10-Q 1 form10-q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2021

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _______ to _______

Commission File Number: 001-39199

TRXADE GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware		46-3673928
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3840 Land O’ Lakes Blvd.
Land O’ Lakes, Florida		34639
(Address of principal executive offices)		(Zip code)

Registrant’s telephone number, including area code: (800) 261-0281

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.00001 Par Value Per Share

MEDS

The NASDAQ Stock Market LLC

(The NASDAQ Capital Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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	[ ]	Accelerated filer	[ ]

Non-accelerated filer	[X]	Smaller reporting company	[X]

Emerging growth company	[X]

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 pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

There were 8,125,362 shares of the registrant’s common stock outstanding on April 22, 2021, and no shares of preferred stock outstanding.

TRXADE GROUP, INC.

FORM 10-Q

For the Quarter Ended March 31, 2021

TABLE OF CONTENTS

		Page
Cautionary Note Regarding Forward-Looking Statements		1

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)		3

Consolidated Balance Sheets		3
Consolidated Statements of Operations		4
Consolidated Statements of Changes in STOCKHOLDERS’ Equity		5
Consolidated Statements of Cash Flows		6
Notes to Unaudited Consolidated Financial Statements		7

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		13

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		20

ITEM 4. CONTROLS AND PROCEDURES		21

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS		22

ITEM 1A. RISK FACTORS		22

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		23

ITEM 3. DEFAULTS UPON SENIOR SECURITIES		23

ITEM 4. MINE SAFETY DISCLOSURES		23

ITEM 5. OTHER INFORMATION		23

ITEM 6. EXHIBITS		23

SIGNATURES		24

	●	We have been adversely affected by COVID-19 and may continue to be adversely affected by COVID-19;

	●	We were recently unprofitable, we have recently generated net losses, and we may incur losses in the future;

	●	We may need additional financing in the future, which may not be available on favorable terms, if at all;

	●	We may not be able to manage our future growth;

	●	Many of our competitors are better established and have resources significantly greater than ours;

	●	We will need to expand our member base or our profit margins to attain profitability;

	●	We face risks associated with our operations within the pharmaceutical distribution market;

	●	We are dependent on our current management;

	●	We rely on third party contracts, which may not be renewed or may be terminated;

	●	We are currently facing and may in the future face difficulties in sourcing products and inventory due to a variety of causes;

	●	We have in the past, and may in the future, not be able to sell our inventory, at or above the price we acquired such inventory for, have in the past, and may in the future, be forced to write-down inventory;

	●	We may not receive products or receive refunds for deposited amounts and may experience losses in connection with such deposits;

	●	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;

	●	Our business and operations depend on the proper functioning of information systems, critical facilities and distribution networks and a disruption, cyber-attack, failure or destruction of such networks, systems, or technologies may disrupt our business or result in liability;

	●	There may be losses or unauthorized access to or releases of confidential information, including personally identifiable information, that could subject the Company to significant reputational, financial, legal and operational consequences;

	●	We face risks associated with our business in the telehealth market, including risks associated with legal challenges, relationships with third parties and affiliated professionals, our network of qualified providers, competition for services; new technologies, failure to develop widespread brand awareness and regulatory risks;

	●	The health passport market may not achieve and sustain high levels of demand, consumer acceptance and market adoption;

	●	Our certificate of incorporation limits the liability of our officers and directors and provides for indemnification rights;

	●	We incur significant costs to ensure compliance with U.S. and NASDAQ Capital Market reporting and corporate governance requirements;

	●	We may not be able to comply with NASDAQ’s continued listing standards;

	●	Regulatory changes that affect our distribution channels could harm our business;

	●	Healthcare fraud laws are often vague and uncertain, exposing us to potential liability;

	●	New and expanded laws or regulations could have a material adverse effect on our business operations, cash flows or future prospects;

	●	The public health crisis involving the abuse of prescription opioid pain medication could have a material negative effect on our business;

	●	Consolidation in the U.S. healthcare industry may negatively impact our results of operations;

	●	We have identified material weaknesses in our internal control over financial reporting and controls and procedures;

	●	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 continue to be volatile;

	●	Stockholders may experience dilution to future equity sales, the exercise or conversion of outstanding convertible securities or future transactions;

	●	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 differ from yours;

	●	Risks associated with the JOBS Act and our status as an emerging growth company;

	●	Risks associated with future acquisitions, including unknown liabilities and difficulty integrating such acquisitions;

	●	Cyber security attacks and website problems; and

	●	Claims, litigation, government investigations, and other proceedings that may adversely affect our business and results of operations.

	March 31, 2021			December 31, 2020
Assets
Current Assets
Cash	$	5,209,280		$	5,919,578
Accounts Receivable, net		1,936,850			805,043
Inventory		470,122			1,257,754
Prepaid Assets		457,738			151,248
Other Receivables		1,081,250			1,087,675
Total Current Assets		9,155,240			9,221,298

Property Plant and Equipment, Net		160,647			162,397

Other Assets
Deposits		21,636			21,636
Right of use leased assets		355,693			387,371

Total Assets	$	9,693,216		$	9,792,702

Liabilities and Stockholders’ Equity

Current Liabilities
Accounts Payable	$	366,471		$	256,829
Accrued Liabilities		519,179			219,256
Current Portion Lease Liabilities		117,030			131,153
Customer Deposits		10,000			10,000
Notes Payables– Related Party		225,000			225,000
Total Current Liabilities		1,237,680			842,238

Long Term Liabilities
Other Long-Term Liabilities — Leases		253,912			271,306
Total Liabilities		1,491,592			1,113,544

Stockholders’ Equity
Series A Preferred Stock, $0.00001 par value; 10,000,000 shares authorized; none issued and outstanding as of March 31, 2021 and December 31, 2020		-			-
Common Stock, $0.00001 par value; 100,000,000 shares authorized; 8,093,199 shares issued and outstanding as of March 31, 2021 and December 31, 2020		81			81
Additional Paid-in Capital		19,784,616			19,610,631
Accumulated Deficit		(11,583,073	)		(10,931,554	)
Total Stockholders’ Equity		8,201,624			8,679,158

Total Liabilities and Stockholders’ Equity	$	9,693,216		$	9,792,702

	2021			2020

Revenues	$	3,053,235		$	2,203,320

Cost of Sales		1,669,924			563,184
Gross Profit		1,383,311			1,640,136

Operating Expenses
General and Administrative		2,027,566			1,451,909

Operating Income (Loss)		(644,255	)		188,227

Interest, net		(7,264	)		(7,924	)
Net Income (Loss)	$	(651,519	)	$	180,303

Net Income per Common Share – Basic:	$	(0.08	)	$	0.03

Net Income per Common Share – Diluted:	$	(0.08	)	$	0.02

Weighted average Common Shares Outstanding Basic		8,093,199			6,971,427

Weighted average Common Shares Outstanding Diluted		8,093,199			7,423,669

	Preferred Stock				Common Stock				Additional Paid-in-		Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Capital		Deficit			Equity
Balance at December 31, 2020		-	$	-		8,093,199	$	81	$	19,610,631	$	(10,931,554	)	$	8,679,158
Common Stock issued for Services		-		-		-		-		98,247		-			98,247
Options Expense		-		-		-		-		75,738		-			75,738
Net Income (Loss)		-		-		-		-		-		(651,519	)		(651,519	)
Balance at March 31, 2021		-	$	-		8,093,199	$	81	$	19,784,616	$	(11,583,073	)	$	8,201,624

	2021			2020

Operating Activities:
Net Income (Loss)	$	(651,519	)	$	180,303
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation Expense		1,750			1,250
Options expense		75,738			61,997
Warrant Expense		-			79,089
Common Stock Issued for Services		98,247			-
Bad Debt Expense		-			9,000
Amortization of right of use asset		31,678			23,635
Changes in operating assets and liabilities:
Accounts Receivable		(1,131,807	)		(94,047	)
Prepaid Assets and other Current Assets		(306,490	)		(184,923	)
Inventory		787,632			(311,640	)
Deposits for Inventory Purchases		-			(580,800	)
Other Receivables		6,425			-
Lease Liability		(31,517	)		(20,974	)
Accounts Payable		109,642			(14,376	)
Customer Deposits		-			305,972
Accrued Liabilities and Other Liabilities		299,923			134,708
Net Cash used in operating activities		(710,298	)		(410,806	)

Investing Activities:
Purchase of Fixed Assets		-			(23,505	)
Net Cash used in Investing activities		-			(23,505	)

Financing Activities:
Stock Issuance Costs		-			(732,355	)
Proceeds from exercise of Warrants		-			1,352
Proceeds from exercise of Stock Options		-			501
Proceeds from Issuance of Common Stock		-			5,994,424
Net Cash provided by financing activities		-			5,263,922

Net increase (decrease) in Cash		(710,298	)		4,829,611
Cash at Beginning of the Period		5,919,578			2,871,694
Cash at End of the Period	$	5,209,280		$	7,701,305

Supplemental Cash Flow Information
Cash Paid for Interest	$	1,639		$	2,348
Cash Paid for Income Taxes	$	-		$	-

	For three months ended March 31,
	2021			2020
Numerator:
Net Income (loss)	$	(651,519	)	$	180,303

Numerator for basic and diluted EPS - income available to common Shareholders		(651,519	)	$	180,303

Denominator:
Denominator for basic EPS – Weighted average shares		8,093,199			6,971,427
Dilutive Effect of Common Stock Equivalent		-			452,242
Denominator for diluted EPS – adjusted Weighted average shares and assumed Conversions		8,093,199			7,423,669
Basic income (loss) per common share	$	(0.08	)	$	0.03
Diluted income (loss) per common share	$	(0.08	)	$	0.02

	Number Outstanding		Weighted Average Exercise Price		Contractual Life in Years		Intrinsic Value
Warrants Outstanding as of December 31, 2020		82,751	$	1.33		2.73	$	352,951
Warrants granted		-	$	-		-		-
Warrants expired or forfeited		-	$	-		-		-
Warrants exercised		-	$	-		-		-

Warrants Outstanding as of March 31, 2021		82,751	$	1.33		2.48	$	349,157
Warrants Exercisable as of March 31, 2021		60,223	$	1.81		1.34	$	232,462

Expected dividend yield	0	%
Weighted-average expected volatility	106-215	%
Weighted-average risk-free interest rate	0.25	%
Expected life of options	5 years

	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-of-use assets at January 1, 2019	$	534,140		$	313,301
Incremental Borrowing Rate		10	%		10	%

Amounts due within twelve months of March 31
2021	$	146,218
2022		49,452
2023		50,949
2024		52,478
2025		54,052
Thereafter		147,046
Total minimum lease payments		500,195
Less: effect of discounting		(129,253	)
Present value of future minimum lease payments		370,942
Less: current obligations under leases		117,030
Long-term lease obligations	$	253,912

Three Months Ended March 31, 2021	Trxade, Inc.		Community Specialty Pharmacy, LLC			Integra Pharma, LLC			Other			Total
Revenue	$	1,236,650	$	397,896		$	1,402,586		$	16,103		$	3,053,235
Gross Profit	$	1,236,650	$	36,089		$	94,563		$	16,009		$	1,383,311
Segment Assets	$	2,053,494	$	(405,348	)	$	3,111,536		$	4,933,534		$	9,693,216
Segment Profit (Loss)	$	512,293	$	(31,251	)	$	(32,446	)	$	(1,100,115	)	$	(651,519	)

Three Months Ended March 31, 2020	Trxade, Inc.		Community Specialty Pharmacy, LLC			Integra Pharma, LLC			Other			Total
Revenue	$	1,519,907	$	432,929		$	245,016		$	5,468		$	2,203,320
Gross Profit	$	1,519,907	$	36,108		$	78,653		$	5,468		$	1,640,136
Segment Assets	$	2,055,429	$	280,514		$	1,817,170		$	7,320,791		$	11,473,904
Segment Profit (Loss)	$	972,993	$	(41,245	)	$	(28,883	)	$	(722,562	)	$	180,303

	●	“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.

	●	Overview. Discussion of our business and overall analysis of financial and other highlights affecting us, to provide context for the remainder of MD&A.

	●	Liquidity and Capital Resources. An analysis of changes in our consolidated balance sheets and cash flows and discussion of our financial condition.

	●	Results of Operations. An analysis of our financial results comparing the three months ended March 31, 2021 and 2020.

	●	Critical Accounting Policies. Accounting estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.

Projected Expenses for April 2021 to March 2022	Amount
General and administrative (1)	$	9,000,000
Total	$	9,000,000

	Three months Ended
	March 31, 2021			March 31, 2020			Change			Percent Change
Net (Loss) Income	$	(651,519	)	$	180,303		$	(831,822	)		(461	%)
Net Cash Provided by (used in):
Operating Activities		(710,298	)		(410,806	)		(299,492	)		(73	%)
Investing Activities		-			(23,505	)		23,505			100	%
Financing Activities		-			5,263,922			(5,263,922	)		(100	)%
Net increase (decrease) in cash	$	(710,298	)	$	4,829,611		$	(5,539,909	)	$	(115	)%

	Three Months Ended									Percent
	March 31, 2021			March 31, 2020			Change			Change

Revenues	$	3,053,235		$	2,203,320		$	849,915			39	%
Cost of Sales		1,669,924			563,184			1,106,740			197	%

Gross Profit		1,383,311			1,640,136			(256,825	)		(16	)%
Operating Expenses:
General and Administrative*		1,853,581			1,310,823			542,758			41	%
Warrants and Options Expense		173,985			141,086			32,899			23	%
Total Operating Expense		2,027,566			1,451,909			575,657			40	%

Interest Expense		(7,264	)		(7,924	)		660			(8	)%

Net Income (loss)	$	(651,519	)	$	180,303		$	(831,822	)		(461	)%

	●	As a result of COVID-19, various states have adopted price gouging laws. Our failure to comply with such laws and regulations could subject us to claims, penalties, fines or lawsuits;

	●	Inventory price fluctuations as a result of supply and demand issues caused by COVID-19 have caused values of inventory to decrease, which has had a direct impact on gross profit and has resulted in a direct write-off of inventory value;

	●	Payment Terms with customers may be altered or extended, which would have an impact on current ratios and cash flow; and

	●	There have previously been material impairments with respect to goodwill and may be future material impairments and/or affects on right-of-use assets as the evaluation of the long-term impact to delivery of service or physical space assessments changes.

	●	causing one or more of our customers to file for bankruptcy protection or shut down, including as a result of broader economic disruption;

	●	reducing health system or health plan subscription agreement fees generated, as well as visit fees, by customers or providers, as a result of funding constraints related to loss of revenue or employment;

	●	negatively impacting collections of accounts receivable;

	●	negatively impacting our ability to facilitate the provision of our telehealth services due to unpredictable demand;

	●	negatively impacting our ability to forecast our business’s financial outlook;

	●	creating regulatory uncertainty on our telehealth services, if certain restrictions on reimbursement or the practice of medicine across state lines are reintroduced at some point in the future; and

	●	harming our business, results of operations and financial condition.

	Trxade Group, Inc.

	By:	/s/ Suren Ajjarapu
		Suren Ajjarapu
		Chief Executive Officer (Principal Executive Officer)

		Date: April 26, 2021

	By:	/s/ Howard Doss
		Howard Doss
		Chief Financial Officer (Principal Accounting/Financial Officer)

		Date: April 26, 2021

SEC Form 10-Q filed by Trxade Group, Inc.