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EX-32.B - EXHIBIT 32-B SECTION 906 CERTIFICATION - TRXADE GROUP, INC.f10q093014_ex32zb.htm
EX-31.B - EXHIBIT 31-B SECTION 302 CERTIFICATION - TRXADE GROUP, INC.f10q093014_ex31zb.htm
EX-31.A - EXHIBIT 31-A SECTION 302 CERTIFICATION - TRXADE GROUP, INC.f10q093014_ex31za.htm
EX-32.A - EXHIBIT 32-A SECTION 906 CERTIFICATION - TRXADE GROUP, INC.f10q093014_ex32za.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 September 30, 2014


OR


      .

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: 000-55218


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 Number)


17537 Darby Lane

Lutz, Florida 33558

(Address of Principal Executive Offices) (Zip Code)


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


Former name, former address and former fiscal year, if changed since last report: None


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      . No  X .


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes  X . No      .


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer

      .

Accelerated filer

      .

Non-accelerated filer

      . (Do not check if a smaller reporting company)

Smaller reporting company

  X .


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


Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class

 

Outstanding at

October 30, 2014

 

 

 

Common Stock, $0.00001 par value per share

 

31,202,493 shares




 



TRXADE GROUP, INC.

FORM 10-Q

For the Quarter Ended September 30, 2014


INDEX


PART I.

 

Page

 

 

 

FINANCIAL INFORMATION

 

 

 

 

 

Item 1.

Financial Statements

 

3

 

a)

Consolidated Balance Sheets Nine Months Ended September 30, 2014 (unaudited) and December 31, 2013

 

3

 

b)

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)

 

4

 

c)

Consolidated Statements of Cash Flows for Nine Months Ended September 30, 2014 and 2013 (unaudited)

 

5

 

d)

Notes to (unaudited) Financial Statements

 

6

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

10

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

15

 

 

 

Item 4.

Controls and Procedures

 

15

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

Item 1.

Legal Proceedings

 

16

 

 

 

Item 1A.

Risk Factors

 

16

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

16

 

 

 

Item 3.

Defaults Upon Senior Securities

 

16

 

 

 

Item 4.

Mine Safety Disclosures

 

16

 

 

 

Item 5.

Other Information

 

16

 

 

 

Item 6.

Exhibits

 

16

 

 

 

SIGNATURES

 

17





2




PART 1: FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS


Trxade Group, Inc.

Consolidated Balance Sheets

September 30, 2014 and December 31, 2013

(unaudited)


 

 

September 30, 2014

 

December 31, 2013

Assets

 

 

 

 

Current Assets

 

 

 

 

Cash

$

270,848

$

84,317

Accounts Receivable

 

185,284

 

105,863

Inventory

 

29,614

 

43,373

Prepaid Assets

 

50,776

 

1,712

Subscription Receivable - Preferred

 

 

160,000

Total Current Assets

 

536,522

 

395,265

 

 

 

 

 

Property and Equipment (net)

 

5,002

 

8,602

 

 

 

 

 

Total Assets

$

541,524

$

403,867

 

 

 

 

 

Liabilities and Shareholders Equity (Deficit)

 

 

 

 

Current Liabilities

 

 

 

 

Accounts Payable

$

218,684

$

162,314

Accrued Liabilities

 

109,042

 

37,966

Short Term Debt

 

 

19,333

Short Term Debt Related Parties

 

 

53,389

Total Current Liabilities

 

327,726

 

273,002

 

 

 

 

 

Shareholders Equity

 

 

 

 

Preferred Stock, $.00001 par value;100,000,000 shares authorized; 0 and670,000 shares issued and outstanding, as of September 30, 2014 and December 31, 2013, respectively

 

 

7

Common Stock, $0.00001 par value; 500,000,000shares authorized; 30,735,826 and 28,824,160shares issued and outstanding, as of September 30, 2014 and December 31, 2013, respectively

 

307

 

288

 

 

 

 

 

Additional Paid-in Capital

 

4,308,135

 

2,650,315

Retained Earnings (Deficit)

 

(4,094,644)

 

(2,519,745)

Total Shareholders’ Equity

 

213,798

 

130,865

 

 

 

 

 

Total Liabilities and Shareholders’ Equity

$

541,524

$

403,867


The accompanying notes are an integral part of the unaudited consolidated financial statements.



3




Trxade Group, Inc.

Consolidated Statements of Operations

Three months and Nine months ended September 30, 2014 and 2013

(unaudited)


 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

Revenues

$

372,690

$

323,406

$

904,603

$

754,227

 

 

 

 

 

 

 

 

 

Cost of Sales

 

77,153

 

368,672

 

275,129

 

691,349

Gross Profit (Loss)

 

295,537

 

(45,266)

 

629,474

 

62,878

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

General and Administrative

 

645,363

 

237,562

 

1,623,847

 

713,869

 

 

 

 

 

 

 

 

 

Operating Loss

 

(349,826)

 

(282,828)

 

(994,373)

 

(650,991)

 

 

 

 

 

 

 

 

 

Loss on Debt Conversion

 

 

 

576,417

 

Interest Expense

 

2,057

 

851

 

4,109

 

1,772

 

 

 

 

 

 

 

 

 

Net Loss

$

(351,883)

$

(283,679)

$

(1,574,899)

$

(652,763)

 

 

 

 

 

 

 

 

 

Basic loss per Common Share

$

(.01)

$

(.01)

$

(.05)

$

(0.07)

 

 

 

 

 

 

 

 

 

Diluted loss per common Share

$

(.01)

$

(.01)

$

(.05)

$

(0.07)

 

 

 

 

 

 

 

 

 

Basic weighted average number of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares outstanding

 

29,595,609

 

27,486,957

 

29,385,234

 

9,263,004

 

 

 

 

 

 

 

 

 

Diluted weighted average number of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares outstanding

 

29,595,609

 

27,486,957

 

29,385,234

 

9,263,004


The accompanying notes are an integral part of the unaudited consolidated financial statements.



4




Trxade Group, Inc.

Consolidated Statements of Cash Flows

Nine months ended September 30, 2014 and 2013

(unaudited)


 

 

2014

 

2013

Operating Activities:

 

 

 

 

Net Loss

$

(1,574,899)

$

(652,763)

Adjustments to reconcile net loss to net cash provided by

 

 

 

 

Operating activities:

 

 

 

 

Depreciation

 

3,600

 

2,965

Loss from Debt Conversion

 

576,417

 

Options expense

 

282,832

 

60,093

Contributed Officers Salary

 

 

150,000

Changes in operating assets and liabilities:

 

 

 

 

Accounts Receivable

 

(79,421)

 

(45,249)

Prepaid Assets

 

(49,064)

 

(1,712)

Inventory

 

13,759

 

(41,451)

Accounts Payable

 

56,370

 

179,388

Accrued Liabilities

 

71,076

 

Bank Overdraft

 

 

(12,801)

Net Cash used in operating activities

 

(699,330)

 

(361,530)

 

 

 

 

 

Investing Activities:

 

 

 

 

Property Acquisition

 

 

(10,977)

Net Cash used in investing activities

 

 

(10,977)

 

 

 

 

 

Financing Activities:

 

 

 

 

Repayments of Short Term Debt Related Parties

 

(105,639)

 

133,125

Proceeds from Short Term Debt Related Parties

 

52,250

 

Repayments of Short Term Debt

 

(10,000)

 

Proceeds from Short Term Debt

 

10,000

 

50,000

Capital Contributions

 

 

218,783

Proceeds from issuance of Common Stock

 

404,250

 

Proceeds from subscription receivable

 

160,000

 

Proceeds from issuance of Preferred Stock

 

375,000

 

Net Cash provided by financing activities

 

885,861

 

401,908

 

 

 

 

 

Net increase or (Decrease) in Cash

 

186,531

 

29,401

Cash at Beginning of the Year

 

84,317

 

3,378

Cash at September 30, 2014 and 2013

$

270,848

$

32,779

 

 

 

 

 

Supplemental Cash Flow Information

 

 

 

 

Cash Paid for Interest

$

4,109

$

1,772

Cash Paid for Income Taxes

$

$

 

 

 

 

 

Non Cash Transactions

 

 

 

 

Shares issued for Debt

$

19,333

$

Common Stock issued as Founders Shares

$

$

283

Series A Convertible Preferred Shares converted to common stock

$

10

$


The accompanying notes are an integral part of the unaudited consolidated financial statements.



5




Trxade Group, Inc.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

For the nine months ended Septemeber 30, 2014 and 2013


NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION


Trxade Group, Inc. (“Company”) owns 100% of Trxade, Inc., Westminster Pharmaceutical LLC and Pinnacle Tek, Inc. The merger of Trxade, Inc. and Trxade Group, Inc. occurred in July 2013. Pinnacle Tek was merged with Trxade Group, Inc. in July 2013. Westminster Pharmaceutical LLC was formed in January 2013.


Trxade, Inc. is a web based market platform that enables trade among healthcare buyers and sellers of pharmaceuticals, accessories and services.


Westminster Pharmaceutical LLC, provides US state licensed pharmacies and other buying groups with FDA approved pharmaceuticals.


Pinnacle Tek, Inc. is a technology consultant provider that supports the programming needs of parent company, analyzes current benchmark pricing of pharmaceuticals and provides other information technology consulting services to third parties.


Income (loss) Per Share – Basic net loss per common share is computed by dividing net loss available to commons stockholders by the weighted average number of common shares outstanding. Diluted net loss per common share is computed similar to basic net loss per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilute. At September 30, 2014 diluted net loss per share is equivalent to basic net loss per share as the inclusion of any shares committed to be issued would be anti-dilutive.


The following table sets forth the computation of basic and diluted Loss per Share:


 

 

Nine-month

 

Three-month

 

 

September 30, 2014

 

September 30, 2014

Numerator:

 

 

 

 

Net Loss

$

(1,574,899)

$

(351,883)

 

 

 

 

 

Numerator for basic EPS – income (loss)

 

 

 

 

Available to common shareholders

 

(1,574,899)

 

(351,883)

 

 

 

 

 

Numerator for diluted EPS – income (loss)

 

 

 

 

Income available to common shareholders

 

(1,574,899)

 

(351,883)

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Denominator for basic EPS –

 

 

 

 

Weighted average shares

 

29,385,234

 

29,595,609

 

 

 

 

 

 

 

 

 

 

Basic loss per common share

$

(0.05)

$

(0.01)

 

 

 

 

 

Diluted loss per common share

$

(0.05)

$

(0.01)




6




The accompanying unaudited interim 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 Registration Statement on Form 10.


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, 2013 as reported in the Company’s Registration Statement on Form 10 have been omitted.


NOTE 2 – SHORT-TERM DEBT RELATED PARTIES


During the nine months ended September 30, 2014, the Company’s officers and board members advanced $52,250 to the Company; the notes are due on demand and carry 0% interest. In addition, $105,639 of related party loans were paid back to the Company’s officers and board members.


As of September 30, 2014 and December 31, 2013, the short term debt related parties had a balance of $ 0 and $53,389, respectively.


NOTE 3 – SHORT TERM DEBT


In February 2014, the Xcellink loan of $19,333 was converted to 600,000 shares of common stock along with $4,250 of proceeds. The shares were valued at the market price on the respective date of the transaction and the fair value of the shares was determined to be $600,000 and $576,417 was recorded as loss on conversion of debt during the nine months ended September 30, 2014.


In August 2014, the Company entered into a loan with third parties for an amount of $10,000. The loan is due in February 2015, with a variable interest rate. The loan was repaid during the three months ended September 30, 2014.


As of September 30, 2014 and December 31, 2013, the short term debt had a balance of $ 0 and $19,333, respectively.


NOTE 4 – STOCKHOLDERS’ EQUITY


In March, April and July 2014, 375,000 shares of Series A Convertible Preferred Shares were issued at $1.00 per share. The shares were entitled to an annual dividend of $0.05 per share when, as and if declared by the Board of Directors; dividends are not cumulative. There were no redemption or sinking fund provisions applicable to the Series “A” Preferred Stock. The holders had the right to convert their shares at any time into shares of common stock on a one-for-one basis.  In addition, the shares automatically convert into shares of common stock once the Company becomes an SEC reporting Company.


In August 2014, all of the Company’s 1,045,000 shares of Series A Convertible Preferred Shares automatically converted into 1,045,000 shares of common stock as the Company became an SEC reporting Company.


The Company analyzed the embedded conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the conversion option should be classified as equity. The Company also analyzed the conversion option for beneficial conversion features consideration under ASC 470-20 “Convertible Securities with “Beneficial Conversion Features” and noted none.


As of December 31, 2013, $510,000 was received and remaining balance of $160,000 was recorded as subscription receivable for the series A Convertible Preferred Shares. The subscription receivable was collected during the first quarter of 2014.


On September 21, 2014, Trxade Group, Inc., accepted subscription agreements with certain investors. Under the terms of the Subscription Agreements, the Company accepted subscriptions for 733,333 shares of the Company's common stock, $0.00001 par value per share, to the investors in connection with a private placement. The common stock issuable above also included warrants to purchase 183,333 shares of common stock under the terms and conditions of a warrant agreement. The warrants have a five year term and an exercise price of $0.01 per share. The aggregate cash purchase price of the common stock and warrants was $1,100,000.


As of September 30, 2014 $400,000 had been received from subscription agreements and therefore 266,664 common shares and warrants to purchase 66,666 shares of additional common stock have been issued.



7




NOTE 5 – WARRANTS


For the nine month period ended September 30, 2014, 66,666 warrants were issued with common stock Subscriptions. See note 4.


The Company’s outstanding and exercisable warrants as of September 30, 2014 are presented below:


 

 

Number Outstanding

 

Weighted Average Exercise Price

 

Contractual Life in Years

 

Intrinsic Value

Warrants Outstanding as of December 31, 2012

 

$

 

$

 

 

 

 

 

 

 

 

 

Warrants Granted

 

435,000

 

1

 

5.0

 

Warrants Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants Outstanding as of December 31, 2013

 

435,000

 

1

 

4.86

 

 

 

 

 

 

 

 

 

 

Warrants Granted

 

66,666

 

.01

 

5.0

 

Warrants Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants Outstanding as of September 30, 2014

 

501,666

$

.87

 

4.23

$


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 5 years following the grant date, after which they expire. Options are vested in 4 years from the grant date.


During the nine months ended September 30, 2014, 450,000 options were granted to employees. These options vest over four years and are granted with an exercise price of $1.00 and the expiration date six months after the last vesting period. The last options issued under the plan expire in April 2019.


The Company uses the Black-Scholes option pricing model to estimate the fair value of stock-based awards on the date of grant. The assumptions employed in the calculation of the fair value of share-based compensation expense were calculated as follows for all years presented:


Under the Black-Scholes option price model, fair value of the option granted is estimated at $840,448 at the respective issuance date.


The following table summarizes the assumptions used to estimate the fair value of stock options granted during the nine months ended September 30, 2014:


 

 

2014

Expected dividend yield

 

0%

Weighted-average expected volatility

 

200%

Weighted-average risk-free interest rate

 

0.75%

Expected life of options

 

4 years




8




Total compensation cost related to stock options was $282,832 for the nine months ended September 30, 2014. As of September 30, 2014, there was $461,151 of unrecognized compensation costs related to stock options, which is expected to be recognized over a weighted average period of 4.0 years. The following table represents stock option activity as of and for the period ended September 30, 2014:


 

 

Number of Options

 

Option Price Per Share

 

Average Exercise Price

Outstanding at December 31, 2012

 

 

 

 

 

 

 

 

 

 

Forfeited

 

 

 

Granted

 

450,000

$

1.00

 

0.24

Exercised

 

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2013

 

450,000

$

1.00

 

0.24

 

 

 

 

 

 

 

Forfeited

 

 

 

Granted

 

450,000

$

1.00

 

0.26

Exercised

 

 

 

Outstanding at September 30, 2014

 

900,000

$

1.00

 

0.27


NOTE 7 – SUBSEQUENT EVENTS


On September 21, 2014, Trxade Group, Inc., accepted subscription agreements with certain investors. Under the terms of the Subscription Agreements, the Company accepted subscription agreements for 733,333 shares of the Company's common stock, $0.00001 par value per share, to the investors in connection with a private placement. The shares of common stock issuable above also included warrants to purchase 183,333 shares of Common Stock under the terms and conditions of a warrant agreement. The warrants have a five year term and an exercise price of $0.01 per share. The aggregate cash purchase price of the common stock and warrants was $1,100,000. At September 30, 2014, $400,000 had been received by the Company.


In October 2014, an additional $700,000 had been received from subscription agreements, and therefore 466,667 common shares and 116,667 investors warrants have been issued in connection with this private placement.



9




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


Forward-Looking Statements


This Quarterly Report on Form 10-Q (“Report”), including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and the future results of the Company that are based on current expectations, estimates, forecasts, and projections about the industry in which the Company operates and the beliefs and assumptions of the management of the Company. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words, and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed elsewhere in this Report, and in other reports the Company files with the Securities and Exchange Commission (“SEC”), including the Company’s Registration Statement on Form 10. The Company undertakes no obligation to revise or update publicly any forward-looking statements for any reason.


The following discussion is based upon our unaudited Consolidated Financial Statements included elsewhere in this report, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingencies. In the course of operating our business, we routinely make decisions as to the timing of the payment of invoices, the collection of receivables, the shipment of products, the fulfillment of orders, the purchase of supplies, and the building of inventory, among other matters. Each of these decisions has some impact on the financial results for any given period. In making these decisions, we consider various factors including contractual obligations, customer satisfaction, competition, internal and external financial targets and expectations, and financial planning objectives. On an on-going basis, we evaluate our estimates, including those related to sales returns, pricing credits, warranty costs, allowance for doubtful accounts, impairment of long-term assets, especially goodwill and intangible assets, contract manufacturer exposures for carrying and obsolete material charges, assumptions used in the valuation of stock-based compensation, and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.


Company Overview


We have designed, developed, and now own and operate business-to-business web based marketplace focused on the US pharmaceutical industry. Our core service brings the nation’s independent pharmacies and accredited national suppliers of pharmaceuticals together to provide efficient and transparent buying and selling opportunities.


We began operations under Trxade Nevada in August of 2010 and spent over two years creating and enhancing our web-based services. Our services provide enhanced pricing transparency, purchasing capabilities and other value added services on a single platform to focus on serving the nation’s approximately 24,000 independent pharmacies with an annual purchasing power of $96 billion. Our national supplier partners are able to fulfill orders on our platform immediately and provide the pharmacy with cost saving payment terms and next day delivery capabilities in unrestrictive states under the Model State Pharmacy Act and Model Rules of the National Association of Boards of Pharmacy (Model Act). Important additions to this platform further include the generation of pharmacy to pharmacy trading capabilities to help independents with their overstocked inventories in a more organized manner. We expanded rapidly in 2013 and broke the 1,000 member pharmacy mark that year.


In December 2013 we launched a second service to help pharmaceutical distributors better source their pharmaceutical needs within a highly structured single platform. This solution is designed to help purchasers overcome pharmaceutical supply issues related to drug shortages, as a means to control costs on drugs with volatile pricing and to help buyers make better purchasing choices based on their needs. Planned enhancements will expand this offering to manufactures and hospitals alike.


Additionally, we built and, in February 2014, launched, a new desktop application, named RxGuru, to bring product information on a just in time basis to our member base. Our pharmacy members should benefit immensely from this application by gaining advanced data analytics at point of purchase and patient care.



10




Other related developments include the creation of a Delaware registered supply arm in April 2013 to take advantage of certain supply disruptions for specialty and other niche pharmaceuticals and operates via a third party logistics warehouse. Our Information Technology consultancy division located in Tampa, Florida, focuses on staffing and healthcare data analytics research in areas of product pricing, drug shortages and governmental pharmaceutical reimbursement benchmark monitoring.


Company Organization


Trxade Group, Inc. (“Company”) owns 100% of Trxade, Inc., Westminster Pharmaceutical LLC and Pinnacle Tek, Inc. The merger of Trxade, Inc. and Trxade Group, Inc. occurred in July 2013. Pinnacle Tek was merged with Trxade Group, Inc. in July 2013. Westminster Pharmaceutical LLC was formed in January 2013.


Trxade, Inc. is a web based market platform that enables trade among healthcare buyers and sellers of pharmaceuticals, accessories and services.


Westminster Pharmaceutical LLC, provides US state licensed pharmacies and other buying groups with FDA approved pharmaceuticals.


Pinnacle Tek, Inc. is a technology consultant provider that supports the programming needs of parent company, analyzes current benchmark pricing of pharmaceuticals and provides other information technology consulting services to third parties.


Liquidity and Capital Resources


Liquidity Outlook


Cash Requirements


Our primary objectives for the remainder of 2014 are to continue the development of the Trxade Platform, and increase our client base. In addition, we expect to pursue raising capital to fund our operations and provide personnel to expand operations and required working capital.


We estimate our operating expenses and working capital requirements for the next 12 months to be approximately as follows:


Expense

 

Amount

Cost of Sales(1)

$

600,000

General and administrative(2)

$

2,050,000

Total

$

2,650,000


(1)

Includes the cost of drugs for Westminster Pharmaceuticals as consulting expenses for Pinnacle Tek.

(2)

Includes wages and payroll, legal and accounting, marketing, rent and web development.


As of September 30, 2014, we had cash and cash equivalents of approximately $270,848 and other current assets of $265,674. Additional funds will be needed to continue to expand our platform and customer base, and cover general and administrative expense.

Since inception, we have funded our operations primarily through equity capital raises and operational revenue. We expect to continue to do so in the future although no assurance can be given that we will be able to obtain financing on reasonable terms or revenues will continue. If we obtain additional financing by issuing equity securities, our existing stockholders’ ownership will be diluted. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments. We may be unable to maintain operations at a level sufficient for investors to obtain a return on their investments in our common stock. Further, we may continue to be unprofitable.


We will need significantly more cash to implement our plan to operate a business-to-business web based marketplace focused on the US pharmaceutical industry. Our core service brings the nation’s independent pharmacies and accredited national suppliers of pharmaceuticals together to provide efficient and transparent buying and selling opportunities.



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Cash Flows


The following table summarizes our Consolidated Statement of Cash Flows for the nine months ended September 30, 2014 and 2013:


 

 

Nine Months Ended

 

 

September 30, 2014

 

September 30, 2013

 

 

$

 

$

Net cash provided by (used in):

 

 

 

 

Operating activities

 

(699,330)

 

(361,530)

Investing activities

 

-

 

(10,977)

Financing activities

 

885,861

 

401,908

Net increase (decrease) in cash and cash equivalents

 

186,531

 

29,401


Cash used in operating activities for the nine months ended September 30, 2014 was $699,330. This is an increase of $337,800 from same period in 2013 and was due to increased staffing as the Company transitioned to its operational phase, continuing IT development of the Company’s web platform and professional fees.


Operating activities in 2013 by our predecessor-in-interest Trxade Group, Inc., a Nevada corporation that ultimately merged into our company, included options expense, $60,093 and contributed officers’ salary, $150,000, the purchase of inventory for Westminster Pharmaceuticals LLC, which went operational in 2013; increases in liabilities in both accounts payable and accrued expenses.


Historical Liquidity and Capital Resources


Working Capital


Our working capital as of September 30, 2014 and December 31, 2013 is summarized as follows:


 

 

At

September 30, 2014

 

At

December 31, 2013

 

 

$

 

$

 

 

 

 

 

Current assets

 

536,522

 

395,265

Current Liabilities

 

327,726

 

273,002

Working Capital

 

208,796

 

122,263


Current Assets


The increase in our current assets was primarily due to a $400,000 common stock issuance. Accounts receivable and prepaid assets increased by $79,421 and $ 49,064 respectfully.


Current Liabilities


Current liabilities increase is primarily due to an increase in accounts payable by $56,370 and accrued liabilities of $71,076. The accrued liabilities increase is primarily accrued management wages from executive employment contracts.



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Results of Operations


Nine Months Ended September 30, 2014 Compared To Nine Months Ended September 30, 2013


 

 

Nine months ending

 

Nine months ending

 

 

September 30, 2014

 

September 30, 2013

 

 

$

 

$

Revenues

 

904,603

 

754,227

Cost of Sales

 

275,129

 

691,349

Gross Profit

 

629,474

 

62,878

Operating expenses:

 

 

 

 

General and Administrative

 

1,341,015

 

653,776

Warrants and Options Expense

 

282,832

 

60,093

Total Operating Expenses

 

1,623,847

 

713,869

Loss from operations

 

(994,373)

 

(650,991)

Loss on debt conversion

 

(576,417)

 

Interest Expense

 

(4,109)

 

(1,772)

Net loss

 

(1,574,899)

 

(652,763)


Revenues increased for the nine months ended September 30, 2014 to $904,603 compared to $754,227 for the comparable period in 2013. This increase was primarily attributable to fee income from our web-based platform. Our sales department has continued to add customers in 2014 through direct marketing and customer training.


Cost of sales decreased for the nine months ended September 30, 2014 to $275,129 compared to $691,349 for the comparable period in 2013. This decrease was primarily attributable to an increase in revenue from the web-based platform which has lower cost of sales than our other revenue sources.


General and administrative expenses increased for the nine months ended September 30, 2014 to $1,341,015 compared to $653,776 for the comparable period in 2013. A large component of general and administrative expenses in 2014 were professional service fees, comprised of legal, accounting, financial advisory, board compensation, SEC filing, transfer agent and financing fees. These fees, which totaled approximately $33,943 for the nine month period in 2013, increased to $209,444 for the comparable period in 2014, as we ramped up our efforts to become a fully reporting company. The increase in general and administrative expenses was also affected by an increase in employee cash compensation expense in the 2014 period due to increased staffing as we reached our operational phase and our payroll expense was $531,885.


Warrant and options expense in the 2014 period represents compensation cost related to the issuance of employee stock options.


In February 2014, the Xcellink loan of $19,333 was converted to 600,000 shares of common stock along with $4,250 of proceeds. The shares were valued at the market price on the respective date of the transaction and the fair value of the shares was determined to be $600,000 and $576,417 was recorded as loss on conversion of debt during the nine months ended September 30, 2014.



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Three Months Ended September 30, 2014 Compared To Three Months Ended September 30, 2013


 

 

Three months ending

 

Three months ending

 

 

September 30, 2014

 

September 30, 2013

 

 

$

 

$

Revenues

 

372,690

 

323,406

Cost of Sales

 

77,153

 

368,672

Gross Profit (Loss)

 

295,537

 

(45,266)

Operating expenses:

 

 

 

 

General and Administrative

 

553,574

 

201,190

Warrants and Options Expense

 

91,789

 

36,372

Total Operating Expenses

 

645,363

 

237,562

Loss from operations

 

(349,826)

 

(282,828)

Interest Expense

 

(2,057)

 

(851)

Net loss

 

(351,883)

 

(283,679)


Revenues increased for the three months ended September 30, 2014 to $372,690 compared to $323,406 for the comparable period in 2013. This increase was primarily attributable to the web-platform fee growth as clients were retained and new clients were added by direct marketing efforts.


Cost of sales decreased for the three months ended September 30, 2014 to $77,153 compared to $368,672 for the comparable period in 2013. This decrease was primarily attributable to lower transactions in Westminster Pharmaceuticals LLC as a change to a more efficient logistics company was completed.


General and administrative expenses increased for the three months ended September 30, 2014 to $553,574 compared to $201,190 for the comparable period in 2013. A large component of general and administrative expenses in 2014 was professional service fees, comprised of legal, accounting, financial advisory, board compensation, SEC filing, transfer agent and financing fees. These fees, which totaled approximately $15,000 for the three month period in 2013, increased to $93,014 for the comparable period in 2014, as we ramped up our efforts to become a fully reporting company.


Warrant and options expense in the 2014 period represents compensation cost related to the issuance of employee stock options.


Critical Accounting Policies


Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of net sales and expenses for each period. The following represents a summary of our critical accounting policies, defined as those policies that we believe are the most important to the portrayal of our financial condition and results of operations and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.


Revenue Recognition


In general the Company accounts for revenue recognition in accordance with ASC 605, “Revenue Recognition”.


Trxade, Inc. generates net fee income as a percentage of the total transactions between the buyer (independent pharmacies) and the seller (wholesaler) of pharmaceutical drugs on the Trxade web-based platform. Revenue is recognized when (1) the price is fixed and determined as the buyer orders the drugs from the wholesaler. (2) The wholesaler has signed a contract with Trxade, Inc. which recognizes that an arrangement exists. (3) The wholesaler delivers the drugs purchased to the buyer, products are delivered. (4) The collectability is reasonably assured by the wholesaler through prior credit checks and payment experience.  



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Pinnacle Tek, Inc. generates gross revenues from IT Consulting and Job Placement. Revenue is recognized (1) with the execution of a contract for the price and scope of services. (2) The contract also provides persuasive evidence of an existing arrangement. (3) The IT Consulting services are performed and invoiced monthly and the job placement is invoiced at the hiring of the applicant, delivery of services. (4) The collectability of the resulting receivable is determined by credit checks prior to the performance of services and payment experience with the client.  


Westminster Pharmaceutical LLC generates gross revenues from the sale of pharmaceutical drugs to independent pharmacies or wholesalers. The revenue recognized when (1) the price is fixed and determinable at the time of the transaction with an invoice. (2) The invoice is also persuasive evidence that an arrangement exists. (3) The products are delivered to the buyer. (4) The collectability of the resulting receivable is reasonably assured by credit check prior to the transaction and experience with the customer.


Stock-Based Compensation


The Company accounts for stock-based compensation in accordance with the provision of ASC 505, “Equity Based Payments to Non-Employees” (“ASC 505”), Share Based Payments to Non-Employees, and ASC 505 which requires that such equity instruments are recorded at their fair value on the measurement date. The measurement of stock-based compensation is subject to periodic adjustment as the underlying instruments vest.


The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation-Stock Compensation”. ASC 718 requires companies to measure the cost of employee services received in exchange for an award of equity instruments, including stock options, based on the grant date fair value of the award and to recognize it as compensation expense over the period the employee is required to provide service in exchange for the award, usually the vesting period.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Information not required for smaller reporting companies.


ITEM 4. CONTROLS AND PROCEDURES


Disclosure Controls and Procedures


As of the end of the period covered by this quarterly report on Form 10-Q, our principal executive officer and our principal accounting officer (the “Certifying Officers”), evaluated the effectiveness of our disclosure controls and procedures. Disclosure controls and procedures are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 (the “Exchange Act”), such as this quarterly report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Disclosure controls and procedures are also designed to reasonably assure that such information is accumulated and communicated to our management, including the Certifying Officers, as appropriate to allow timely decisions regarding required disclosure. Based on these evaluations, the Certifying Officers have concluded, that, as of the end of the period covered by this quarterly report on Form 10-Q:


(a)

our disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and


(b)

our disclosure controls and procedures were not effective to provide reasonable assurance that material information required to be disclosed by us in the reports we file or submit under the Exchange Act was accumulated and communicated to our management, including the Certifying Officers, as appropriate to allow timely decisions regarding required disclosure.


Changes in Internal Control over Financial Reporting


There has not been any change in our internal control over financial reporting that occurred during the nine months ended September 30, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



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PART II: OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS


None.


ITEM 1A. RISK FACTORS


In addition to other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Form 10 which could materially affect our business, financial position and results of operations. Risk factors which could cause actual results to differ materially from those suggested by forward-looking statements include but are not limited to those discussed or identified in this document, in our public filings with the SEC, and those included in Part I, Item 1A. “Risk Factors” in our Form 10.


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


In September and October, the Company issued an aggregate of 733,333 shares of restricted common stock and warrants to purchase 183,333 shares of restricted common stock of the Company to three (3) investors, together with certain registration rights. The aggregate cash purchase price of the common stock and warrants was $1,100,000, representing a net price per share of $1.20. The above referenced common stock and warrants and registration rights were fully issued on October 16, 2014, after all the subscription funds were received. This was previously reported on a Current Report on Form 8-K filed with the Securities and Exchange Commission on September 26, 2014.


These issuances and grants were exempt from registration pursuant to Section 4(2), Rule 506 of Regulation D and/or Regulation S of the Securities Act of 1933, as amended (the “Act”) since the foregoing issuances and grants did not involve a public offering, the recipients took the securities for investment and not resale, we took appropriate measures to restrict transfer, and each recipient was (a) an “accredited investor”; (b) had access to similar documentation and information as would be required in a Registration Statement under the Act; and/or (c) was a non-U.S. person.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES


None.


ITEM 4. MINE SAFETY DISCLOSURES


None.


ITEM 5. OTHER INFORMATION


Not Applicable


ITEM 6. EXHIBITS


Exhibit No.

 

Description

10.1

 

Form of Subscription Agreement, filed previously under the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 26, 2014 as Exhibit 10.1, File Number 000-55218.

 

 

 

10.2

 

Form of Warrant Agreement, filed previously under the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 26, 2014 as Exhibit 10.2, File Number 000-55218.

 

 

 

10.3

 

Form of Registration Rights Agreement, filed previously under the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 26, 2014 as Exhibit 10.3, File Number 000-55218.

 

 

 

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



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SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


TRXADE GROUP, INC.


By:

/s/ Suren Ajjarapu


Suren Ajjarapu

Chief Executive Officer


Date: October 30, 2014


By:

/s/ Howard Doss


Howard Doss

Chief Financial Officer


Date: October 30, 2014



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