TRxADE HEALTH(MEDS) - 2019 Q2 - Quarterly Report

Filing Information This section details TRXADE GROUP, INC.'s Form 10-Q filing for Q2 2019, including corporate information and filer status General Information This section outlines TRXADE GROUP, INC.'s basic filing details for the Q2 2019 Form 10-Q, including corporate and filer status - TRXADE GROUP, INC. filed its Form 10-Q for the quarter ended June 30, 2019[2] - The company is incorporated in Delaware with principal executive offices in Land O' Lakes, Florida[3] Registrant Filer Status | Filer Status | Designation | | :---------------------- | :------------------ | | Well-known seasoned issuer | No [X] | | Not required to file reports | No [X] | | Large accelerated filer | [ ] | | Accelerated filer | [ ] | | Non-accelerated filer | [X] | | Smaller reporting company | [X] | | Emerging growth company | [ ] | | Shell company | No [X] | - As of July 26, 2019, 35,726,489 shares of common stock were outstanding[6] Documents Incorporated by Reference No documents are incorporated by reference into this Form 10-Q, ensuring all required information is self-contained PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section provides Trxade Group, Inc.'s unaudited consolidated financial statements and comprehensive notes for the specified periods Consolidated Balance Sheets Consolidated Balance Sheet Highlights | Metric | June 30, 2019 ($) | December 31, 2018 ($) | | :-------------------------- | :------------ | :---------------- | | Cash | 540,034 | 869,557 | | Total Current Assets | 1,952,270 | 1,466,077 | | Total Assets | 3,678,065 | 2,227,587 | | Total Current Liabilities | 1,085,163 | 860,367 | | Total Liabilities | 2,338,048 | 1,382,919 | | Total Shareholders' Equity | 1,340,017 | 844,668 | - Total assets significantly increased from $2.23 million at December 31, 2018, to $3.68 million at June 30, 2019, driven by accounts receivable, inventory, ROU assets, and equity method investment[13] - Shareholders' equity increased from $844,668 to $1,340,017, primarily due to net income and additional paid-in capital from common stock issuance and options expense[13][18] Consolidated Statements of Operations Consolidated Statements of Operations Highlights | Metric (Unaudited) | Three months ended June 30, 2019 ($) | Three months ended June 30, 2018 ($) | Six months ended June 30, 2019 ($) | Six months ended June 30, 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 Income | 132,705 | 31,446 | 304,464 | 130,174 | | Net Income | 57,981 | 20,513 | 183,210 | 102,782 | | Basic Net Income per Share | 0.00 | 0.00 | 0.01 | 0.00 | - Revenues for the six months ended June 30, 2019, more than doubled to $3,428,935 from $1,690,611 in the prior year, primarily due to the acquisition of Community Specialty Pharmacy, LLC[15][83] - Net income for the six months ended June 30, 2019, increased by 78% to $183,210 compared to $102,782 in the same period of 2018[15] Consolidated Statements of Changes in Shareholders' Equity Changes in Shareholders' Equity (Six Months Ended June 30, 2019) | Item | Amount ($) | | :-------------------------------------------- | :--------- | | Balance at December 31, 2018 | 844,668 | | Common Stock issued for convertible debt and accrued interest | 211,983 | | Warrants exercised | 166 | | Options Expense | 99,990 | | Net Income | 183,210 | | Balance at June 30, 2019 | 1,340,017 | - Shareholders' equity increased from $844,668 at December 31, 2018, to $1,340,017 at June 30, 2019, driven by debt conversion, warrant exercises, options expense, and net income[18] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights | Cash Flow Activity (Six Months Ended June 30) | 2019 ($) | 2018 ($) | | :-------------------------------------------- | :--------- | :--------- | | Net Income | 183,210 | 102,782 | | Net Cash provided by (used in) operating activities | (79,689) | 146,456 | | Net cash Used in Investing activities | (250,000) | - | | Net Cash provided by (used in) financing activities | 166 | (122,464) | | Net increase (decrease) in Cash | (329,523) | 23,992 | | Cash at June 30 | 540,034 | 207,906 | - Operating activities shifted from providing $146,456 in cash in 2018 to using $79,689 in 2019, primarily due to increased inventory purchases and accounts receivable[21][78] - Investing activities used $250,000 in 2019 for an equity method investment (SyncHealth MSO, LLC), compared to no investing activities in 2018[21][79] - Overall cash decreased by $329,523 in the first six months of 2019, resulting in a cash balance of $540,034 at June 30, 2019[21][70] Notes to Unaudited Consolidated Financial Statements These notes offer detailed explanations and disclosures for the unaudited consolidated financial statements, covering key accounting areas NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION - Trxade Group, Inc. wholly owns Trxade, Inc., Integra Pharma Solutions, LLC, Community Specialty Pharmacy, LLC (acquired Oct 2018), and Alliance Pharma Solutions, LLC[23][25][26] - Trxade, Inc. operates a web-based healthcare marketplace, Integra Pharma Solutions is a licensed pharmaceutical wholesaler, Community Specialty Pharmacy is an accredited retail pharmacy, and Alliance Pharma Solutions developed Delivmeds.com and invested in SyncHealth MSO, LLC[24][25][26] - Financial statements are prepared under GAAP and SEC rules, with interim results not necessarily indicative of full-year performance[27][28] - The company adopted ASU No. 2016-02 (Leases) and ASU No. 2018-07 (Stock-Based Compensation) effective January 1, 2019, with no material impact from ASU 2018-07[33][34] NOTE 2 – SHORT-TERM DEBT AND RELATED PARTIES DEBT - In February 2019, $181,500 in convertible promissory notes from 2015, plus $211,983 accrued interest, converted into 423,966 common shares at $0.50 per share[35] - As of June 30, 2019, short-term convertible notes included $40,000 to Mr. Shilpa Patel (10% interest, due Aug 8, 2019, convertible at $1.50) and $100,000 to Mr. Nitel Patel (10% interest, due July 7, 2019, convertible at $0.62, extended to Oct 15, 2019)[36][37] NOTE 3 – LONG TERM DEBT – RELATED PARTIES - A $300,000 promissory note was issued to Nikul Panchal in October 2018 for the Community Specialty Pharmacy acquisition, accruing 10% annual simple interest and maturing in October 2021[38] - As of June 30, 2019, $122,552 was due to Mr. Prashant Patel and $100,000 to Mr. Suren Ajjarapu, both bearing 6% interest and due July 1, 2020[38] NOTE 4 – SHAREHOLDERS' EQUITY - In February 2019, convertible promissory notes totaling $211,983 (principal and accrued interest) were converted into 423,966 common shares[39] - 16,666 warrants were exercised in February 2019 at $0.01 per share, generating $166 in cash[39] - In April and May 2019, 505,000 options were granted with exercise prices between $0.41 and $0.44, vesting over four to five years[40] NOTE 5 - WARRANTS - During the six months ended June 30, 2019, 16,666 warrants were exercised, with no new grants or forfeitures[41] Warrant Activity (Six Months Ended June 30, 2019) | Metric | Number Outstanding | Weighted Average Exercise Price ($) | Contractual Life in Years | | :----------------------------------- | :----------------- | :---------------------------------- | :------------------------ | | Warrants Outstanding as of Dec 31, 2018 | 2,880,141 | 0.08 | 3.74 | | Warrants exercised | (16,666) | 0.01 | - | | Warrants Outstanding as of June 30, 2019 | 2,863,475 | 0.08 | 3.08 | NOTE 6 – OPTIONS - The company maintains a stock option plan allowing grants of up to 2,000,000 shares, with options vesting up to 5 years and exercisable for up to 4.5 years[43] - 505,000 options were issued during the six months ended June 30, 2019, with no forfeitures or expirations[44] - Total compensation cost for stock options was $99,990 for the six months ended June 30, 2019, up from $88,072 in 2018[45] Stock Option Activity (Six Months Ended June 30, 2019) | Metric | Number Outstanding | Weighted Average Exercise Price ($) | Contractual Life in Years | | :----------------------------------- | :----------------- | :---------------------------------- | :------------------------ | | Options Outstanding as of Dec 31, 2018 | 1,732,846 | 1.19 | 6.98 | | Options granted | 505,000 | 0.43 | 9.86 | | Options Outstanding as of June 30, 2019 | 2,237,846 | 0.73 | 7.27 | NOTE 7 – LEASES - The company adopted ASU 2018-11, Leases (Topic 842), effective January 1, 2019, using a modified retrospective approach and electing practical expedients[47] - Two operating leases for corporate offices were recognized, with initial Right of Use (ROU) assets totaling $847,441 at January 1, 2019[21][47] Operating Lease Liabilities (June 30, 2019) | Period | Amount ($) | | :------------------------------------ | :--------- | | 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 | NOTE 8 – SEGMENT REPORTING - The company classifies its business into three reportable segments: Trxade, Community, and Other[49] Segment Performance (Six Months Ended June 30, 2019) | Metric | 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 | - Trxade, Inc. was the primary revenue and profit driver, while Community Specialty Pharmacy and Other segments reported losses[50] NOTE 9 – BUSINESS COMBINATION - On October 15, 2018, Trxade Group, Inc. acquired 100% of Community Specialty Pharmacy, LLC for $770,291, comprising $300,000 cash, a $300,000 promissory note, and $170,291 in warrants[51][52] - The acquisition resulted in goodwill of $725,973[52][53] Pro Forma Combined Statement of Operations (Six Months Ended June 30, 2018) | Metric | Trxade ($) | 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 | NOTE 10 – EQUITY METHOD INVESTMENT - In January 2019, Alliance Pharma Solution, LLC invested $250,000 to acquire a 49% equity interest in SyncHealth MSO, LLC, with an option for remaining ownership[57] - The company recorded its equity share in SyncHealth's losses, totaling $58,850 for the three months and $87,822 for the six months ended June 30, 2019[58] NOTE 11 – SUBSEQUENT EVENTS - On July 10, 2019, Trxade Group, Inc. entered a private placement to sell 2,000,000 common shares at $0.50 per share, generating gross proceeds of $1,000,000[59] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's Q2 2019 financial condition, operations, cash flows, liquidity, and critical accounting policies Forward-Looking Statements - The report contains forward-looking statements based on current expectations, estimates, forecasts, and projections, subject to risks and uncertainties[61] - The company disclaims any obligation to publicly revise or update any forward-looking statements[61] Company Overview - Trxade operates a B2B web-based marketplace for the US pharmaceutical industry, connecting independent pharmacies and accredited national suppliers[64] - The platform provides pricing transparency, purchasing capabilities, and other value-added services to over 8,500 registered pharmacy members[65] - Trxade Group, Inc. wholly owns Trxade, Inc., Integra Pharma Solutions, LLC, Alliance Pharma Solutions, LLC, and Community Specialty Pharmacy, LLC, and holds a 36% interest in SyncHealth MSO, LLC[66] Liquidity and Capital Resources Cash and Cash Equivalents - Cash and cash equivalents decreased to $540,034 at June 30, 2019, from $869,557 at December 31, 2018[67][69] - The decrease in cash was primarily due to a $250,000 investment in SyncHealth, LLC[70] Liquidity Metrics | Metric | June 30, 2019 ($) | December 31, 2018 ($) | | :------------------------------------ | :---------------- | :-------------------- | | Cash | 540,034 | 869,557 | | Current assets (excluding cash) | 1,412,236 | 596,520 | | Current liabilities (excluding short term debt) | 945,163 | 538,867 | | Short term debt | 140,000 | 321,500 | | Working Capital | 867,107 | 605,710 | Cash Requirements - Primary objectives for 2019 include developing the Trxade Platform and increasing client base and operational revenue[71] - The company estimates operating expenses and working capital requirements for the next 12 months to be approximately $3,500,000[72] - The company expects to seek additional outside funding, acknowledging potential dilution for existing stockholders if equity securities are issued[74] Cash Flows Summary of Cash Flows (Six Months Ended June 30) | Cash Flow Activity | 2019 ($) | 2018 ($) | | :----------------- | :--------- | :--------- | | Operating Activities | (79,689) | 146,456 | | Investing Activities | (250,000) | - | | Financing Activities | 166 | (122,464) | | Net increase (decrease) in Cash | (329,523) | 23,992 | - Cash used in operations for the six months ended June 30, 2019, was $79,689, a decrease from $146,456 provided in the prior year, mainly due to inventory purchases and increased accounts receivable[78] - Investing activities in 2019 included a $250,000 investment in SyncHealth MSO, LLC[79] Results of Operations Six-Month Period Ended June 30, 2019 Compared to Six-Month Period Ended June 30, 2018 Six-Month Operating Results Comparison | Metric | June 30, 2019 ($) | June 30, 2018 ($) | | :------------------------ | :---------------- | :---------------- | | Revenues | 3,428,935 | 1,690,611 | | Cost of Sales | 1,118,977 | - | | Gross Profit | 2,309,958 | 1,690,611 | | General and Administrative | 1,905,504 | 1,472,365 | | Total Operating Expense | 2,005,494 | 1,560,437 | | Income from Operations | 183,210 | 102,782 | - Revenues increased by $1,738,324 (102.8%) due to the acquisition of Community Specialty Pharmacy, LLC[83] - General and administrative expenses increased to $1,905,504 from $1,472,365, primarily due to increased rent and employee compensation from the Community Specialty Pharmacy acquisition[84] Three Month Period Ended June 30, 2019 Compared to Three Month Period Ended June 30, 2018 Three-Month Operating Results Comparison | Metric | June 30, 2019 ($) | June 30, 2018 ($) | | :------------------------ | :---------------- | :---------------- | | Revenues | 1,916,414 | 837,688 | | Cost of Sales | 753,138 | - | | Gross Profit | 1,163,276 | 837,688 | | General and Administrative | 966,560 | 755,626 | | Total Operating Expense | 1,030,571 | 806,242 | | Income from Operations | 57,981 | 20,513 | - Revenues increased by $1,078,726 (128.8%) for the three months ended June 30, 2019, primarily due to the Community Specialty Pharmacy acquisition[86] - General and administrative expenses rose to $966,560 from $755,164, mainly due to increased rent and employee compensation from the acquisition[87] Off-Balance Sheet Arrangements - The company had no outstanding off-balance sheet arrangements as of June 30, 2019[88] Critical Accounting Policies Revenue Recognition - Revenue recognition follows ASC 606, 'Revenue from Contracts with Customers'[91] - Trxade, Inc. recognizes revenue as an agent (net basis) from transaction fees charged to suppliers on its web-based marketplace when orders are processed[91] - Integra Pharma Solutions, LLC, a wholesaler, recognizes revenue when the customer receives the product[92] - Community Specialty Pharmacy, LLC, a retail pharmacy, recognizes revenue after prescription delivery, considering expected reimbursements from third-party payors[93] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section confirms the absence of applicable quantitative and qualitative disclosures regarding market risk for the company - The company has no applicable quantitative and qualitative disclosures about market risk[94] Item 4. Controls and Procedures This section evaluates disclosure controls and procedures, noting their ineffectiveness as of June 30, 2019 Disclosure Controls and Procedures - The Certifying Officers concluded that the company's disclosure controls and procedures were not effective as of June 30, 2019[95][102] - This ineffectiveness indicates that information for SEC reports was not recorded, processed, summarized, and reported within specified time periods, nor was material information appropriately communicated to management[102] Changes in Internal Control over Financial Reporting - There were no material changes in internal control over financial reporting during the three months ended June 30, 2019[96] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section confirms that there are no legal proceedings requiring disclosure - There are no legal proceedings to report[98] Item 1A. Risk Factors No changes in risk factors have occurred since the Annual Report on Form 10-K for the year ended December 31, 2018 - No change in risk factors since the Annual Report on Form 10-K for the year ended December 31, 2018[99] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details unregistered equity security sales, including stock options and a private placement of common stock - In April and May 2019, 505,000 options to purchase common stock were granted under the 2014 Equity Incentive Plan, with exercise prices ranging from $0.41 to $0.44[100] - On July 10, 2019, the company completed a private placement of 2,000,000 common shares at $0.50 per share, raising gross proceeds of $1,000,000[101] - These issuances were exempt from registration under Rule 701 or Section 4(2), Rule 506 of Regulation D, and/or Regulation S of the Securities Act[102] Item 3. Defaults Upon Senior Securities This section confirms no defaults upon senior securities are to be reported - There are no defaults upon senior securities[103] Item 4. Mine Safety Disclosures This section states that no mine safety disclosures are applicable to the company - There are no mine safety disclosures[104] Item 5. Other Information This section confirms no other information requires disclosure under this item Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO/CFO certifications and XBRL data List of Exhibits | Exhibit No. | Description | | :---------- | :----------------------------------------------------------------------- | | 31.A | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | 31.B | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | 32.A | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | 32.B | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | 101 | XBRL | SIGNATURES Signatures This section contains the official signatures of the CEO and CFO, certifying the Form 10-Q filing on July 26, 2019 - The report was signed by Suren Ajjarapu, Chief Executive Officer, and Howard Doss, Chief Financial Officer, on July 26, 2019[109]