2017, (ii) were serving at fiscal year-end as our two most highly compensated executive
officers, other than the principal executive officer, whose total compensation exceeded $100,000, and (iii) if applicable, up
to two additional individuals for whom disclosure would have been provided as a most highly compensated executive officer, but
for the fact that the individual was not serving as an executive officer at fiscal year-end.
Summary
Executive Compensation Table
Name and Principal
Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock Awards
($)
|
|
|
Option Awards
($)
|
|
|
All Other Compensation
($)
|
|
|
Total
($)
|
|
Suren Ajjarapu
|
|
|
2018
|
|
|
$
|
200,000
|
(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
200,000
|
|
Chairman of the Board,
|
|
|
2017
|
|
|
$
|
148,750
|
(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
148,750
|
|
Chief Executive Officer,
and Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prashant Patel
|
|
|
2018
|
|
|
$
|
150,000
|
(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
150,000
|
|
Chief Operating Officer,
|
|
|
2017
|
|
|
$
|
62,500
|
(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
62,500
|
|
President and Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Howard A. Doss
|
|
|
2018
|
|
|
$
|
62,500
|
(3)
|
|
|
-
|
|
|
|
-
|
|
|
$
|
17,250
|
|
|
|
-
|
|
|
$
|
79,750
|
|
Chief Financial Officer
|
|
|
2017
|
|
|
$
|
60,000
|
(3)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
60,000
|
|
|
(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.
|
No
Named Executive Officer received any Non-Equity Incentive Plan Compensation or Nonqualified Deferred Compensation Earnings for
the periods presented.
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 his salary on July 1, 2017. In January 2018, Mr. Ajjarapu’s
and Mr. Patel’s salaries were amended to $200,000 and $150,000 per annum, 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 each 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.
On August 28, 2019, the
Company entered into a Consulting and Representation Agreement with Flacane Advisors Inc. (“Flacane”), which
entity is controlled by Gary Augusta, who was appointed to the Board of Directors of the Company on October 9, 2019. The
agreement provides for Flacane to provide business consulting and advisory services to the Company. The agreement remains in effect
until March 31, 2020 and automatically renews for an additional year, to March 31, 2021, unless otherwise renegotiated by the
parties on such date. The agreement may be terminated by either party with 90 days prior notice during the term. As consideration
under the agreement, the Company granted Flacane warrants to purchase 300,000 shares of the Company’s common stock at an
exercise price of $0.01 per share, of which warrants to purchase 150,000 shares vest on April 1, 2020 and warrants to purchase
150,000 shares vest on April 1, 2021, subject to Flacane’s continued service to the Company. Flacane is also eligible
to receive bonuses under the agreement from time to time in the discretion of the Chief Executive Officer of the Company and the
Board of Directors.
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 non-executive
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, make any equity or non-equity awards, or pay 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 $0.65 per share.
|
In
April 2017, the Company granted Mr. Peterson 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 100,000 shares of common stock, vesting over four years and exercisable
at $0.65 per share.
In
April 2018, the Company granted Mr. Fell options to purchase 50,000 shares of common stock, vesting over four years and exercisable
at $0.50 per share.
In
April 2018, the Company granted Mr. Peterson options to purchase 50,000 shares of common stock, vesting over four years and exercisable
at $0.50 per share.
Non-employee
directors are paid $5,000 per quarter for Board responsibilities. The Company has also entered into an indemnification agreement
with Messrs. Fell and Peterson.
Outstanding
Option Equity Awards at 2018 Fiscal Year End
The
following table sets forth information as of December 31, 2018 concerning unexercised options, unvested stock and equity incentive
plan awards for each of the executive officers named in the Summary Compensation Table.
|
|
Option Awards
|
Name
|
|
Grant Date
|
|
Number of Securities Underlying Unexercised Options
(#) Exercisable
|
|
|
Number of Securities Underlying Unexercised Options
(#) Unexercisable
|
|
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
(#)
|
|
|
Option Exercise Price
($)
|
|
|
Option Expiration Date
|
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 July 1, 2016.
|
(2)
|
Vesting
is 6.25% of the total number of shares each quarter of the vesting commencement date of July 1, 2018.
|
There
were no stock awards outstanding at year end.
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.
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.
Company’s
2019 Equity Incentive Plan
On
October 9, 2019, the Board of Directors adopted the Company’s 2019 Equity Incentive Plan (the “Plan”).
The grant of incentive stock options under the Plan is subject to stockholder approval of the Plan within 12 months of the date
adopted by the Board of Directors.
The
Plan is intended to secure for the Company the benefits arising from ownership of the Company’s common stock by the employees,
officers, directors and consultants of the Company, all of whom are and will be responsible for the Company’s future growth.
The Plan is designed to help attract and retain for the Company, qualified personnel for positions of exceptional responsibility,
to reward employees, officers, directors and consultants for their services to the Company and to motivate such individuals through
added incentives to further contribute to the success of the Company.
The
following is a summary of the material features of the Plan:
Eligibility
The
Plan will provide an opportunity for any employee, officer, director or consultant of the Company, subject to any limitations
provided by federal or state securities laws, to receive (i) incentive stock options (to eligible employees only); (ii) nonqualified
stock options; (iii) restricted stock; (iv) stock awards; (v) shares in performance of services; or (vi) any combination of the
foregoing. In making such determinations, the Board of Directors (or the Compensation Committee) may take into account the nature
of the services rendered by such person, his or her present and potential future contribution to the Company’s success,
and such other factors as the Board of Directors (or the Compensation Committee) in its discretion shall deem relevant. Incentive
stock options granted under the Plan are intended to qualify as “incentive stock options” within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). Nonqualified (non-statutory stock
options) granted under the Plan are not intended to qualify as incentive stock options under the Code. See “Federal Income
Tax Consequences” below for a discussion of the principal federal income tax consequences of awards under the Plan.
No awards can be issued to any person in consideration for services rendered where such services are in connection with the offer
or sale of securities in a capital-raising transaction, or they directly or indirectly promote or maintain a market for the Company’s
securities.
No
incentive stock option may be granted under the Plan to any person who, at the time of the grant, owns (or is deemed to own) stock
possessing more than 10% of the total combined voting power of our Company or any affiliate of our Company, unless the exercise
price is at least 110% of the fair market value of the stock subject to the option on the date of grant and the term of the option
does not exceed five years from the date of grant.
Administration
of Plan
The
Plan shall be administered by the Board of Directors of the Company and/or the Company’s Compensation Committee (if one
is formed). The Board of Directors (or the Compensation Committee) shall have the exclusive right to interpret and construe the
Plan, to select the eligible persons who shall receive an award, and to act in all matters pertaining to the grant of an award
and the determination and interpretation of the provisions of the related award agreement, including, without limitation, the
determination of the number of shares subject to stock options and the option period(s) and option price(s) thereof, the number
of shares of restricted stock or shares subject to stock awards or performance shares subject to an award, the vesting periods
(if any) and the form, terms, conditions and duration of each award, and any amendment thereof consistent with the provisions
of the Plan.
Stock
Subject to the Plan
Subject
to adjustment in connection with the payment of a stock dividend, a stock split or subdivision or combination of the shares of
common stock, or a reorganization or reclassification of the Company’s common stock, the maximum aggregate number of shares
of common stock which may be issued pursuant to awards under the Plan is six million 6,000,000 shares. Such shares of common stock
shall be made available from the authorized and unissued shares of the Company.
If
shares of common stock subject to an option or performance award granted under the Plan expire or otherwise terminate without
being exercised (or exercised in full), such shares shall become available again for grants under the Plan. If shares of restricted
stock awarded under the Plan are forfeited to us or repurchased by us, the number of shares forfeited or repurchased shall not
again be available under the Plan. Similarly, any shares cancelled in cashless exercises are not available for reissuance under
the Plan.
Term
of Awards
The
Board of Directors, in its sole discretion, shall determine the exercise price of any Options granted under the Plan which exercise
price shall be set forth in the agreement evidencing the Option, provided however that at no time shall the exercise price be
less than $0.00001 par value per share of the Company’s common stock. Also, the exercise price of incentive stock options
may not be less than the fair market value of the common stock subject to the option on the date of the grant and, in some cases
(see “Who is eligible to participate in the Plan?” above), may not be less than 110% of such fair market value.
The exercise price of non-statutory options also may not be less than the fair market value of the common stock on the date of
grant. The exercise price of options granted under the Plan must be paid either in cash at the time the option is exercised or,
at the discretion of our Board of Directors, (i) by delivery of already-owned shares of our common stock, (ii) pursuant to a deferred
payment arrangement, (iii) pursuant to a net exercise arrangement, or (iv) pursuant to a cashless exercise as permitted under
applicable rules and regulations of the Securities and Exchange Commission.
Options
and other awards granted under the Plan may be exercisable in cumulative increments, or “vest,” as determined
by our Board of Directors or the Compensation Committee. Our Board of Directors and the Compensation Committee has the power to
accelerate the time as of which an option may vest or be exercised. Shares of restricted stock acquired under a restricted stock
purchase or grant agreement may, but need not, be subject to forfeiture to us or other restrictions that will lapse in accordance
with a vesting schedule to be determined by the Board of Directors or the Compensation Committee. In the event a recipient’s
employment or service with our Company terminates, any or all of the shares of common stock held by such recipient that have not
vested as of the date of termination under the terms of the restricted stock agreement may be forfeited to our Company in accordance
with such restricted stock agreement.
The
expiration date of Options and other awards granted under the Plan will be determined by our Board of Directors or the Compensation
Committee. The maximum term of options and performance shares under the Plan is ten years, except that in certain cases the maximum
term is five years.
Equitable
Adjustments to Awards
Upon
the occurrence of:
(i)
|
the
adoption of a plan of merger or consolidation of the Company with any other corporation or association as a result of which
the holders of the voting capital stock of the Company as a group would receive less than 50% of the voting capital stock
of the surviving or resulting corporation;
|
|
|
(ii)
|
the
approval by the Board of Directors of an agreement providing for the sale or transfer (other than as security for obligations
of the Company) of substantially all of the assets of the Company; or
|
|
|
(iii)
|
in
the absence of a prior expression of approval by the Board of Directors, the acquisition of more than 20% of the Company’s
voting capital stock by any person within the meaning of Rule 13d-3 under the Exchange Act (other than the Company or a person
that directly or indirectly controls, is controlled by, or is under common control with, the Company);
|
and
unless otherwise provided in the award agreement with respect to a particular award, all outstanding stock options shall become
immediately exercisable in full, subject to any appropriate adjustments, and shall remain exercisable for the remaining option
period, regardless of any provision in the related award agreement limiting the ability to exercise such stock option or any portion
thereof for any length of time. All outstanding performance shares with respect to which the applicable performance period has
not been completed shall be paid out as soon as practicable; and all outstanding shares of restricted stock with respect to which
the restrictions have not lapsed shall be deemed vested and all such restrictions shall be deemed lapsed and the restriction period
ended.
Additionally,
after the merger of one or more corporations into the Company, any merger of the Company into another corporation, any consolidation
of the Company and one or more corporations, or any other corporate reorganization of any form involving the Company as a party
thereto and involving any exchange, conversion, adjustment or other modification of the outstanding shares of the common stock,
each participant shall, at no additional cost, be entitled, upon any exercise of such participant’s stock option, to receive,
in lieu of the number of shares as to which such stock option shall then be so exercised, the number and class of shares of stock
or other securities or such other property to which such participant would have been entitled to pursuant to the terms of the
agreement of merger or consolidation or reorganization, if at the time of such merger or consolidation or reorganization, such
participant had been a holder of record of a number of shares of common stock equal to the number of shares as to which such stock
option shall then be so exercised.
Termination
of Employment
The
incentive stock options shall lapse and cease to be exercisable upon the termination of service of an employee or director as
defined in the Plan, or within such period following a termination of service as shall have been determined by the Board of Directors
and set forth in the related award agreement; provided, further, that such period shall not exceed the period of time ending on
the date three (3) months following a termination of service. Non-incentive stock options are governed by the related award agreements.
Adjustments
for Withholding
To
the extent provided by the terms of an option or other award, a participant may satisfy any federal, state or local tax withholding
obligation relating to the exercise of such option, or award by a cash payment upon exercise, or in the discretion of our Board
of Directors or Compensation Committee, by authorizing our Company to withhold a portion of the stock otherwise issuable to the
participant, by delivering already-owned shares of our common stock or by a combination of these means.
Income
Tax Consequences
The
following is a summary of the principal United States federal income tax consequences to the recipient and our Company with respect
to participation in the Plan. This summary is not intended to be exhaustive, and does not discuss the income tax laws of any city,
state or foreign jurisdiction in which a participant may reside.
Incentive
Stock Options
There
will be no federal income tax consequences to either us or the recipient upon the grant of an incentive stock option. Upon exercise
of the option, the excess of the fair market value of the stock over the exercise price, or the “spread,” will
be added to the alternative minimum tax base of the recipient unless a disqualifying disposition is made in the year of exercise.
A disqualifying disposition is the sale of the stock prior to the expiration of two years from the date of grant and one year
from the date of exercise. If the shares of common stock are disposed of in a disqualifying disposition, the recipient will realize
taxable ordinary income in an amount equal to the spread at the time of exercise, and we will be entitled (subject to the requirement
of reasonableness, the provisions of Section 162(m) of the Code and the satisfaction of a tax reporting obligation) to a federal
income tax deduction equal to such amount. If the recipient sells the shares of common stock after the specified periods, the
gain or loss on the sale of the shares will be long-term capital gain or loss and we will not be entitled to a federal income
tax deduction.
Non-statutory
Stock Options and Restricted Stock Awards
Non-statutory
stock options and restricted stock awards granted under the Plan generally have the following federal income tax consequences.
There
are no tax consequences to the participant or us by reason of the grant. Upon acquisition of the stock, the recipient will recognize
taxable ordinary income equal to the excess, if any, of the stock’s fair market value on the acquisition date over the purchase
price. However, to the extent the stock is subject to “a substantial risk of forfeiture” (as defined in Section
83 of the Code), the taxable event will be delayed until the forfeiture provision lapses unless the recipient elects to be taxed
on receipt of the stock by making a Section 83(b) election within 30 days of receipt of the stock. If such election is not made,
the recipient generally will recognize income as and when the forfeiture provision lapses, and the income recognized will be based
on the fair market value of the stock on such future date. On that date, the recipient’s holding period for purposes of
determining the long-term or short-term nature of any capital gain or loss recognized on a subsequent disposition of the stock
will begin. If a recipient makes a Section 83(b) election, the recipient will recognize ordinary income equal to the difference
between the stock’s fair market value and the purchase price, if any, as of the date of receipt and the holding period for
purposes of characterizing as long-term or short-term any subsequent gain or loss will begin at the date of receipt.
With
respect to employees, we are generally required to withhold from regular wages or supplemental wage payments an amount based on
the ordinary income recognized. Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code and
the satisfaction of a tax reporting obligation, we will generally be entitled to a business expense deduction equal to the taxable
ordinary income realized by the participant.
Upon
disposition of the stock, the recipient will recognize a capital gain or loss equal to the difference between the selling price
and the sum of the amount paid for such stock plus any amount recognized as ordinary income with respect to the stock. Such gain
or loss will be long-term or short-term depending on whether the stock has been held for more than one year.
Potential
Limitation on Company Deductions
Section
162(m) of the Code denies a deduction to any publicly held corporation for compensation paid to certain senior executives of our
company (a “covered employee”) in a taxable year to the extent that compensation to such employees exceeds
$1,000,000. It is possible that compensation attributable to awards, when combined with all other types of compensation received
by a covered employee from our company, may cause this limitation to be exceeded in any particular year.
Modification
of Awards After Grant
Yes.
The Board of Directors (or Compensation Committee) may reprice any Stock Option without the approval of the stockholders of the
Company. For this purpose, “reprice” means (i) any of the following or any other action that has the same effect:
(A) lowering the exercise price of a Stock Option after it is granted, (B) any other action that is treated as a repricing under
U.S. generally accepted accounting principles (“GAAP”), or (C) cancelling a Stock Option at a time when its
exercise price exceeds the fair market value of the underlying common stock, in exchange for another Stock Option, restricted
stock or other equity, unless the cancellation and exchange occurs in connection with a merger, acquisition, spin-off or other
similar corporate transaction; and (ii) any other action that is considered to be a repricing under formal or informal guidance
issued by exchange or market on which the Company’s common stock then trades or is quoted. In addition to, and without limiting
the above, the Board of Directors (or Compensation Committee) may permit the voluntary surrender of all or a portion of any Stock
Option granted under the Plan to be conditioned upon the granting to the participant of a new Stock Option for the same or a different
number of shares of common stock as the Stock Option surrendered, or may require such voluntary surrender as a condition precedent
to a grant of a new Stock Option to such participant. Subject to the provisions of the Plan, such new Stock Option shall be exercisable
at such Option Price, during such option period and on such other terms and conditions as are specified by the Board of Directors
(or Compensation Committee) at the time the new Stock Option is granted. Upon surrender, the Stock Options surrendered shall be
cancelled and the shares of common stock previously subject to them shall be available for the grant of other Stock Options.
Modification
of Plan
The
Board of Directors may adopt, establish, amend and rescind such rules, regulations and procedures as it may deem appropriate for
the proper administration of the Plan, make all other determinations which are, in the Board of Directors’ judgment, necessary
or desirable for the proper administration of the Plan, amend the Plan or a stock award as provided in Article XI of the Plan,
and/or terminate or suspend the Plan as provided in Article XI thereof. Our Board of Directors may also amend the Plan at any
time, and from time to time. However, except as relates to adjustments upon changes in common stock, no amendment will be effective
unless approved by our stockholders to the extent stockholder approval is necessary to preserve incentive stock option treatment
for federal income tax purposes. Our Board of Directors may submit any other amendment to the Plan for stockholder approval if
it concludes that stockholder approval is otherwise advisable.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Except
as discussed below or otherwise disclosed above under “Executive and Director Compensation”, which information
is incorporated by reference where applicable in this “Certain Relationships and Related Transactions, and Director Independence”
section, the following sets forth a summary of all transactions since the beginning of the fiscal year of 2017, or any currently
proposed transaction, in which the Company was to be a participant and the amount involved exceeded or exceeds the lesser of $120,000
or one percent of the average of the Company’s total assets at the fiscal year-end for 2017 and 2018, and in which any related
person had or will have a direct or indirect material interest (other than compensation described above under “Executive
and Director Compensation”). We believe the terms obtained or consideration that we paid or received, as applicable,
in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received,
as applicable, in arm’s-length transactions.
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 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 salary agreements were amended to provide salary from $165,000 and $125,000, to $200,000 and $150,000,
per year, 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 note due to Mr. Patel is $122,552, which includes $17,280
due from a previously 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 notes are due July 1, 2020 and each bear an
interest rate of 6% per annum, payable annually. The $222,552 of outstanding loans were paid in full on October 8, 2019.
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 was due February 2018. Both of these notes were entered into with Nitil 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%. On September 30, 2019 the note was converted to 200,000 shares
of common stock at $0.50.
In
October 2018 in connection with the acquisition of Community Specialty Pharmacy, LLC a $300,000 promissory note was issued to
Nikul Panchal, a non-executive officer of the Company and noteholder, accruing interest at simple interest of 10%, interest payable
annually, and principal payable at maturity on October 15, 2021. The $75,000 note was converted into 150,000 shares of common
stock at $0.50 on September 30, 2019.
As
of June 30, 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. The note was paid in August 2019.
As
of June 30, 2019, $100,000 in convertible promissory notes were due to Mr. Nitil Patel, the brother of Mr. Prashant Patel,
our director and President. 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. In July 2019, the note was extended to
October 15, 2019. On September 27, 2019, this note was amended and converted into 200,000 shares of common stock at $0.50.
During
the year ended December 31, 2018 and for the six months ended June 30, 2019, 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 (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 the Company 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. To date, we
have not realized any income from the technology and presently we are in discussions to dissolve this relationship.
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.
On
August 28, 2019, the Company entered into a Consulting and Representation Agreement with Flacane Advisors Inc. (“Flacane”),
which entity is controlled by Gary Augusta, who was appointed to the Board of Directors of the Company on October 9, 2019.
The agreement provides for Flacane to provide business consulting and advisory services to the Company. The agreement remains
in effect until March 31, 2020 and automatically renews for an additional year, to March 31, 2021, unless otherwise renegotiated
by the parties on such date. The agreement may be terminated by either party with 90 days prior notice during the term. As consideration
under the agreement, the Company granted Flacane warrants to purchase 300,000 shares of the Company’s common stock at an
exercise price of $0.01 per share, of which warrants to purchase 150,000 shares vest on April 1, 2020 and warrants to purchase
150,000 shares vest on April 1, 2021, subject to Flacane’s continued service to the Company. Flacane is also eligible
to receive bonuses under the agreement from time to time in the discretion of the Chief Executive Officer of the Company and the
Board of Directors.
In
August 2019, Mr. Augusta, through Bedford Falls Capital LLC, an entity which he controls, purchased 500,000 shares of common stock
of the Company in the Company’s private placement offering, for $250,000, or $0.50 per share.
In
September 2019, Mr. Augusta, through Bedford Falls Capital LLC, an entity which he controls, purchased 500,000 shares of common
stock of the Company in the Company’s private placement offering, for $250,000, or $0.50 per share.
On
September 30, 2019, the Company converted $175,000 of principal under various outstanding promissory notes, including $100,000
owed to Mr. Nitil Patel, the brother of Mr. Prashant Patel, our director and President, $75,000 owed to Nikul Panchal,
a non-executive officer of the Company and noteholder, into 350,000 shares of common stock of the Company at $0.50
per share under the terms of the Securities Purchase Agreement referenced above.
On
October 8, 2019, $122,552 and $100,000 in promissory notes due to Mr. Prashant Patel and Mr. Suren Ajjarapu, respectively, were
paid in full. The notes were due July 1, 2020.
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 “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. We have determined that three of our five directors, Mr. Fell, Mr. Augusta, and Mr. Peterson,
are deemed “independent”.
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).
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
Section
145 of the Delaware General Corporation Law (“DGCL”) authorizes a corporation’s board of directors to
grant, and authorizes a court to award, indemnity to officers, directors, and other corporate agents.
Pursuant
to the Company’s Certificate of Incorporation:
|
●
|
A
director of the Company shall, to the fullest extent permitted by the DGCL as it now exists or as it may hereafter be amended,
not be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent such exception from liability is not permitted under the DGCL as the same exists or may hereafter be
amended; and
|
|
|
|
|
●
|
To
the fullest extent permitted by applicable law, the Company is authorized to provide indemnification of, and advancement of
expenses to, such agents of the Company (and any other persons to which Delaware law permits the Company 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 DGCL, subject only to
limits created by applicable Delaware law (statutory or non-statutory), with respect to actions for breach of duty to the
Company, its stockholders and others.
|
Section
145 of the DGCL, provides, among other things, that a Delaware corporation may indemnify any person who was, is or is threatened
to be made, party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person is or was
an officer, director, employee or agent of such corporation or is or was serving at the request of such corporation as a director,
officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’
fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such
action, suit or proceeding, provided such person acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the corporation’s best interests and, with respect to any criminal action or proceeding, had no reasonable
cause to believe that his or her conduct was unlawful. A Delaware corporation may indemnify any persons who were or are a party
to any threatened, pending or completed action or suit by or in the right of the corporation by reason of the fact that such person
is or was a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including
attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action
or suit, provided such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the
corporation’s best interests, provided further that no indemnification is permitted without judicial approval if the officer,
director, employee or agent is adjudged to be liable to the corporation. Where an officer or director is successful on the merits
or otherwise in the defense of any action referred to above, the corporation must indemnify him or her against the expenses (including
attorneys’ fees) which such officer or director has actually and reasonably incurred.
Section
145 further authorizes a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or
agent of another corporation or enterprise, against any liability asserted against such person and incurred by such person in
any such capacity, or arising out of his or her status as such, whether or not the corporation would otherwise have the power
to indemnify such person under Section 145.
The
indemnification rights set forth above shall not be exclusive of any other right which an indemnified person may have or hereafter
acquire under any statute, any provision of our amended and certificate of incorporation, our amended and restated bylaws, agreement,
vote of stockholders or disinterested directors or otherwise. Notwithstanding the foregoing, we shall not be obligated to indemnify
a director or officer in respect of a proceeding (or part thereof) instituted by such director or officer, unless such proceeding
(or part thereof) has been authorized by the board of directors pursuant to the applicable procedure outlined in the amended and
restated bylaws.
Section
174 of the DGCL provides, among other things, that a director, who willfully or negligently approves of an unlawful payment of
dividends or an unlawful stock purchase or redemption, may be held jointly and severally liable for such actions. A director who
was either absent when the unlawful actions were approved or dissented at the time may avoid liability by causing his or her dissent
to such actions to be entered in the books containing the minutes of the meetings of the board of directors at the time such action
occurred or immediately after such absent director receives notice of the unlawful acts.
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 DGCL 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 may be sufficiently broad to permit indemnification
of our officers and directors for liabilities, including reimbursement of expenses incurred, arising under the Securities Act.
INDEX
TO FINANCIAL STATEMENTS
Unaudited
Financial Statements for the Three and Six Months Ended June 30, 2019 and 2018
Audited
Financial Statements for the Years Ended December 31, 2018 and 2017
Trxade
Group, Inc.
Consolidated
Balance Sheets
June
30, 2019 and December 31, 2018
(unaudited)
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
Assets
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
540,034
|
|
|
$
|
869,557
|
|
Accounts Receivable, net
|
|
|
713,479
|
|
|
|
433,627
|
|
Inventory
|
|
|
546,816
|
|
|
|
79,966
|
|
Prepaid Assets
|
|
|
151,941
|
|
|
|
82,927
|
|
Total Current Assets
|
|
|
1,952,270
|
|
|
|
1,466,077
|
|
|
|
|
|
|
|
|
|
|
Property Plant and Equipment, Net
|
|
|
12,506
|
|
|
|
15,006
|
|
|
|
|
|
|
|
|
|
|
Other Assets
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
21,636
|
|
|
|
20,531
|
|
Equity method investment
|
|
|
162,178
|
|
|
|
-
|
|
Right of use leased assets
|
|
|
803,502
|
|
|
|
-
|
|
Goodwill
|
|
|
725,973
|
|
|
|
725,973
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
3,678,065
|
|
|
$
|
2,227,587
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$
|
763,143
|
|
|
$
|
400,544
|
|
Accrued Liabilities
|
|
|
101,188
|
|
|
|
138,323
|
|
Current Portion Lease Liabilities
|
|
|
80,832
|
|
|
|
-
|
|
Short Term Convertible Notes Payable
|
|
|
-
|
|
|
|
181,500
|
|
Short Term Convertible Notes Payable –
Related Parties
|
|
|
140,000
|
|
|
|
140,000
|
|
Total Current Liabilities
|
|
|
1,085,163
|
|
|
|
860,367
|
|
|
|
|
|
|
|
|
|
|
Long Term Liabilities
|
|
|
|
|
|
|
|
|
Notes Payable – Related Parties
|
|
|
522,552
|
|
|
|
522,552
|
|
Other Long-term Liabilities – Leases
|
|
|
730,333
|
|
|
|
-
|
|
Total Liabilities
|
|
|
2,338,048
|
|
|
|
1,382,919
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ Equity
|
|
|
|
|
|
|
|
|
Series A Preferred Stock, $0.00001 par value; 10,000,000 shares authorized; none issued and outstanding as of June 30, 2019 and December 31, 2018, respectfully
|
|
|
-
|
|
|
|
-
|
|
Common Stock, $0.00001 par value; 100,000,000 shares authorized; 33,726,489 and 33,285,827 shares issued and outstanding, as of June 30, 2019 and December 31, 2018, respectively
|
|
|
337
|
|
|
|
332
|
|
Additional Paid-in Capital
|
|
|
9,267,545
|
|
|
|
8,955,411
|
|
Retained Deficit
|
|
|
(7,927,865
|
)
|
|
|
(8,111,075
|
)
|
Total Shareholders’ Equity
|
|
|
1,340,017
|
|
|
|
844,668
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders’ Equity
|
|
$
|
3,678,065
|
|
|
$
|
2,227,587
|
|
The
accompanying notes are an integral part of the unaudited consolidated financial statements.
Trxade
Group, Inc.
Consolidated Statements of Operations
Three and Six Months Ended June 30, 2019 and 2018
(unaudited)
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,916,414
|
|
|
$
|
837,688
|
|
|
$
|
3,428,935
|
|
|
$
|
1,690,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales
|
|
|
753,138
|
|
|
|
-
|
|
|
|
1,118,977
|
|
|
|
-
|
|
Gross Profit
|
|
|
1,163,276
|
|
|
|
837,688
|
|
|
|
2,309,958
|
|
|
|
1,690,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and Administrative
|
|
|
1,030,571
|
|
|
|
806,242
|
|
|
|
2,005,494
|
|
|
|
1,560,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
132,705
|
|
|
|
31,446
|
|
|
|
304,464
|
|
|
|
130,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share in Equity Losses in Investment
|
|
|
(58,850
|
)
|
|
|
-
|
|
|
|
(87,822
|
)
|
|
|
-
|
|
Interest Expense
|
|
|
(15,874
|
)
|
|
|
(10,933
|
)
|
|
|
(33,432
|
)
|
|
|
(27,392
|
)
|
Net Income
|
|
$
|
57,981
|
|
|
$
|
20,513
|
|
|
$
|
183,210
|
|
|
$
|
102,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income per Common Share
– Basic:
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.01
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income per Common Share
– Diluted:
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.01
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average Common Shares Outstanding Basic
|
|
|
33,726,489
|
|
|
|
31,985,827
|
|
|
|
33,546,329
|
|
|
|
31,985,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average Common Shares Outstanding Diluted
|
|
|
36,353,751
|
|
|
|
34,479,406
|
|
|
|
36,353,751
|
|
|
|
34,472,811
|
|
The
accompanying notes are an integral part of the unaudited consolidated financial statements.
Trxade
Group, Inc.
Consolidated
Statements of Changes in Shareholders’ Equity
Three
and Six Months Ended June 30, 2019 and 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
|
|
|
-
|
|
|
|
-
|
|
|
|
423,996
|
|
|
|
4
|
|
|
|
211,979
|
|
|
|
-
|
|
|
|
211,983
|
|
Warrants exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
16,666
|
|
|
|
1
|
|
|
|
165
|
|
|
|
-
|
|
|
|
166
|
|
Options Expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35,979
|
|
|
|
-
|
|
|
|
35,979
|
|
Net Income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
125,229
|
|
|
|
125,229
|
|
Balance at March 31, 2019
|
|
|
-
|
|
|
|
-
|
|
|
|
33,726,489
|
|
|
|
337
|
|
|
|
9,203,534
|
|
|
|
(7,985,846
|
)
|
|
|
1,218,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
64,011
|
|
|
|
-
|
|
|
|
64,011
|
|
Net Income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
57,981
|
|
|
|
57,981
|
|
Balance at June 30, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
33,726,489
|
|
|
$
|
337
|
|
|
$
|
9,267,545
|
|
|
$
|
(7,927,865
|
)
|
|
$
|
1,340,017
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Additional
Paid-in-
|
|
|
Accumulated
|
|
|
Total
Shareholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
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
|
|
Balance at March 31, 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
31,985,827
|
|
|
|
320
|
|
|
|
7,845,316
|
|
|
|
(8,037,844
|
)
|
|
|
(192,208
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,616
|
|
|
|
-
|
|
|
|
50,616
|
|
Net Income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,513
|
|
|
|
20,513
|
|
Balance at June 30, 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
31,985,827
|
|
|
$
|
320
|
|
|
$
|
7,895,932
|
|
|
$
|
(8,017,331
|
)
|
|
$
|
(121,079
|
)
|
The
accompanying notes are an integral part of the unaudited consolidated financial statements.
Trxade
Group, Inc.
Consolidated
Statements of Cash Flows
Six-months
ended June 30, 2019 and 2018
(unaudited)
|
|
2019
|
|
|
2018
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
183,210
|
|
|
$
|
102,782
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation Expense
|
|
|
2,500
|
|
|
|
-
|
|
Options expense
|
|
|
99,990
|
|
|
|
88,072
|
|
Share in Equity Losses in Investment
|
|
|
87,822
|
|
|
|
-
|
|
Amortization of right to use asset
|
|
|
43,939
|
|
|
|
-
|
|
Amortization of Debt Discount
|
|
|
-
|
|
|
|
152
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts Receivable
|
|
|
(279,852
|
)
|
|
|
(5,875
|
)
|
Prepaid Assets and other Current Assets
|
|
|
(70,119
|
)
|
|
|
(64,831
|
)
|
Inventory
|
|
|
(466,850
|
)
|
|
|
-
|
|
Lease Liability
|
|
|
(36,276
|
)
|
|
|
-
|
|
Accounts Payable
|
|
|
362,599
|
|
|
|
22,671
|
|
Accrued Liabilities and Other Liabilities
|
|
|
(6,652
|
)
|
|
|
3,485
|
|
Net Cash provided by (used in) operating activities
|
|
|
(79,689
|
)
|
|
|
146,456
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
Purchase of equity method investment
|
|
|
(250,000
|
)
|
|
|
-
|
|
Net cash Used in Investing activities
|
|
|
(250,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
Repayments of Short-Term Convertible Debt – Related Parties
|
|
|
-
|
|
|
|
(111,725
|
)
|
Repayments of Short-Term Promissory Notes
|
|
|
-
|
|
|
|
(10,739
|
)
|
Proceeds from exercise of Warrants
|
|
|
166
|
|
|
|
-
|
|
Net Cash provided by (used in) financing activities
|
|
|
166
|
|
|
|
(122,464
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in Cash
|
|
|
(329,523
|
)
|
|
|
23,992
|
|
Cash at Beginning of the Year
|
|
|
869,557
|
|
|
|
183,914
|
|
Cash at June 30, 2019 and 2018
|
|
$
|
540,034
|
|
|
$
|
207,906
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
Cash Paid for Interest
|
|
$
|
2,997
|
|
|
$
|
27,392
|
|
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
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of the unaudited consolidated financial statements.
Trxade
Group, Inc.
Notes To Unaudited Consolidated Financial Statements
For the six-months ended June 30, 2019 and 2018
NOTE
1 – ORGANIZATION AND BASIS OF PRESENTATION
Trxade
Group, Inc. (“we”, “our”, “Trxade”, and the “Company”) owns 100% of
Trxade, Inc., Integra Pharma Solutions, LLC, Community Specialty Pharmacy, LLC 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 – If the investments are less than 50% owned and more than 20% owned the entities use the equity method
of accounting in accordance with ASC 323-10 – Investments – Equity Method and Joint Ventures.
The share of income (loss) of such entities is recorded as a single amount as share in equity income (loss)
of investments. Dividends, if any, are recorded as a reduction of the investment.
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:
|
|
For three months ended June 30,
|
|
|
For six months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
57,981
|
|
|
$
|
20,513
|
|
|
$
|
183,210
|
|
|
$
|
102,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic and diluted EPS - income available to common Shareholders
|
|
|
57,981
|
|
|
$
|
20,513
|
|
|
|
183,210
|
|
|
$
|
102,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic EPS – Weighted average shares
|
|
|
33,726,489
|
|
|
|
31,985,827
|
|
|
|
33,546,329
|
|
|
|
31,985,827
|
|
Dilutive Effect of Warrants, Options and Convertible Debt
|
|
|
2,627,262
|
|
|
|
2,493,579
|
|
|
|
2,807,422
|
|
|
|
2,486,984
|
|
Denominator for diluted EPS – adjusted Weighted average shares and assumed Conversions
|
|
|
36,353,751
|
|
|
|
34,479,406
|
|
|
|
36,353,751
|
|
|
|
34,472,811
|
|
Basic and Diluted income per common share
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.01
|
|
|
$
|
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 #7 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 June 30, 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 Notes
As
of June 30, 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 June 30, 2019, $100,000 in convertible promissory notes were due to Mr. Nitil 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. In July 2019, the note was extended to October 15, 2019.
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 at simple interest of 10%, interest payable annually, and principal payable at maturity in October
2021.
As
of June 30, 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.
In
April and May 2019, 505,000 options were granted with exercise prices ranging from $0.41 to $0.44 and a term of 10 years from
the grant date. The options vest over a period ranging from four to five years.
NOTE
5 - WARRANTS
For
the six-month period ended June 30, 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 June 30, 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 June 30, 2019
|
|
|
2,863,475
|
|
|
$
|
0.08
|
|
|
|
3.08
|
|
|
$
|
1,448,356
|
|
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 six-month period ended June 30, 2019, 505,000 options were issued, none were forfeited or expired due to employee resignation.
The
Company uses the Black-Sholes option pricing model to estimate the fair value of stock-based awards on the date of the grant.
The following table summarizes the assumptions used to estimate the fair value of the stock options granted during the quarter
ended June 30, 2019.
|
|
2019
|
|
Expected dividend yield
|
|
|
0%
|
|
Weighted-average expected volatility
|
|
|
209-250%
|
|
Weighted-average risk-free interest rate
|
|
|
2.08-2.55%
|
|
Expected life of options
|
|
|
5-7 years
|
|
Total
compensation cost related to stock options was $99,990 and $88,072 for the six-months ended June 30, 2019 and 2018 respectively.
The
following table represents stock option activity for the six-month period ended June 30, 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
|
|
|
505,000
|
|
|
$
|
0.43
|
|
|
|
9.86
|
|
|
|
-
|
|
Options forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding as of June 30, 2019
|
|
|
2,237,846
|
|
|
$
|
0.73
|
|
|
|
7.27
|
|
|
$
|
88,350
|
|
Options Exercisable as of June 30, 2019
|
|
|
1,239,384
|
|
|
$
|
0.91
|
|
|
|
5.77
|
|
|
$
|
8,809
|
|
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 earliest comparative
period presented in the financial statements. Therefore, the Company recognized and measured leases existing at January 1, 2019
but without retrospective application. In addition, the Company elected the optional practical expedient permitted under the transition
guidance which allows the Company to carry forward the historical accounting treatment for existing leases upon adoption. No impact
was recorded to the beginning retained earnings for Topic 842. The Company has two operating leases for corporate offices. The
following table outlines the details:
|
|
Lease 1
|
|
|
Lease 2
|
|
Initial Lease Term
|
|
|
December 2017 to December 2021
|
|
|
|
November 2018 to November 2023
|
|
Renewal Term
|
|
|
January 2021 to December 2024
|
|
|
|
November 2023 to November 2028
|
|
Initial Recognition of Right 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 June 30, 2019
Amounts due within twelve months of June 30
|
|
|
|
2019
|
|
$
|
158,366
|
|
2020
|
|
|
163,102
|
|
2021
|
|
|
167,984
|
|
2022
|
|
|
173,038
|
|
2023
|
|
|
178,237
|
|
Thereafter
|
|
|
305,012
|
|
Total minimum lease payments
|
|
|
1,145,739
|
|
Less: effect of discounting
|
|
|
(334,574
|
)
|
Present value of future minimum lease payments
|
|
|
811,165
|
|
Less: current obligations under leases
|
|
|
80,832
|
|
Long-term lease obligations
|
|
$
|
730,333
|
|
For
the three-months and six-months ended June 30, 2019 amortization of assets were $22,195 and $43,939, respectively.
For
the three-months and six-months ended June 30, 2019, amortization of liabilities were $18,363 and 36,276, respectively.
NOTE
8 – SEGMENT REPORTING
The
Company classifies its business interests into reportable segments which are Trxade, Community and Other.
Six Months Ended June 30, 2019
|
|
Trxade, Inc.
|
|
|
Community Specialty Pharmacy, LLC
|
|
|
Other
|
|
|
Total
|
|
Revenue
|
|
$
|
2,182,668
|
|
|
$
|
892,357
|
|
|
$
|
353,910
|
|
|
$
|
3,428,935
|
|
Segment Assets
|
|
$
|
1,401,724
|
|
|
$
|
224,863
|
|
|
$
|
2,051,478
|
|
|
$
|
3,678,065
|
|
Segment Profit/Loss
|
|
$
|
1,166,543
|
|
|
$
|
(61,628
|
)
|
|
$
|
(921,705
|
)
|
|
$
|
183,210
|
|
The
Company had no reportable segments for the six months ended June 30, 2018. See NOTE 9 – BUSINESS COMBINATION
NOTE
9 – BUSINESS COMBINATION
On
October 15, 2018, 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 of 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 six- months ended June
30, 2018, assuming the acquisition occurred on January 1, 2018.
2018 Summary Statement of Operations
|
|
Trxade
|
|
|
CSP
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,690,611
|
|
|
$
|
1,323,117
|
|
|
$
|
3,013,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
102,782
|
|
|
$
|
64,800
|
|
|
$
|
167,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income per common share – basic
|
|
$
|
0.00
|
|
|
|
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
34,472,811
|
|
|
|
|
|
|
|
34,472,811
|
|
The
accompanying unaudited pro forma statements of operations presents the accounts of Trxade and CSP for the three- months ended
June 30, 2018, assuming the acquisition occurred on January 1, 2018.
2018 Summary Statement of Operations
|
|
Trxade
|
|
|
CSP
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
837,688
|
|
|
$
|
677,900
|
|
|
$
|
1,515,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
20,513
|
|
|
$
|
(12,185
|
)
|
|
$
|
8,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
34,479,406
|
|
|
|
|
|
|
|
34,479,406
|
|
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 2019 Gross Revenue Quotas.
For
the three-months and six-months ended June 30, 2019, the Company recorded its equity share in the losses of SyncHealth amounting
to $58,850 and $87,822, respectively.
NOTE
11 – SUBSEQUENT EVENTS
On
July 10, 2019, the Company entered into a Securities Purchase Agreement with a certain accredited investor with respect
to the private placement of 2,000,000 share of its common stock at a purchase price of $0.50 per share, for gross proceeds of
$1,000,000.
On August 28, 2019, the Company entered
into a Consulting Agreement which included the grant of warrants to purchase 300,000 shares of Company stock at an exercise price
of $0.01 per share. 150,000 of the warrants are exercisable on April 1, 2020 and 150,000 are exercisable on April 1, 2021. The
warrants have a term of 5 years.
On
September 30, 2019, the Company entered into a Securities Purchase Agreement with certain accredited investors with respect
to the private placement of 2,910,000 shares of its common stock at a purchase price of $0.50 per share, for gross proceeds of
$1,455,000.
On
September 30, 2019, the Company converted $175,000 of principal under various outstanding promissory notes (“Promissory
Notes”) into 350,000 shares common stock of the Company at $0.50 per share under the terms of the Securities Purchase Agreement
referenced above.
On
October 8, 2019, $122,552 and $100,000 in promissory notes due to Mr. Prashant Patel and Mr. Suren Ajjarapu, respectively, were
paid in full. The notes were due July 1, 2020.
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”, and 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.
Nitil 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
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 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.
4,910,000
SHARES OF COMMON STOCK
PROSPECTUS
October
15, 2019
Neither
we nor the selling stockholders 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
|
|
$
|
689.86
|
|
Accounting fees and expenses
|
|
|
5,000.00
|
*
|
Legal fees and expenses
|
|
|
37,500.00
|
*
|
Miscellaneous
|
|
|
10,000.00
|
*
|
Total
|
|
$
|
53,189.86
|
|
*
|
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 (“DGCL”) authorizes a corporation’s board of directors to
grant, and authorizes a court to award, indemnity to officers, directors, and other corporate agents.
Pursuant
to the Company’s Certificate of Incorporation:
|
●
|
A
director of the Company shall, to the fullest extent permitted by the DGCL as it now
exists or as it may hereafter be amended, not be personally liable to the Company or
its stockholders for monetary damages for breach of fiduciary duty as a director, except
to the extent such exception from liability is not permitted under the DGCL as the same
exists or may hereafter be amended; and
|
|
|
|
|
●
|
To
the fullest extent permitted by applicable law, the Company is authorized to provide
indemnification of, and advancement of expenses to, such agents of the Company (and any
other persons to which Delaware law permits the Company 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 DGCL, subject only to limits created by applicable
Delaware law (statutory or non-statutory), with respect to actions for breach of duty
to the Company, its stockholders and others.
|
Section
145 of the DGCL, provides, among other things, that a Delaware corporation may indemnify any person who was, is or is threatened
to be made, party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person is or was
an officer, director, employee or agent of such corporation or is or was serving at the request of such corporation as a director,
officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’
fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such
action, suit or proceeding, provided such person acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the corporation’s best interests and, with respect to any criminal action or proceeding, had no reasonable
cause to believe that his or her conduct was unlawful. A Delaware corporation may indemnify any persons who were or are a party
to any threatened, pending or completed action or suit by or in the right of the corporation by reason of the fact that such person
is or was a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including
attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action
or suit, provided such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the
corporation’s best interests, provided further that no indemnification is permitted without judicial approval if the officer,
director, employee or agent is adjudged to be liable to the corporation. Where an officer or director is successful on the merits
or otherwise in the defense of any action referred to above, the corporation must indemnify him or her against the expenses (including
attorneys’ fees) which such officer or director has actually and reasonably incurred.
Section
145 further authorizes a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or
agent of another corporation or enterprise, against any liability asserted against such person and incurred by such person in
any such capacity, or arising out of his or her status as such, whether or not the corporation would otherwise have the power
to indemnify such person under Section 145.
The
indemnification rights set forth above shall not be exclusive of any other right which an indemnified person may have or hereafter
acquire under any statute, any provision of our amended and certificate of incorporation, our amended and restated bylaws, agreement,
vote of stockholders or disinterested directors or otherwise. Notwithstanding the foregoing, we shall not be obligated to indemnify
a director or officer in respect of a proceeding (or part thereof) instituted by such director or officer, unless such proceeding
(or part thereof) has been authorized by the board of directors pursuant to the applicable procedure outlined in the amended and
restated bylaws.
Section
174 of the DGCL provides, among other things, that a director, who willfully or negligently approves of an unlawful payment of
dividends or an unlawful stock purchase or redemption, may be held jointly and severally liable for such actions. A director who
was either absent when the unlawful actions were approved or dissented at the time may avoid liability by causing his or her dissent
to such actions to be entered in the books containing the minutes of the meetings of the board of directors at the time such action
occurred or immediately after such absent director receives notice of the unlawful acts.
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 DGCL 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 may be sufficiently broad to permit indemnification
of our officers and directors for liabilities, including reimbursement of expenses incurred, arising under the 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 sold 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, Nitil
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 Pharmaceuticals, LLC, a Delaware limited liability
company (“Westminster”) 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. 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 to purchase 740,000 shares of common stock were granted during 2016 to employees. These options vest in up to 5 years
and are granted with an exercise price of between $0.75 - $1.60 per share and an 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 sold 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 a $0.01 strike price for a total
of $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 to purchase 263,846 shares of common stock were granted during 2017 to employees. 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 sold 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 sold 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.
Stock
options to purchase 560,400 shares of common stock were granted during 2018 to employees. 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 and May 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 ranging from $0.41 to $0.44 and a term of 10 years from the grant date. The options vest over a period
ranging from four to five years.
On
July 10, 2019, we entered into a securities Purchase Agreement with R.S.N., LLC with respect to the private placement of 2,000,000
shares of our common stock at a purchase price of $0.50 per share, for gross proceeds of $1,000,000. This transaction closed on
July 30, 2019.
On September 30, 2019,
we closed the sale of securities pursuant to Securities Purchase Agreements entered into with certain accredited investors with
respect to the private placement of 2,910,000 shares of our common stock at a purchase price of $0.50 per share, for gross proceeds
of $1,455,000. Subscribers included Bedford Falls Capital, which is controlled by Gary Augusta, our director (1,000,000 shares);
Nitesh Patel, who is the cousin of Prashant Patel, our director and President (40,000 shares); Shilpa Patel, who is
the spouse of Nitesh Patel, the brother of Prashant Patel our director and President (20,000 shares); and Nitil
Patel, the brother of Prashant Patel, our director and President, (200,000 shares).
Further, on September
30, 2019, the Company converted $175,000 of principal under various outstanding promissory notes (“Promissory Notes”)
into 350,000 shares common stock of the Company at $0.50 per share under the terms of the Securities Purchase Agreement referenced
above.
The combined total of
the transactions detailed above was $2,630,000 of investment and conversion of principal under various Promissory Notes
into an aggregate total 5,260,000 shares of common stock.
*
* * * * * *
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 offerings under Section 4(a)(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. The securities
are subject to transfer restrictions, and the certificates evidencing the securities contain an appropriate legend stating that
such securities have not been registered under the Securities Act and may not be offered or sold absent registration or pursuant
to an exemption therefrom. The securities were not registered under the Securities Act and such securities may not be offered
or sold in the United States absent registration or an exemption from registration under the Securities Act and any applicable
state securities laws.
ITEM
16. EXHIBITS
(a)
Exhibits Pursuant to Item 601 of Regulation S-K:
A
list of exhibits filed with this registration statement on Form S-1/A is set forth on the Exhibit Index and is incorporated herein
by reference.
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 to:
(i) Include
any prospectus required by Section 10(a)(3) of the Securities Act;
(ii) 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 a 20% change in the maximum aggregate offering price
set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
(iii) 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.
(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 the 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 the offering.
(4) That,
for the purpose of determining liability under the Securities Act of 1933 to any purchaser 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 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 the 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 the 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 made in a document incorporated or deemed incorporated by reference into 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.
(5) 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 15th
day of October 2019.
|
TRXADE
GROUP, INC.
|
|
|
|
|
/s/
Suren Ajjarapu
|
|
By:
|
Suren
Ajjarapu, Chief Executive Officer (Principal Executive Officer)
|
KNOW
ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Mr. Suren Ajjarapu and Mr.
Howard A. Doss, as his true and lawful attorneys-in-fact and agents, with full power 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 (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully
to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorney-in-fact
or his substitute or 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 by the following persons in the
capacities and on the dates indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Suren Ajjarapu
|
|
Chairman
of the Board, Chief Executive Officer and Secretary
|
|
October
15, 2019
|
Suren
Ajjarapu
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
/s/
Howard A. Doss
|
|
Chief
Financial Officer
|
|
October
15, 2019
|
Howard
A. Doss
|
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
|
|
/s/
Prashant Patel
|
|
Director,
President and Chief Operating Officer
|
|
October
15, 2019
|
Prashant
Patel
|
|
|
|
|
|
|
|
|
|
/s/
Donald G. Fell
|
|
Director
|
|
October
15, 2019
|
Donald
G. Fell
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
October
15, 2019
|
Michael
L. Peterson
|
|
|
|
|
|
|
|
|
|
/s/
Gary Augusta
|
|
Director
|
|
October
15, 2019
|
Gary
Augusta
|
|
|
|
|
EXHIBIT
INDEX
|
|
|
|
Incorporated
by Reference
|
|
Filed
Herewith
|
Exhibit
No.
|
|
Description
|
|
Form
|
|
File
No.
|
|
Exhibit
|
|
Filing
Date
|
|
|
2.1
|
|
Membership Interest Purchase Agreement
|
|
8-K
|
|
000-55218
|
|
2.01
|
|
Oct
16, 2018
|
|
|
2.2
|
|
Purchase and Sale Agreement
|
|
8-K
|
|
000-55218
|
|
2.01
|
|
Jan
5, 2017
|
|
|
3.1
|
|
Second Amended and Restated Certificate of Incorporation of Trxade Group, Inc.
|
|
|
|
|
|
|
|
|
|
X
|
3.2
|
|
Amended and Restated Bylaws of Trxade Group, Inc.
|
|
10-12G/A
|
|
000-55218
|
|
3.1
|
|
July
24, 2014
|
|
|
5.1
|
|
Form of Opinion and consent of The Loev Law Firm, PC re: the legality of the securities being registered
|
|
|
|
|
|
|
|
|
|
X
|
10.1
|
|
Promissory Note
|
|
8-K
|
|
000-55218
|
|
2.02
|
|
Oct
16, 2018
|
|
|
10.2
|
|
Revocable Warrant
|
|
8-K
|
|
000-55218
|
|
2.03
|
|
Oct
16, 2018
|
|
|
10.3
|
|
Warrant Agreement
|
|
8-K
|
|
000-55218
|
|
2.02
|
|
Jan
5, 2017
|
|
|
10.4
|
|
Indemnification Agreement
|
|
10-K
|
|
000-55218
|
|
10.1
|
|
March
22, 2019
|
|
|
10.5
|
|
Contribution Agreement
|
|
8-K
|
|
000-55218
|
|
10.1
|
|
Jan
22, 2019
|
|
|
10.6
|
|
Technology Integration Agreement
|
|
8-K
|
|
000-55218
|
|
10.2
|
|
Jan
22, 2019
|
|
|
10.7
|
|
Operating Agreement
|
|
8-K
|
|
000-55218
|
|
10.3
|
|
Jan
22, 2019
|
|
|
10.8
|
|
Shareholder Agreement
|
|
8-K
|
|
000-55218
|
|
10.4
|
|
Jan
22, 2019
|
|
|
10.9
|
|
Subscription Agreement
|
|
8-K
|
|
000-55218
|
|
10.5
|
|
Jan
22, 2019
|
|
|
10.10
|
|
Letter Agreement
|
|
8-K
|
|
000-55218
|
|
10.6
|
|
Jan
22, 2019
|
|
|
10.11
|
|
Form of Securities Purchase Agreement
|
|
8-K
|
|
000-55218
|
|
10.1
|
|
Nov
14, 2018
|
|
|
10.12
|
|
Form of Securities Purchase Agreement
|
|
8-K
|
|
000-55218
|
|
10.1
|
|
July
13, 2018
|
|
|
10.13
|
|
Form of Investment Warrant Agreement
|
|
8-K
|
|
000-55218
|
|
10.2
|
|
July
13, 2018
|
|
|
10.14
|
|
Promissory Note with Sansur Associates LLC
|
|
8-K
|
|
000-55218
|
|
10.1
|
|
July
5, 2017
|
|
|
10.15
|
|
Promissory Note with Prashant Patel
|
|
8-K
|
|
000-55218
|
|
10.2
|
|
July
5, 2017
|
|
|
10.16
|
|
Form of Indemnification Agreement
|
|
8-K
|
|
000-55218
|
|
10.1
|
|
Aug
25, 2016
|
|
|
10.17
|
|
Amendment to Convertible Note Agreement and Note
|
|
8-K
|
|
000-55218
|
|
10.1
|
|
June
3, 2016
|
|
|
10.18
|
|
Amendment to Ajjarapu Executive Employment Agreement
|
|
10-K
|
|
000-55218
|
|
10.14
|
|
March
28, 2016
|
|
|
10.19
|
|
Note Purchase Agreement
|
|
8-K
|
|
000-55218
|
|
10.1
|
|
Oct
27, 2015
|
|
|
10.20
|
|
Form of Note
|
|
8-K
|
|
000-55218
|
|
10.2
|
|
Oct
27, 2015
|
|
|
10.21
|
|
Form of Warrant
|
|
8-K
|
|
000-55218
|
|
10.3
|
|
Oct
27, 2015
|
|
|
10.22
|
|
Indemnification Agreement
|
|
8-K
|
|
000-55218
|
|
10.1
|
|
Mar
18, 2015
|
|
|
10.23
|
|
Indemnification Agreement
|
|
8-K
|
|
000-55218
|
|
10.1
|
|
Dec
23, 2014
|
|
|
10.24
|
|
Subscription Agreement
|
|
8-K
|
|
000-55218
|
|
10.1
|
|
Sep
26, 2014
|
|
|
10.25
|
|
Warrant Agreement
|
|
8-K
|
|
000-55218
|
|
10.2
|
|
Sep
26, 2014
|
|
|
10.26
|
|
Registration Rights Agreement
|
|
8-K
|
|
000-55218
|
|
10.3
|
|
Sep
26, 2014
|
|
|
10.27
|
|
RxTPL Logistics Services Agreement
|
|
10-12G/A
|
|
000-55218
|
|
10.9
|
|
Sept
5, 2016
|
|
|
10.28
|
|
Employment Agreement - Suren Ajjarapu
|
|
10-12G/A
|
|
000-55218
|
|
10.5
|
|
July
24, 2014
|
|
|
10.29
|
|
Employment Agreement - Prashant Patel
|
|
10-12G/A
|
|
000-55218
|
|
10.6
|
|
July
24, 2014
|
|
|
10.30
|
|
Related Parties - Promissory Note Patel
|
|
10-12G/A
|
|
000-55218
|
|
10.7
|
|
July
24, 2014
|
|
|
10.31
|
|
Related Parties - Promissory Note Sansur
|
|
10-12G/A
|
|
000-55218
|
|
10.8
|
|
July
24, 2014
|
|
|
10.32
|
|
Bylaws of Trxade Group, Inc.
|
|
10-12G
|
|
000-55218
|
|
3.1
|
|
June
11, 2014
|
|
|
10.33
|
|
2014 Equity Incentive Plan
|
|
10-12G
|
|
000-55218
|
|
10.3
|
|
June
11, 2014
|
|
|
10.34
|
|
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
|
|
|
10.35
|
|
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
|
|
|
10.36
|
|
Series A Preferred Stock Purchase Agreement
|
|
10-12G
|
|
000-55218
|
|
10.2
|
|
June
11, 2014
|
|
|
10.37
|
|
Form of Securities Purchase Agreement (July 30, 2019 Offering)
|
|
8-K
|
|
|
|
10.1
|
|
July
11, 2019
|
|
|
10.38
|
|
Form of Securities Purchase Agreement (September 30, 2019 Offering)
|
|
8-K
|
|
000-55218
|
|
10.1
|
|
October
2, 2019
|
|
|
10.39
|
|
Trxade Group, Inc. 2019 Equity Incentive Plan
|
|
8-K
|
|
000-55218
|
|
10.1
|
|
October 15, 2019
|
|
|
14.1
|
|
Code of Ethics
|
|
10-K
|
|
000-55218
|
|
14.1
|
|
Mar
23, 2015
|
|
|
23.1
|
|
Consent of Independent Registered Public Accounting Firm
|
|
|
|
|
|
|
|
|
|
X
|
23.2
|
|
Consent of The Loev Law Firm, PC (included in Exhibit 5.1)
|
|
|
|
|
|
|
|
|
|
X
|
24.1
|
|
Power of Attorney (included on signature page of Original Form S-1 Registration Statement)
|
|
|
|
|
|
|
|
|
|
X
|
101.INS
|
|
XBRL
Instance Document
|
|
|
|
|
|
|
|
|
|
X
|
101.SCH
|
|
XBRL
Taxonomy Extension Schema Document
|
|
|
|
|
|
|
|
|
|
X
|
101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase Document
|
|
|
|
|
|
|
|
|
|
X
|
101.DEF
|
|
XBRL
Taxonomy Extension Definition Linkbase Document
|
|
|
|
|
|
|
|
|
|
X
|
101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase Document
|
|
|
|
|
|
|
|
|
|
X
|
101.PRE
|
|
XBRL
Taxonomy Extension Presentation Linkbase Document
|
|
|
|
|
|
|
|
|
|
X
|