NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the nine-months ended September 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 an innovative pharmacy model which offers home delivery services to patients thereby providing convenience.
Alliance
Pharma Solutions, LLC, has developed a 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 Annual Report on Form 10-K.
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 10-K 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.
The equity investment was fully impaired at September 30, 2019.
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 September 30,
|
|
|
For nine months ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
27,565
|
|
|
$
|
94,249
|
|
|
$
|
210,775
|
|
|
$
|
197,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic and diluted EPS - income available to common Shareholders
|
|
|
27,565
|
|
|
$
|
94,249
|
|
|
|
210,775
|
|
|
$
|
197,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic EPS – Weighted average shares
|
|
|
34,489,969
|
|
|
|
32,083,629
|
|
|
|
34,370,522
|
|
|
|
32,083,629
|
|
Dilutive Effect of Warrants, Options and Convertible Debt
|
|
|
1,796,518
|
|
|
|
2,654,335
|
|
|
|
1,796,518
|
|
|
|
2,648,911
|
|
Denominator for diluted EPS – adjusted Weighted average shares and assumed Conversions
|
|
|
36,286,487
|
|
|
|
34,737,964
|
|
|
|
36,167,040
|
|
|
|
34,732,540
|
|
Basic and Diluted income per common share
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
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 Note 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 have a conversion price of $0.50 per share,
and the principal and accrued interest totaling $211,983, were then converted into 423,966 common shares.
As
of September 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 Note
As
of September 30, 2019, the $40,000 in convertible promissory notes due to Mr. Shilpa Patel, a relative of Mr. Prashant Patel,
the Company’s President and director, was paid in full.
As
of September 30, 2019, a $100,000 convertible promissory note was due to Mr. Nitil Patel, the brother of Mr. Prashant Patel, the
Company’s President and director. Simple interest of 10% is payable at the maturity date of the note. In July 2019, the
note was extended to October 15, 2019, and the modification was not considered substantial. The note was converted
in October 2019 into 200,000 shares of common stock. See NOTE 11 – SUBSEQUENT EVENTS.
As
of September 30, 2019, $122,552 and $100,000 in promissory notes were due to Mr. Prashant Patel and Mr. Suren Ajjarapu, the President
and director, and Chief Executive Officer and Chairman, respectively. The notes are due July 1, 2020 and each bear interest at
the rate of 6% per annum. The notes were paid in full on October 8, 2019. See NOTE 11 – SUBSEQUENT EVENTS.
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, a non-executive officer of the Company, accruing simple interest at the rate of 10% per annum, payable annually,
and having a maturity date in October 2021. In October 2019, $75,000 of the note was converted into 150,000 common shares. See
NOTE 11 –SUBSEQUENT EVENTS.
NOTE
4 – SHAREHOLDERS’ EQUITY
In July 2018, under a Private Offer Memorandum,
300,000 shares of common stock were sold for $300,000 in 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
February 2019, convertible promissory notes issued in 2015 in the amount of $181,500, were amended to include a conversion price
of $0.50 per share, and the principal and accrued interest totaling $211,983 was then converted into 423,966 common shares.
In
February 2019, warrants to purchase 16,666 shares of common stock issued in 2014 with an exercise price of $0.01 per share were
exercised for $166 in cash and the Company issued 16,666 common shares.
In
April and May 2019, options to purchase 505,000 shares of common stock were granted with exercise prices of between $0.41 and
$0.44 per share, and a term of 10 years from the grant date. The options vest over a period of four to five years.
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 shares of its 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 1, 2019, the
Company granted Flacane Advisors, Inc., a company controlled by Gary Augusta, a member of the Board of Directors of the Company,
warrants to purchase 300,000 shares of the Company’s common stock at an exercise price of $0.01 per share. Based on
the agreement, warrants to purchase 150,000 shares vest on April 1, 2020 and warrants to purchase 150,000 shares vest on
April 1, 2021. The warrants have a term of 5 years.
On September 30, 2019, the Company entered
into Securities Purchase Agreements with certain accredited investors with respect to the private placement of 2,910,000 shares
of 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); and Shilpa Patel, who is the spouse of Nitesh Patel, the brother of Prashant Patel, our director
and President (20,000 shares).
NOTE
5 - WARRANTS
For
the nine-month period ended September 30, 2019, warrants to purchase 16,666 shares of common stock were exercised, 300,000 were
granted and none forfeited. See NOTE 4 – SHAREHOLDERS’ EQUITY.
The
Company uses the Black-Scholes 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 warrants granted during the nine months
ended September 30, 2019.
|
|
2019
|
|
Expected dividend yield
|
|
|
0
|
%
|
Weighted-average expected volatility
|
|
|
217
|
%
|
Weighted-average risk-free interest rate
|
|
|
2.75
|
%
|
Expected life of warrants
|
|
|
5 years
|
|
The
total fair value of warrants issued was $269,719. The compensation cost related to the warrants was $26,363 for the nine-months
ended September 30, 2019.
The
Company’s outstanding and exercisable warrants as of September 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
|
|
|
300,000
|
|
|
$
|
0.01
|
|
|
|
-
|
|
|
|
-
|
|
Warrants forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Warrants exercised
|
|
|
(16,666
|
)
|
|
$
|
0.01
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants Outstanding as of September 30, 2019
|
|
|
3,163,475
|
|
|
$
|
0.08
|
|
|
|
3.02
|
|
|
$
|
3,574,954
|
|
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 and a half years following the grant date, after which they expire. Options are vested up to 5 years from the grant
date.
For
the nine-month period ended September 30, 2019, options to purchase 505,000 shares of common stock were issued, 25,800 were forfeited
and 35,700 expired, due to employee resignations.
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 nine
months ended September 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 $141,594 and $133,048 for the nine-months ended September 30, 2019 and 2018, respectively.
The
following table represents stock option activity for the nine-month period ended September 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
|
|
|
|
-
|
|
|
|
-
|
|
Options forfeited
|
|
|
25,800
|
|
|
$
|
0.92
|
|
|
|
-
|
|
|
|
-
|
|
Options expired
|
|
|
35,700
|
|
|
$
|
0.60
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding as of September 30, 2019
|
|
|
2,176,346
|
|
|
$
|
0.73
|
|
|
|
7.01
|
|
|
$
|
1,303,547
|
|
Options Exercisable as of September 30, 2019
|
|
|
1,204,521
|
|
|
$
|
0.89
|
|
|
|
5.69
|
|
|
$
|
537,356
|
|
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 September 30, 2019
Amounts due within twelve months of September 30
|
|
|
|
2019
|
|
$
|
159,538
|
|
2020
|
|
|
164,299
|
|
2021
|
|
|
169,223
|
|
2022
|
|
|
174,320
|
|
2023
|
|
|
179,552
|
|
Thereafter
|
|
|
259,858
|
|
Total minimum lease payments
|
|
|
1,106,790
|
|
Less: effect of discounting
|
|
|
(314,451
|
)
|
Present value of future minimum lease payments
|
|
|
792,339
|
|
Less: current obligations under leases
|
|
|
84,050
|
|
Long-term lease obligations
|
|
$
|
708,289
|
|
For
the three-months and nine-months ended September 30, 2019 amortization of assets was $22,658 and $66,598, respectively.
For
the three-months and nine-months ended September 30, 2019, amortization of liabilities was $18,826 and $55,102, respectively.
NOTE
8 – SEGMENT REPORTING
The
Company classifies its business interests into reportable segments which are Trxade, Community Specialty and Integra.
Nine Months Ended September 30, 2019
|
|
Trxade, Inc.
|
|
|
Community Specialty Pharmacy, LLC
|
|
|
Integra Pharma, LLC
|
|
|
Unallocated
|
|
|
Total
|
|
Revenue
|
|
$
|
3,335,050
|
|
|
$
|
1,412,449
|
|
|
$
|
992,862
|
|
|
$
|
-
|
|
|
$
|
5,740,361
|
|
Segment Assets
|
|
$
|
1,561,760
|
|
|
$
|
315,681
|
|
|
|
411,161
|
|
|
$
|
3,565,921
|
|
|
$
|
5,854,523
|
|
Segment Profit/Loss
|
|
$
|
1,748,896
|
|
|
$
|
(75,955
|
)
|
|
$
|
(122,144
|
)
|
|
$
|
(1,340,022
|
)
|
|
$
|
210,775
|
|
The
Company had no reportable segments for the nine months ended September 30, 2018. See NOTE 9 – BUSINESS COMBINATION.
NOTE
9 – BUSINESS COMBINATION
On
October 15, 2018, the Trxade Group, Inc. (“Company”) entered into and consummated the purchase of 100% of the equity
interests of Community Specialty Pharmacy, LLC, a Florida limited liability company, (“CSP”), pursuant to the terms
and conditions of the Membership Interest Purchase Agreement, entered into by and among the Company as the buyer, and CSP, and
Nikul Panchal, the equity owner of CSP (collectively, the “Seller”). The purchase
price for the 100% equity interest in CSP was $300,000 in cash, a promissory note from the Company of $300,000 (see Note 3), and
warrants to purchase 405,507 shares of the common stock of the Company which vested on the acquisition date, are exercisable for
eight (8) years from the issuance date at a strike price of $0.01 per share, and subject to exercise restrictions which lapse
over three (3) years.
The
Company recorded the acquisition under ASC 805 “Business Combination. All the assets acquired and liabilities assumed are
recorded at their corresponding fair values. The excess of the purchase price over the net assets acquired resulted in goodwill
of $725,973. The following table is a summary of the allocation of the purchase price of $770,291 consisting of $300,000 in cash,
a promissory note from the Company of $300,000, and the fair value of the warrants issued
calculated under the Black-Scholes calculation at $170,291.
|
|
Purchase Price Allocation
|
|
Purchase Price
|
|
$
|
770,291
|
|
Cash
|
|
|
(49,728
|
)
|
Accounts Receivable
|
|
|
(114,899
|
)
|
Inventory
|
|
|
(76,156
|
)
|
Prepaid
|
|
|
(3,000
|
)
|
Accounts Payable
|
|
|
199,312
|
|
Accrued Expenses
|
|
|
153
|
|
Goodwill
|
|
$
|
725,973
|
|
The
accompanying unaudited pro forma statements of operations presents the accounts of Trxade and CSP for the nine- months ended September
30, 2018, assuming the acquisition occurred on January 1, 2018.
2018 Summary Statement of Operations
|
|
Trxade
|
|
|
CSP
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
2,538,082
|
|
|
$
|
1,985,620
|
|
|
$
|
4,523,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
197,031
|
|
|
$
|
97,371
|
|
|
$
|
294,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
32,083,629
|
|
|
|
|
|
|
|
32,083,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares - diluted
|
|
|
34,732,540
|
|
|
|
|
|
|
|
34,732,540
|
|
The
accompanying unaudited pro forma statements of operations presents the accounts of Trxade and CSP for the three-months ended September
30, 2018, assuming the acquisition occurred on January 1, 2018.
2018 Summary Statement of Operations
|
|
Trxade
|
|
|
CSP
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
847,471
|
|
|
$
|
662,503
|
|
|
$
|
1,509,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
94,249
|
|
|
$
|
109,556
|
|
|
$
|
203,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income per common share – basic
|
|
$
|
0.00
|
|
|
|
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income per common share - diluted
|
|
$
|
0.00
|
|
|
|
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares - basic
|
|
|
32,083,629
|
|
|
|
|
|
|
|
32,083,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares - diluted
|
|
|
34,737,964
|
|
|
|
|
|
|
|
34,737,964
|
|
NOTE
10 – EQUITY METHOD INVESTMENT
In
January 2019, the Company, 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 between 2,273,329 and 14,776,638 shares of Company common stock based on 2019 Gross Revenue
Quotas. As of September 30, 2019, we have not realized any income from the technology and presently we are in discussions to dissolve
this relationship. The remaining investment is impaired and written down to $0.
For
the three-months and nine-months ended September 30, 2019, the Company recorded its equity share in the losses of SyncHealth amounting
to $162,178 and $250,000, respectively.
NOTE
11 – SUBSEQUENT EVENT
On
October 8, 2019, $122,552 and $100,000 in promissory notes due to Mr. Prashant Patel and Mr. Suren Ajjarapu, the President and
director, and Chief Executive Officer and Chairman, respectively, were paid in full. The notes were due July 1, 2020.
In
October 2019, the Company converted $175,000 of principal owed under various outstanding promissory notes into 350,000 shares
common stock of the Company at $0.50 per share.
On October 23, 2019 (the “Closing
Date”), Bonum Health, LLC, a Delaware limited liability company, and a wholly-owned subsidiary of the Company entered
into an Asset Purchase Agreement with Bonum Health, LLC, a Florida limited liability company (“Seller”) and
Hardikkumar Patel, the sole member of the Seller (the “Member”). Pursuant to the Asset Purchase Agreement,
the Company acquired from the Seller, certain specified assets and certain specified contracts associated with the assets of Seller’s
operation as a telehealth service provider (the Tele Meds Platform)(the “Assets”). Included with the acquisition
of the Assets, were contracts (relating to the Assets), intellectual property for the Bonum Health telemedicine Software and Technology
and personal computers. The Company agreed to provide the Seller consideration equal to 250,000 shares of restricted common stock
of the Company at the closing (the “Closing Shares”), and that the Seller had the right to earn up to an additional
650,000 shares of restricted common stock of the Company following the closing (the “Milestone Shares” and
collectively with the Closing Shares, the “APA Shares”), as follows:
1.
240,000 shares upon the placement, by the Company, of 40 in-store wellness kiosks, utilizing the Tele Meds Platform, on or before
the first anniversary of the Closing Date;
2.
205,000 shares upon placement, by the Company, of 70 in-store wellness kiosks utilizing the Tele Meds Platform, on or before the
first anniversary of the Closing Date; and
3.
205,000 shares upon placement, by the Company, of 100 in-store wellness kiosks utilizing the Tele Meds Platform on or before the
first anniversary of the Closing Date.
The
Asset Purchase Agreement includes a three year non-compete requirement, prohibiting the Seller and the Member from competing against
the Assets, customary representations and indemnification obligations, subject to a $25,000 minimal claim amount and certain limitations
on liability disclosed in the Asset Purchase Agreement.
The
Asset Purchase Agreement also requires the Company to fund up to $600,000 in connection with the remote hub installation, marketing
and IT, subject to certain milestones set forth in the Asset Purchase Agreement (the “Funding Obligation”).