TRxADE HEALTH(MEDS) - 2023 Q3 - Quarterly Report

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS The report contains forward-looking statements based on current expectations, estimates, forecasts, and projections, which are subject to various risks, uncertainties, and assumptions that are difficult to predict - The report contains forward-looking statements based on current expectations, estimates, forecasts, and projections, which are subject to various risks, uncertainties, and assumptions that are difficult to predict[10] - Key risk factors include limited cash, substantial doubt about the company's ability to continue as a going concern, risks of unprofitability, intellectual property claims, technical problems, acquisition strategy risks, negative effects from the opioid crisis, regulatory and licensing risks, changes in the U.S. healthcare environment, information system status, competition, regulatory changes, healthcare fraud, potential pandemic impact, inflation, rising interest rates, and dependence on current management[12] - The company disclaims any obligation to publicly update or revise forward-looking statements and cautions investors to review risk disclosures in this report and previous filings[11] PART I: FINANCIAL INFORMATION This section presents TRxADE HEALTH, INC.'s unaudited consolidated financial statements and management's analysis for Q3 2023 ITEM 1. FINANCIAL STATEMENTS This section presents TRxADE HEALTH, INC.'s unaudited consolidated financial statements for the quarter and nine months ended September 30, 2023, including balance sheets, statements of operations, changes in stockholders' equity, and cash flows, along with detailed notes explaining the company's organization, significant accounting policies, acquisitions, dispositions, and financial instrument details Consolidated Balance Sheets This section presents the consolidated balance sheets as of September 30, 2023, and December 31, 2022 Consolidated Balance Sheet Highlights (September 30, 2023 vs. December 31, 2022) | Metric | Sep 30, 2023 | Dec 31, 2022 | Change | % Change | | :-------------------------------- | :----------- | :----------- | :------- | :------- | | Cash | $34,031 | $1,094,891 | $(1,060,860) | -96.9% | | Total Current Assets | $5,547,829 | $2,093,121 | $3,454,708 | 165.1% | | Total Assets | $21,653,843 | $3,710,026 | $17,943,817 | 483.7% | | Total Current Liabilities | $9,092,289 | $2,146,791 | $6,945,498 | 323.5% | | Total Liabilities | $10,094,158 | $3,367,159 | $6,726,999 | 199.8% | | Total Stockholders' Equity | $11,559,685 | $342,867 | $11,216,818 | 3271.9% | | Retained Deficit | $(21,529,975) | $(19,719,536) | $(1,810,439) | 9.2% | - The significant increase in Total Assets and Total Stockholders' Equity is largely driven by the acquisition of Superlatus, Inc., which introduced substantial intangible assets and goodwill to the balance sheet[15][16][64][65] Consolidated Statements of Operations This section presents consolidated statements of operations for the three and nine months ended September 30, 2023 and 2022 Consolidated Statements of Operations Highlights (Three Months Ended Sep 30, 2023 vs. 2022) | Metric | Sep 30, 2023 | Sep 30, 2022 | Change | % Change | | :-------------------------------- | :----------- | :----------- | :------- | :------- | | Revenues | $2,058,028 | $2,055,803 | $2,225 | 0.1% | | Cost of sales | $353,450 | $683,375 | $(329,925) | -48.3% | | Gross profit | $1,704,578 | $1,372,428 | $332,150 | 24.2% | | Total operating expenses | $2,549,727 | $1,591,191 | $958,536 | 60.2% | | Operating loss | $(845,149) | $(218,763) | $(626,386) | 286.3% | | Net loss from continuing operations | $(171,607) | $(340,474) | $168,867 | -49.6% | | Net loss on discontinued operations | $(3,353,507) | $(188,268) | $(3,165,239) | 1681.3% | | Net loss | $(3,525,114) | $(528,742) | $(2,996,372) | 566.7% | | Basic EPS (Net loss attributable to common stockholders) | $(4.57) | $(0.91) | $(3.66) | 402.2% | | Diluted EPS (Net loss attributable to common stockholders) | $(1.49) | $(0.91) | $(0.58) | 63.7% | Consolidated Statements of Operations Highlights (Nine Months Ended Sep 30, 2023 vs. 2022) | Metric | Sep 30, 2023 | Sep 30, 2022 | Change | % Change | | :-------------------------------- | :----------- | :----------- | :------- | :------- | | Revenues | $5,919,786 | $7,993,805 | $(2,074,019) | -25.9% | | Cost of sales | $1,072,934 | $3,991,234 | $(2,918,300) | -73.1% | | Gross profit | $4,846,852 | $4,002,571 | $844,281 | 21.1% | | Total operating expenses | $5,917,419 | $5,856,284 | $61,135 | 1.0% | | Operating loss | $(1,070,567) | $(1,853,713) | $783,146 | -42.2% | | Net loss from continuing operations | $(2,004,581) | $(1,983,743) | $(20,838) | 1.1% | | Net loss on discontinued operations | $(4,123,028) | $(623,096) | $(3,499,932) | 561.7% | | Net loss | $(6,127,609) | $(2,606,839) | $(3,520,770) | 135.1% | | Basic EPS (Net loss attributable to common stockholders) | $(8.65) | $(4.66) | $(3.99) | 85.6% | | Diluted EPS (Net loss attributable to common stockholders) | $(2.66) | $(4.64) | $1.98 | -42.7% | - Gross profit margin significantly improved for both the three and nine months ended September 30, 2023, primarily due to a substantial decrease in cost of sales[18][195][203] - Net loss from discontinued operations dramatically increased, largely due to a non-cash pre-tax loss on disposal of $3,209,776 from the sale of APS and CSP[18][76][200][208] Consolidated Statements of Changes in Stockholders' Equity This section details changes in stockholders' equity for the nine months ended September 30, 2023 Key Changes in Stockholders' Equity (Nine Months Ended Sep 30, 2023) | Item | Amount (USD) | | :-------------------------------- | :----------- | | Balance at Dec 31, 2022 | $342,867 | | Common stock issued for services | $63,486 | | Warrants exercised for cash | $7 | | Disposition of assets, related party | $912,299 | | Options expense | $14,434 | | Net Loss (Q1 2023) | $(677,953) | | Common stock issued for services | $15,813 | | Warrants exercised for cash | $1,615 | | Options expense | $7,783 | | Net Loss (Q2 2023) | $(1,974,878) | | Options expense | $3,761 | | Disposition of assets | $3,875,476 | | Shares issued pursuant to merger agreement | $12,500,089 | | Net Loss (Q3 2023) | $(3,525,114) | | Balance at Sep 30, 2023 | $11,559,685 | - Total Stockholders' Equity increased significantly from $342,867 at December 31, 2022, to $11,559,685 at September 30, 2023, primarily due to shares issued pursuant to the Superlatus merger agreement ($12,500,089) and disposition of assets ($3,875,476), despite substantial net losses[16][20][21][38][64] Consolidated Statements of Cash Flows This section presents the consolidated statements of cash flows for the nine months ended September 30, 2023 and 2022 Consolidated Statements of Cash Flows Highlights (Nine Months Ended Sep 30, 2023 vs. 2022) | Cash Flow Activity | Sep 30, 2023 | Sep 30, 2022 | Change | % Change | | :-------------------------------- | :----------- | :----------- | :------- | :------- | | Net cash used in operating activities | $(1,206,077) | $(2,755,979) | $1,549,902 | -56.2% | | Net cash provided by (used in) investing activities | $74,283 | $(312,902) | $387,185 | -123.7% | | Net cash provided by (used in) financing activities | $70,934 | $268,018 | $(197,084) | -73.5% | | Net change in cash | $(1,060,860) | $(2,800,863) | $1,740,003 | -62.1% | | Cash at end of the period | $34,031 | $321,715 | $(287,684) | -89.4% | - Cash used in operating activities decreased by 56.2% YoY, primarily due to increased professional fees and accounting/legal expenses related to the Superlatus merger and TUC acquisition, partially offset by decreased wage and salary expenses[189] - Investing activities shifted from a net cash outflow of $(312,902) in 2022 to a net cash inflow of $74,283 in 2023, mainly due to cash received in acquisitions and proceeds from discontinued operations, partially offset by prior year investment in capitalized software[23][190] - Financing activities saw a decrease in cash provided, from $268,018 in 2022 to $70,934 in 2023, primarily due to a decrease in the net balance of contingent funding liability[23][191] Notes to Consolidated Financial Statements This section provides detailed notes to the consolidated financial statements, covering organization, policies, acquisitions, and financial instruments NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION This note details recent acquisitions, divestitures, and a reverse stock split, along with accounting standard adoption - TRxADE HEALTH, INC. completed the acquisition of Superlatus, Inc. on July 31, 2023, and The Urgent Company, Inc. on September 27, 2023, marking a strategic shift towards food technology[25][34][69] - The company sold 100% of its membership interests in Community Specialty Pharmacy, LLC (CSP) and Alliance Pharma Solutions, LLC (APS) on August 22, 2023, and voluntarily withdrew from the SOSRx, LLC joint venture in February 2023, classifying these as discontinued operations[28][30][74][75] - Effective June 21, 2023, the Company executed a 1:15 reverse stock split to comply with Nasdaq listing rules[43] - The Company adopted ASU 2016-13 (Credit Losses) effective January 1, 2023, which applied to trade receivables but had no material impact on financial statements[44][46] NOTE 2 – GOING CONCERN This note addresses the company's financial condition, raising substantial doubt about its ability to continue as a going concern - As of September 30, 2023, the Company had a retained deficit of $21,529,975, a working capital deficit of $3,544,460, and a cash balance of $34,031[63] - These financial conditions raise substantial doubt about the Company's ability to continue as a going concern for the next 12 months, necessitating additional capital or debt funding[63] NOTE 3 – ACQUISITIONS AND DISPOSITIONS This note details the acquisitions of Superlatus and TUC, and the dispositions of SOSRx, APS, and CSP - On July 31, 2023, TRxADE HEALTH acquired Superlatus, Inc. for an amended total fair value of $12,500,089, consisting of common stock and Series B Preferred Stock, resulting in the recognition of $9,777,478 in intangible assets and $5,129,116 in goodwill[38][64][68] - On September 27, 2023, the Company acquired assets from The Urgent Company, Inc. (TUC) for a $3,150,000 promissory note, including inventory ($2,960,235), property and equipment ($231,170), and operating right-of-use assets ($383,218)[69][71] - The Company disposed of SOSRx, LLC in February 2023, resulting in a recorded loss of $352,244 from asset disposal and the forgiveness of a $500,000 note payable[30][73] - The sale of Alliance Pharma Solutions, LLC (APS) and Community Specialty Pharmacy, LLC (CSP) on August 22, 2023, for promissory notes totaling $225,000, led to a non-cash, pre-tax loss on disposal of $3,209,776, reflecting a strategic shift to food technology[74][75][76] NOTE 4 – RELATED PARTY TRANSACTIONS This note describes transactions with related parties, including consulting agreements and the termination of a joint venture - The Company entered into an independent contractor agreement with Scietech, LLC for consulting services, with an annual fee of $400,000; Scietech is considered a related party due to the interim CFO's spouse being a 31% investor[81] - The Company voluntarily withdrew from the SOSRx joint venture in February 2023, which involved the termination of a $500,000 promissory note and waiver of $15,000 in accounts payable to Exchange Health[84][85] NOTE 5 – REVENUE RECOGNITION This note outlines the company's revenue recognition policies and disaggregated revenue by type for the reporting periods - Revenue is primarily derived from product resale (pharmaceuticals) and service fees (transaction, data, and SaaS)[86][87][88] Disaggregated Revenue (Three Months Ended Sep 30, 2023 vs. 2022) | Revenue Type | Sep 30, 2023 | Sep 30, 2022 | Change | % Change | | :-------------------------------- | :----------- | :----------- | :------- | :------- | | Pharmaceutical product resale income | $394,849 | $707,807 | $(312,958) | -44.2% | | Transaction fee income | $1,617,129 | $1,319,483 | $297,646 | 22.6% | | Data service fee income | $46,050 | $17,950 | $28,100 | 156.5% | | SaaS fee income | $0 | $10,563 | $(10,563) | -100.0% | | Total revenues | $2,058,028 | $2,055,803 | $2,225 | 0.1% | Disaggregated Revenue (Nine Months Ended Sep 30, 2023 vs. 2022) | Revenue Type | Sep 30, 2023 | Sep 30, 2022 | Change | % Change | | :-------------------------------- | :----------- | :----------- | :------- | :------- | | Pharmaceutical product resale income | $1,237,731 | $3,949,771 | $(2,712,040) | -68.7% | | Transaction fee income | $4,531,731 | $3,947,621 | $584,110 | 14.8% | | Data service fee income | $132,025 | $54,050 | $77,975 | 144.3% | | SaaS fee income | $18,299 | $42,363 | $(24,064) | -56.8% | | Total revenues | $5,919,786 | $7,993,805 | $(2,074,019) | -25.9% | NOTE 6 – INVENTORY This note details the composition and significant increase in inventory, primarily due to the acquisition of The Urgent Company, Inc Inventory Composition (September 30, 2023 vs. December 31, 2022) | Inventory Type | Sep 30, 2023 | Dec 31, 2022 | Change | % Change | | :-------------------------------- | :----------- | :----------- | :------- | :------- | | Raw materials | $1,895,406 | $68,448 | $1,826,958 | 2669.2% | | Finished goods | $1,131,512 | $0 | $1,131,512 | N/A | | Total Inventory | $3,026,918 | $68,448 | $2,958,470 | 4322.4% | - Inventory significantly increased from $68,448 at December 31, 2022, to $3,026,918 at September 30, 2023, primarily due to the acquisition of The Urgent Company, Inc. which included substantial inventory[15][69][71][90] NOTE 7 – NOTES RECEIVABLE This note details the notes receivable balance from Wood Sage, LLC, issued as part of the sale of APS and CSP - As of September 30, 2023, the Company had a Notes Receivable balance of $1,275,000 from Wood Sage, LLC, issued as part of the sale of APS and CSP[93] NOTE 8 – INTANGIBLE ASSETS This note details the significant increase in intangible assets, net, primarily from the Superlatus acquisition Intangible Assets, Net (September 30, 2023) | Asset Type | Weighted Average Useful Life (years) | Cost | Accumulated Amortization | Net | | :-------------------------------- | :-------------------------------- | :----------- | :----------------------- | :----------- | | Developed technology | 5.0 | $9,777,478 | $(325,916) | $9,451,562 | - Intangible assets, net, significantly increased to $9,451,562 as of September 30, 2023, primarily due to the acquisition of Superlatus, Inc., which included developed technology[15][68][94] NOTE 9 – OTHER CURRENT LIABILITIES This note details the composition and increase in other current liabilities, primarily due to a purchase price payable Other Current Liabilities (September 30, 2023 vs. December 31, 2022) | Liability Type | Sep 30, 2023 | Dec 31, 2022 | Change | % Change | | :-------------------------------- | :----------- | :----------- | :------- | :------- | | Purchase price payable | $350,000 | $0 | $350,000 | N/A | | Insurance refunds payable | $62,390 | $62,390 | $0 | 0.0% | | Deferred revenue | $0 | $5,127 | $(5,127) | -100.0% | | Total | $412,390 | $67,517 | $344,873 | 510.8% | - Other current liabilities increased significantly, primarily due to a $350,000 purchase price payable as of September 30, 2023[95] NOTE 10 – CONTINGENT FUNDING LIABILITIES This note describes the company's non-recourse funding agreements for future receivables and the resulting contingent liabilities - The Company entered into multiple non-recourse funding agreements for the purchase and sale of future receivables, totaling $1,250,000 (June 2023) and $875,000 (March 2023) in the current year[96][97] - As of September 30, 2023, the total contingent funding liability was $452,348, up from $108,036 at December 31, 2022, with an effective interest rate of approximately 31%[101] NOTE 11 – NOTES PAYABLE This note details the significant increase in notes payable, primarily from the TUC acquisition and a secured debenture Notes Payable Balances (September 30, 2023) | Note | Current Portion | Noncurrent Portion | Total | Accrued Interest | | :-------------------------------- | :-------------- | :----------------- | :----------- | :--------------- | | Perfect Day Note | $3,150,000 | $0 | $3,150,000 | $0 | | Danam Note | $200,000 | $0 | $200,000 | $0 | | Eat Well June 2023 Note | $1,150,000 | $0 | $1,150,000 | $0 | | Eat Well February 2023 Note | $0 | $25,000 | $25,000 | $350 | | Eat Well September 2022 Note | $50,000 | $0 | $50,000 | $1,104 | | Eat Well July 26, 2022 Note | $35,000 | $0 | $35,000 | $798 | | Eat Well July 12, 2022 Note | $25,000 | $0 | $25,000 | $585 | | Eat Well March 2022 Note | $100,000 | $0 | $100,000 | $2,966 | | Eat Well February 2022 Note | $100,000 | $0 | $100,000 | $3,110 | | Eat Well January 2022 Note | $20,000 | $0 | $20,000 | $653 | | Eat Well December 2021 Note | $100,000 | $0 | $100,000 | $3,427 | | Eat Well November 2021 Note | $50,000 | $0 | $50,000 | $1,790 | | Eat Well August 2021 Note | $250,000 | $0 | $250,000 | $9,900 | | Total | $5,230,000 | $25,000 | $5,255,000 | $24,683 | - Total notes payable significantly increased to $5,255,000 as of September 30, 2023, primarily due to a $3,150,000 promissory note issued to Perfect Day, Inc. for the TUC acquisition and a $1,150,000 secured debenture to Eat Well Investment Group, Inc. for Sapientia[102][104][115] NOTE 12 – STOCKHOLDERS' EQUITY This note details changes in stockholders' equity, including preferred stock designation, a reverse stock split, and common stock issuances - The Board of Directors designated 787,754 shares of Series B Preferred Stock on June 26, 2023[116] - A 1:15 reverse stock split was executed on June 21, 2023, to maintain Nasdaq listing compliance[117] - In 2022, officers and employees received common stock in lieu of reduced cash salaries, and independent directors received common stock for services rendered[118][119][121][122] NOTE 13 – PREFUNDED AND PRIVATE PLACEMENT WARRANTS This note describes the company's pre-funded and private placement warrants, including their issuance and exercise activity - In October 2022, the Company entered into a securities purchase agreement for the sale of common stock, pre-funded warrants, and private placement warrants[124] - On January 4, 2023, an investor exercised 40,116 pre-funded warrants at an exercise price of $0.00015 per share[125] NOTE 14 – WARRANTS This note details the company's warrant activity, including outstanding warrants, exercises, and their weighted average exercise price - For the nine months ended September 30, 2023, 40,116 prefunded warrants and 1,795 granted warrants were exercised for a total purchase price of $1,622[126] Warrants Activity (Nine Months Ended Sep 30, 2023) | Item | Number Outstanding | Weighted Average Exercise Price | Contractual Life In Years | | :-------------------------------- | :----------------- | :------------------------------ | :------------------------ | | Warrants outstanding as of Dec 31, 2022 | 179,331 | $22.50 | 4.72 | | Warrants exercised | (1,795) | $22.50 | - | | Warrants outstanding as of Sep 30, 2023 | 177,536 | $22.50 | 4.02 | | Warrants exercisable as of Sep 30, 2023 | 177,536 | $22.50 | 4.02 | NOTE 15 – OPTIONS This note details the company's stock option activity, including grants, forfeitures, expirations, and related compensation costs - For the nine months ended September 30, 2023, 603 options were granted, 140 forfeited, and 2,319 expired, with no options exercised[131] Stock Option Activity (Nine Months Ended Sep 30, 2023) | Item | Number Outstanding | Weighted Average Exercise Price | Weighted Average Contractual Life In Years | | :-------------------------------- | :----------------- | :------------------------------ | :--------------------------------------- | | Options outstanding as of Dec 31, 2022 | 19,708 | $66.00 | 3.92 | | Options granted | 603 | $6.08 | 4.51 | | Options forfeited | (140) | $82.33 | 2.00 | | Options expired | (2,319) | $89.88 | 0.08 | | Options outstanding as of Sep 30, 2023 | 17,852 | $66.10 | 3.95 | | Options exercisable as of Sep 30, 2023 | 17,252 | $62.43 | 2.99 | - Total compensation cost related to stock options was $25,978 for the nine months ended September 30, 2023, a decrease from $67,439 in the same period of 2022[131] NOTE 16 – CONTINGENCIES This note describes various legal contingencies, including ongoing lawsuits and settlement agreements with outstanding payments - In April 2023, IPS won a legal case against Studebaker Defense Group, LLC, with an order to pay $550,000, but no payment has been received as of the filing date[134] - The Company ceased pursuit of a lawsuit against Crecom Burj Group SDN BHD for $581,250 due to Crecom being wound up[135] - A settlement was reached with GSG PPE, LLC and Gary Waxman in June 2022 for $743,000, but monthly installment payments have not been received since January 2023[136] NOTE 17 – SEGMENT REPORTING This note provides segment reporting, classifying the business into Trxade, IPS, Superlatus, and Unallocated - The Company classifies its business into four reportable segments: Trxade, Inc. (web-based pharmaceutical marketplace), IPS (licensed pharmaceutical wholesaler), Superlatus (food technology, including Sapientia and The Urgent Company), and Unallocated (corporate overhead, discontinued operations, Bonum Health)[138] Segment Revenue and Profit (Nine Months Ended Sep 30, 2023 vs. 2022) | Segment | Revenue 2023 | Revenue 2022 | Gross Profit 2023 | Gross Profit 2022 | Segment Profit (Loss) 2023 | Segment Profit (Loss) 2022 | | :-------------------------------- | :----------- | :----------- | :---------------- | :---------------- | :------------------------- | :------------------------- | | Trxade, Inc. | $4,663,756 | $4,001,670 | $4,663,756 | $4,001,670 | $1,570,796 | $1,320,138 | | IPS | $1,237,731 | $3,949,772 | $165,553 | $(41,462) | $(388,900) | $(493,203) | | Superlatus | $0 | $0 | $(756) | $0 | $(440,268) | $0 | | Unallocated | $18,299 | $42,363 | $18,299 | $42,363 | $(6,869,237) | $(3,433,774) | | Total | $5,919,786 | $7,993,805 | $4,846,852 | $4,002,571 | $(6,127,609) | $(2,606,839) | - Superlatus, a new segment in 2023, reported a segment loss of $(440,268) for the nine months ended September 30, 2023[139] - The Unallocated segment's loss significantly increased from $(3,433,774) in 2022 to $(6,869,237) in 2023, reflecting corporate overhead and discontinued operations[139] NOTE 18 – SUBSEQUENT EVENTS This note details significant events occurring after the reporting period, including a stock swap, asset acquisition, and new funding agreements - The Stock Swap Transaction, contingent on stockholder approval of Series B preferred stock conversion, will result in Superlatus being the accounting acquirer and TRxADE's remaining operations consisting only of legacy Superlatus operations[140][141] - On October 4, 2023, the Company entered into an all-cash asset purchase agreement to acquire Spero Foods, Inc. for $500,000[143] - On October 4, 2023, the Company sold 290 shares of Series C Convertible Preferred Stock and a warrant to purchase 41,193 shares of common stock to Hudson Global Ventures, LLC, generating gross proceeds of $290,000[144] - On October 25, 2023, the Company entered into a new non-recourse funding agreement for $1,200,000 to purchase $1,728,000 of future receivables[145] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial condition, results of operations, and cash flows for the three and nine months ended September 30, 2023, compared to the same periods in 2022. It covers the company's business overview, recent strategic events including mergers and divestitures, liquidity and capital resources, and critical accounting policies Company Overview This section provides an overview of TRxADE HEALTH's business, subsidiaries, and strategic shifts towards food technology - TRxADE HEALTH is a technology-enabled health services platform focused on digitalizing retail pharmacy and health services, with approximately 14,900+ registered members on its sales platform as of September 30, 2023[151][152][166] - The company's subsidiaries include Trxade, Inc. (web-based pharmaceutical marketplace), Integra Pharma Solutions, LLC (licensed pharmaceutical wholesaler), Bonum Health, LLC (telehealth services), Superlatus, Inc. (food products and distribution), and The Urgent Company, Inc. (sustainable, animal-free products)[153][154][165][169][172][174][175] - Strategic shifts include the acquisition of Superlatus and The Urgent Company, Inc. to enhance sustainable food product production, and the divestiture of Community Specialty Pharmacy, LLC (CSP) and Alliance Pharma Solutions, LLC (APS) to focus on food technology[154][157][158][162][171][174][175] Recent Events This section details recent corporate events, including Nasdaq compliance, mergers, and divestitures - The Company received a delist determination letter from Nasdaq in January 2023 for non-compliance with the minimum $2,500,000 stockholders' equity requirement[178] - Nasdaq granted an extension until July 31, 2023, to regain compliance, which was achieved as a result of the Superlatus merger, bringing stockholders' equity above the minimum requirement[180][181] - The Company completed the sale of Alliance Pharma Solutions, LLC and Community Specialty Pharmacy, LLC on August 22, 2023, and voluntarily withdrew from the SOSRx LLC joint venture on February 4, 2023[162][164] Liquidity and Capital Resources This section analyzes the company's liquidity, capital resources, and future funding requirements Liquidity Metrics (September 30, 2023 vs. December 31, 2022) | Metric | Sep 30, 2023 | Dec 31, 2022 | Change | % Change | | :-------------------------------- | :----------- | :----------- | :------- | :------- | | Cash | $34,031 | $1,094,891 | $(1,060,860) | -97% | | Current assets (excluding cash) | $5,513,798 | $988,230 | $4,515,568 | 452% | | Current liabilities (excluding short term debt) | $3,862,289 | $1,980,124 | $1,882,165 | 95% | | Short term debt (notes payable related party) | $5,230,000 | $166,667 | $5,063,333 | 3038% | | Working capital | $(3,544,460) | $(53,670) | $(3,490,790) | -6504% | - Cash decreased by 97% to $34,031 as of September 30, 2023, primarily due to increased operating expenses from the Superlatus merger and TUC acquisition, partially offset by increased revenues[182][184] - The Company faces a working capital deficit of $3,544,460 and will require additional funding through equity sales or debt to support ongoing operations and growth initiatives, including potential strategic transactions of its B2C subsidiaries[183][185][231] - Projected general and administrative expenses for October 2023 to September 2024 are estimated at $8,000,000[186] Results of Operations This section discusses revenues, gross profit, operating expenses, and net loss for the three and nine months ended September 30, 2023 Revenue and Gross Profit (Three Months Ended Sep 30, 2023 vs. 2022) | Metric | Sep 30, 2023 | Sep 30, 2022 | Change | % Change | | :-------------------------------- | :----------- | :----------- | :------- | :------- | | Revenues | $2,058,028 | $2,055,803 | $2,225 | 0% | | Cost of sales | $353,450 | $683,375 | $(329,925) | -48% | | Gross profit | $1,704,578 | $1,372,428 | $332,150 | 24% | | Gross profit as % of sales | 83% | 67% | 16% | 23.9% | Operating Expenses (Three Months Ended Sep 30, 2023 vs. 2022) | Expense Type | Sep 30, 2023 | Sep 30, 2022 | Change | % Change | | :-------------------------------- | :----------- | :----------- | :------- | :------- | | Technology, research & development | $410,612 | $238,577 | $172,035 | 72% | | Wages and salary expense | $698,030 | $849,371 | $(151,341) | -18% | | Accounting and legal | $408,957 | $191,007 | $217,950 | 114% | | Professional fees | $418,294 | $82,710 | $335,584 | 406% | | Other general and administrative | $610,074 | $200,310 | $409,764 | 205% | | Total operating expenses | $2,549,727 | $1,591,191 | $958,536 | 60% | - Net loss from continuing operations improved by 50% for the three months ended September 30, 2023, to $(171,607), despite increased operating costs from the merger and TUC acquisition, due to higher gross profit and a $925,320 gain on warrant liability fair value change[193][198][199] - For the nine months ended September 30, 2023, revenues decreased by 26% to $5,919,786, primarily due to decreased sales in Trxade Prime, while gross profit increased by 21% to $4,846,852 due to a 73% decrease in cost of sales[201][202][203] - Net loss from discontinued operations significantly increased by 562% to $(4,123,028) for the nine months ended September 30, 2023, mainly due to the disposal of APS and CSP[201][208] Critical Accounting Policies This section outlines critical accounting policies, including revenue recognition and stock-based compensation - Revenue recognition for Trxade, Inc. (marketplace) is based on transaction fees recognized upon supplier fulfillment, with the company acting as an agent[211] - Integra Pharma Solutions, LLC (wholesaler) recognizes product revenue when the customer receives the product[212] - Bonum, LLC (telehealth) recognizes subscription-based service revenue monthly as services are provided, for both B2B and B2C models[214] - Stock-based compensation is measured at grant date fair value and recognized as expense over the vesting period, with forfeitures recognized at employee termination[215] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, TRxADE HEALTH, INC. is not required to provide quantitative and qualitative disclosures about market risk - The Company is exempt from providing quantitative and qualitative disclosures about market risk due to its status as a smaller reporting company[217] ITEM 4. CONTROLS AND PROCEDURES Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were not effective as of September 30, 2023, due to material weaknesses in accounting policies and period-end financial reporting processes. The company is committed to improving its financial organization and internal controls - As of September 30, 2023, the Company's disclosure controls and procedures were deemed ineffective[218] - Material weaknesses identified include insufficient written policies and procedures for U.S. GAAP and SEC disclosure requirements, and ineffective controls over period-end financial disclosure and reporting processes[219] - Management believes these weaknesses did not affect the reported financial results and is implementing improvements, including increased personnel resources, technical accounting expertise, and written policies/checklists[220][221][222] - There were no material changes in internal control over financial reporting during the quarter ended September 30, 2023[224] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and other disclosures for the reporting period ITEM 1. LEGAL PROCEEDINGS The Company is involved in various lawsuits in the ordinary course of business, with details incorporated by reference from the Notes to Consolidated Financial Statements. Management believes the ultimate resolution of current proceedings will not materially adversely affect the company's financial position, results of operations, or cash flows, though litigation outcomes are inherently uncertain - The Company is a party to lawsuits, the impact and outcome of which are subject to inherent uncertainties[227] - Management believes current legal matters will not have a material adverse effect on financial condition or results of operations, but acknowledges that assessments could change[228][229] ITEM 1A. RISK FACTORS This section updates previously disclosed risk factors, highlighting the company's need for additional capital, which creates substantial doubt about its ability to continue as a going concern. It also addresses risks related to inflationary pressures, potential adverse effects on cash flows from receivables agreements, and the ongoing non-compliance with Nasdaq's listing standards - The Company has an accumulated deficit of $21.5 million, a working capital deficit of $3.5 million, and a cash balance of approximately $34,000 as of September 30, 2023, raising substantial doubt about its ability to continue as a going concern[231] - Additional capital may not be available on commercially acceptable terms, leading to potential delays in development activities, scaling down operations, or cessation of business, with any equity financing being dilutive to stockholders[232][233] - Ongoing inflationary pressures, supply chain disruptions, and labor shortages could materially and adversely affect the business, results of operations, and cash flows[234] - An event of default under the Receivables Agreements could require 100% of future sales revenue to be paid to the third-party funder, severely impacting cash flows and liquidity[235] - The Company is not currently in compliance with Nasdaq's minimum stockholders' equity requirement and faces risks of delisting, which could negatively impact stock price, liquidity, and ability to raise capital[236][242][244] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section details the unregistered sales of equity securities during the reporting period, including the exercise of pre-funded warrants, issuance of commitment shares, and shares issued as part of the Superlatus merger agreement. All issuances were made to accredited investors without public offering - On January 6, 2023, an investor exercised 601,740 pre-funded warrants for an aggregate purchase price of $6.02, resulting in the issuance of 601,740 shares of common stock[245] - In the first quarter of 2023, 50,000 shares of common stock were issued to White Lion Capital, LLC as commitment shares[246] - As part of the Superlatus merger, shareholders received 136,441 shares of common stock and 306,855 shares of Series B Preferred Stock[247] - All these issuances were unregistered sales to accredited investors, exempt from public offering[248] - The Company did not repurchase any shares of common stock during the first two quarters of 2023[249] ITEM 3. DEFAULTS UPON SENIOR SECURITIES The Company reported no defaults upon senior securities during the period - There were no defaults upon senior securities[250] ITEM 4. MINE SAFETY DISCLOSURES The Company reported no mine safety disclosures - There were no mine safety disclosures[251] ITEM 5. OTHER INFORMATION During the quarter ended September 30, 2023, there was no information required to be disclosed in a Form 8-K that was not disclosed, and no material changes to procedures for recommending board nominees - No information required to be disclosed in a Form 8-K was omitted during the quarter ended September 30, 2023[252] - There were no material changes to the procedures for stockholders to recommend nominees to the board of directors[252] ITEM 6. EXHIBITS This section lists all exhibits filed with the Form 10-Q, including certifications from the Principal Executive Officer and Principal Financial Officer, and Inline XBRL documents - Exhibits include certifications from the Principal Executive Officer and Principal Financial Officer (pursuant to Sections 302 and 906 of Sarbanes-Oxley Act of 2002) and various Inline XBRL documents[254]