Scienture (SCNX) 10-Q 2018 Q1 Quarterly report

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, 2018

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	Identification Number)
incorporation or organization)
3840 Land O’ Lakes Blvd.	34639
Land O’ Lakes, Florida	(Zip code)
(Address of principal executive offices)

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

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

Title of each class	Name of each exchange on which registered
Common Stock	OTCBB

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

None

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [   ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes [   ] No [X]

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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to the Form 10-K. [   ]

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.

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Large accelerated filer	[   ]	Accelerated filer	[   ]
Non-accelerated filer	[   ] (Do not check if a smaller reporting company)	Smaller reporting company	[X]
Emerging growth company	[   ]

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 Act). Yes [   ] No [X]

There were 31,985,827 shares of the registrant’s common stock outstanding on March 31, 2018, and no shares of preferred stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980).

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TRXADE GROUP, INC.

FORM 10-Q

For the Quarter Ended March 31, 2018

INDEX

					Page
PART 1.		FINANCIAL INFORMATION
	Item 1.		Financial Statements		3
			a)	Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017 (unaudited)	4
			b)	Consolidated Statements of Operations for the Three Months Ended March 31, 2018 and 2017 (unaudited)	5
			c)	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017 (unaudited)	6
			d)	Notes to Unaudited Consolidated Financial Statements	7
	Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
	Item 3.		Quantitative and Qualitative Disclosures About Market Risk		16
	Item 4.		Controls and Procedures		16
PART 2.		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		17
	Item 4.		Mine Safety Disclosures		17
	Item 5.		Other Information		17
	Item 6.		Exhibits		17
SIGNATURES					18

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PART 1: FINANCIAL INFORMATION

Item 1: Financial Statements

Trxade Group, Inc.

Consolidated Balance Sheets

March 31, 2018 and December 31, 2017

(unaudited)

			March 31, 2018		December 31, 2017
	Assets
Current Assets
	Cash	$	189,838	$	183,914
	Accounts Receivable, net		326,767		319,467
	Prepaid Assets		152,768		102,095
	Other Assets		1,538		2,000
	Total Current Assets		670,911		607,476
Other Assets
	Deposits		10,000		10,000
Total Assets		$	680,911	$	617,476
	Liabilities and Shareholders’ Deficit
Current Liabilities
	Accounts Payable	$	93,220	$	106,084
	Accrued Liabilities		174,122		156,961
	Short Term Notes Payable net of $0 and $152 discount		-		10,587
	Short term Convertible Payable – Related Parties net of $0 and $0 discount		201,725		251,725
	Total Current Liabilities		469,067		525,357
Long Term Liabilities
	Convertible Notes Payable		181,500		181,500
	Notes Payable – Related Parties		222,552		222,552
Total Liabilities			873,119		929,409
Shareholders’ Deficit
	Series A Preferred Stock, $0.00001 par value; 10,000,000
	shares authorized; 0 and 0
	as of March 31, 2018 and December 31, 2017, respectively		-		-
	Common Stock, $0.00001 par value; 100,000,000
	shares authorized; 31,985,827 and 31,985,827
	shares issued and outstanding, as of March 31, 2018
	and December 31, 2017, respectively		320		320
	Additional Paid-in Capital		7,845,316		7,807,860
	Retained Deficit		(8,037,844)		(8,120,113)
	Total Shareholders’ Deficit		(192,208)		(311,933)
Total Liabilities and Shareholders’ Deficit		$	680,911	$	617,476
	The accompanying notes are an integral part of the unaudited consolidated financial statements.

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Trxade Group, Inc.

Consolidated Statements of Operations

Three Months ended March 31, 2018 and 2017

(unaudited)

		2018		2017
Revenues	$	852,923	$	745,943
Operating Expenses
General and Administrative		754,195		604,493
Operating Income		98,728		141,450
Interest Expense		16,459		61,724
Net Income	$	82,269	$	79,726
Net Income per Common Share – Basic:	$	0.00	$	0.00
Net Income per Common Share – Diluted:	$	0.00	$	0.00
Weighted Average Common Shares Outstanding Basic		31,985,827		31,862,494
Weighted Average Common Shares Outstanding Diluted		34,063,391		34,258,188
The accompanying notes are an integral part of the unaudited consolidated financial statements

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Trxade Group, Inc.

Consolidated Statements of Cash Flows

Three Months ended March 31, 2018 and 2017

(unaudited)

				2018		2017
Operating Activities:
	Net Income		$	82,269	$	79,726
	Adjustments to reconcile net loss to net cash used in
	Operating activities:
		Stock Issued for Services		-		12,500
		Options expense		37,456		79,637
		Amortization of Debt Discount		152		47,604
	Changes in operating assets and liabilities:
		Accounts Receivable		(7,300)		25,632
		Prepaid Assets and Other Current Assets		(50,211)		(45,154)
		Accounts Payable		(12,864)		(63,521)
		Accrued Liabilities and Other Liabilities		17,161		(184,707)
	Net Cash used in (provided by) operating activities			66,663		(48,283)
Financing Activities:
	Repayments of Short-term Notes Payable			(10,739)		(46,650)
	Repayments of Short-term Convertible Debt – Related Party			(50,000)		-
	Proceeds from exercise of Warrants			-		250
	Proceeds from Issuance of Common Stock			-		250,000
	Net Cash used in (provided by) financing activities			(60,739)		203,600
Net increase in Cash				5,924		155,317
Cash at Beginning of the Year				183,914		14,679
Cash at March 31, 2018 and 2017			$	189,838	$	169,996
Supplemental Cash Flow Information
Cash Paid for Interest			$	8,930	$	13,886
Cash Paid for Income Taxes			$	-	$	-
Non-Cash Transactions
Arrangement to move related party Accounts Payable to Notes Payable			$	-	$	7,280
The accompanying notes are an integral part of the unaudited consolidated financial statements.

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Trxade Group, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2018 and 2017

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION

Trxade Group, Inc. (“we”, “our”, “Trxade”, the “Company”) owns 100% of Trxade, Inc., Integra Pharma Solutions, LLC and Alliance Pharma Solutions, LLC. The merger of Trxade, Inc. and Trxade Group, Inc. occurred in May 2013.

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

Basis of Presentation - The accompanying unaudited interim consolidated financial statements of Trxade Group, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Form 10K.

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, 2017 as reported in the Company’s Annual Report on Form 10K have been omitted.

Income (loss) Per Common Share – Basic net income (loss) per common share is computed by dividing net loss available to common 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 dilutive. The dilutive effect of the Company’s options and warrants is computed using the treasury stock method while the dilutive effect of our convertible notes is computed using the if-converted method.

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

		For three months ended
		March 31, 2018		March 31, 2017
Numerator:
Net Income	$	82,269	$	79,726
Numerator for basic and diluted EPS – income
Available to common shareholders		82,269		79,726
Denominator:
Denominator for basic EPS – weighted average shares		31,985,827		31,862,494
Dilutive effect of warrants		2,077,564		2,395,694
Denominator for diluted EPS –weighted average shares		34,063,391		34,258,188
Basic and Diluted income per common share	$	0.00	$	0.00

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Revenue Recognition --Trxade, Inc. generates net transaction fee income as a percentage of the total transactions between the seller (wholesaler) and the buyer (independent pharmacies), S2P. Step One: Identify the contract with the customer – Trxade, Inc. Terms and Uses Agreement is acknowledged between the Wholesaler and Trxade, Inc. which outlines the transaction fee amount based on the type of product. Fee amount is based on the selling price purchased on the Trxade platform. The transaction fee is higher for generic drugs and lower for brand named drugs. The transaction fees are collectible based on evaluation of the quality of the wholesaler and the payable experience. Step Two: Identify the performance obligations in the contract – Agreement requires the wholesaler to provide a catalog of pharmaceuticals for posting on the Trxade Platform for purchase by Pharmacies. Deliver the pharmaceuticals and upon shipment remits the stated platform fee to Trxade, Inc. Trxade, Inc. is required to upload the catalogs and provide the order information to the wholesalers. Step Three: Determine the transaction price – The transaction fees to be paid on the Trxade platform that the wholesalers have are outlined in the Terms and Uses Agreement. Step Four: Allocate the transaction price – 100% of the transaction fee is earned at the time the wholesaler has shipped the order to the buyer. Step Five: Recognize revenue when or as the entity satisfies a performance obligation – the revenue is recognized at the date of the sale consummated on the Trxade Platform.

Recent Accounting Pronouncements– The Company has implemented all new relevant accounting pronouncements that are in effect through the date of these financial statements. The pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its consolidated financial position or results of operations.

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09 (Topic 606) "Revenue from Contracts with Customers." Topic 606 supersedes the revenue recognition requirements in Accounting Standards Codification Topic 605, “Revenue Recognition”, and requires entities to recognize revenue when they transfer control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. We adopted Topic 606 as of January 1, 2018.  The adoption of Topic 606 did not have a material impact to our consolidated financial statements, including the presentation of revenues in our Consolidated Statements of Income because the revenue of the Company does not include contracts that extend over several periods.

NOTE 2 –DEBT AND RELATED PARTIES DEBT

Promissory Note

In September 2016, a promissory note was issued for $189,000. The term of the note is 494 days. The debt discount was $39,000 thus the initial net proceeds were $150,000. Payments are made each weekday in the amount of $537. During the quarter ended March 31, 2017, $46,650 was paid off by cash and debt discount of $10,007 was amortized.

As of December 31, 2017, short term promissory notes have a balance of $10,739, net of $152 unamortized debt discount.

In 2018, $10,739 was paid off by cash and debt discount of $152 was amortized.

As of March 31, 2018, short term promissory notes have a balance of $0, net of $0 unamortized debt discount.

Related Party Convertible Promissory Note

In August 2016, $40,000 in promissory notes were issued to Mr. Shilpa Patel, a relative of Mr. Prashant Patel. The term of the note was one year. Simple interest of 10% is payable at the maturity date of the note. Prior to maturity the note may be converted for common stock at a conversion price of $1.50.

In August 2017, $40,000 in convertible promissory notes was amended. A one-year extension was executed to August 2018. In connection with the one-year extension of the maturity date of the outstanding notes, the holder of the notes was granted warrants to purchase 10,000 shares of common stock that was issued at a strike price of $0.80 and an expiration date of five years from date of issuance. The amendment of the note was considered a debt extinguishment and a loss on extinguishment of debt was booked in the amount of $5,044.

The Company evaluated the embedded conversion feature within the above convertible notes under ASC 815-15 and ASC 815-40 and determined that the embedded conversion feature does not meet the definition of a derivative liability. Then the Company evaluated the conversion feature for a beneficial conversion feature at inception. The Company accounted for the intrinsic value of a Beneficial Conversion Feature inherent to the convertible note payable and $0 was recorded as of the grant date.

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In September and October 2016, convertible promissory notes were issued in the aggregate amount of $211,725 to a related party, Mr. Nitil Patel, the brother of Mr. Prashant Patel. The term of the notes was one year. Simple interest of 10% is payable at the maturity date of the notes. Prior to maturity the notes may be converted for common stock at a conversion price of $0.62. In connection with the notes, the holders of the notes were granted warrants to purchase 52,861 shares of common stock. These warrants were issued at a strike price of $0.62 and an expiration date of five years from date of issuance.

In April 2017, a $61,725 related party note was renewed for a one-year extension at the same interest rate of 10%, due April 2018. In September 2017, a $150,000 related party note was renewed for a six-month extension at the same interest rate of 10%, due in February 2018.

The Company evaluated the embedded conversion feature within the above convertible notes under ASC 815-15 and ASC 815-40 and determined that the embedded conversion feature does not meet the definition of a derivative liability. Then the Company evaluated the conversion feature for a beneficial conversion feature at inception. The Company accounted for the intrinsic value of a Beneficial Conversion Feature inherent to the convertible note payable and the beneficial feature was not beneficial and a total debt discount of $65,390 due to the warrants was recorded as of the grant date.

During 2017, the remaining debt discount of $48,341 was fully amortized. As of December 31, 2017, the short term related party convertible notes had a principal balance of $251,725, net of an unamortized debt discount of $0.

In February 2018, the $50,000 note was repaid and the $100,000 note was renewed for a five-month extension at the same interest rate of 10%, due July 2018.

As of March 31, 2018, the short term related party convertible notes had a principal balance of $201,725, net of an unamortized debt discount of $0.

Convertible Promissory Note

In April 2017, $165,000 in convertible promissory notes (plus $5,500 in interest) was amended. A two-year extension was executed on the remaining notes and the interest owed, totaling $16,500 became part of the adjusted principal of the notes and the balance of $181,500 is due May 2019. The conversion price was adjusted to $0.85 per share. In connection with the two-year extension of the maturity date of the outstanding notes, the holders of the notes were granted warrants to purchase 18,150 shares of common stock that was issued at a strike price of $0.65 and an expiration date of five years from date of issuance. The amendment of the note was considered a debt extinguishment and a loss on extinguishment of debt was booked in the amount of $11,512.

The Company evaluated the embedded conversion feature within the above convertible notes under ASC 815-15 and ASC 815-40 and determined that the embedded conversion feature does not meet the definition of a derivative liability. Then the Company evaluated the conversion feature for a beneficial conversion feature at inception. The Company accounted for the intrinsic value of a Beneficial Conversion Feature inherent to the convertible note payable the conversion was not beneficial and a total debt discount from the issued warrants of $53,546 was recorded in 2015 and $0 as of the date of the debt modification.

During 2017, debt discount of $0 was amortized. As of December 31, 2017 and March 31, 2018, there are $181,500 in convertible promissory notes due in May 2019 with an unamortized discount of $0.

Related Party Promissory Notes

In June 2017, the Company satisfied an outstanding promissory note, dated May 8, 2016, as amended, in the principal amount of $250,000 (the “NPR Note”), made by between the Company and NPR INVESTMENT GROUP, LLC (the “Lender”). The NPR Note included a personal guarantee from Suren Ajjarapu and Prashant Patel, who both serve on the Board of Directors of the Company and are controlling stockholders of the Company. Further, Mr. Ajjarapu is the CEO and President of the Company and Mr. Patel is Vice Chairman and Executive Director of Strategy.

In connection with the foregoing satisfaction of the NPR Note above, the Company received funds in June 2017 and entered into a promissory note agreement on July 1, 2017, whereby the Company borrowed $100,000 and $80,000 from Sansur Associates, LLC, a limited liability company controlled by Mr. Ajjarapu, and Mr. Patel, respectively (the “Promissory Notes”). The term of each of these Notes is three years and they each bear interest at 6%, which is payable annually.

The note due to Mr. Patel is $122,552. It comprises $80,000 for the NPR note, $17,280 for an existing promissory note and $25,272 assumption of credit card obligation related to business expenses of the Company.

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At March 31, 2018 and December 31, 2017, total related party long term debt was $222,552.

NOTE 3 – SHAREHOLDERS’ EQUITY

In January 2017, under a Private Offer Memorandum, 250,000 shares of common stock were issued for $250,000 cash. The common stock was sold at $1.00 per share. In connection with this common stock offering warrants to purchase 87,500 shares of common stock were issued with a strike price of $0.01 and an expiration date of five years.     

In February 2017, 25,000 shares were issued when warrants were exercised at $.01 grant price for $240.

In March 2017, 50,000 shares were issued for services performed for the Company and valued at fair value of $12,500.

There were no shares of common Stock issued from January 1 to March 31, 2018.

NOTE 4 - WARRANTS

For the three-month period ended March 31, 2018, no warrants were issued.

The Company’s outstanding and exercisable warrants as of March 31, 2018 are presented below:

	Number Outstanding		Weighted Average Exercise Price	Contractual Life in Years		Intrinsic Value
Warrants Outstanding as of December 31, 2017	2,738,096	$	0.24	3.28	$	937,567
Warrants Granted	-	$	-	-
Warrants Forfeited	-	$	-	-
Warrants Exercised	-	$	-	-
Warrants Outstanding as of March 31, 2018	2,738,096	$	0.24	3.03	$	1,044,109

NOTE 5 – OPTIONS

The Company maintains a stock option plan under which certain employees are awarded option grants based on a combination of performance and tenure. The stock option plan provides for the grant of up to 2,000,000 shares. All options may be exercised for a period up to four 1/2 years following the grant date, after which they expire. Options are vested up to 5 years from the grant date.

For the three-month period ended March 31, 2018, no options were issued and 10,000 options were forfeited or expired due to employee resignation. For the options not vested, the option expense reversed was $462.

The Company uses the Black-Scholes option pricing model to estimate the fair value of stock-based awards on the date of grant.

Total compensation cost related to stock options was $37,456 for the three months ended March 31, 2018. As of March 31, 2018, there was $54,132 of unrecognized compensation costs related to stock options, which is expected to be recognized over a weighted average period of 4.0 to 5.0 years. The following table represents stock option activity for the three-month period ended March 31, 2018:

	Number of Options		Average Exercise Price	Contractual Life in Years		Intrinsic Value
Outstanding at December 31, 2017	1,197,846	$	0.97	6.96	$	-
Exercisable at December 31, 2017	781,300	$	1.02	6.30	$	-
Forfeited	10,000	$	0.42	9.51
Granted	-	$	-	-
Expired	-	$	-	-
Outstanding at March 31, 2018	1,187,846	$	0.96	6.64	$	-
Exercisable at March 31, 2018	887,050	$	1.03	6.08	$	-

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NOTE 6 – RELATED PARTIES

Trxade Group, Inc. owed management wages to Mr. Prashant Patel at March 31, 2018 of $50,961 and at December 31, 2017 of $62,500.

In January 2018 Mr. Ajjarapu and Mr. Patel executive salaries were amended from $165,000 and $125,000, to $200,000 and $150,000 respectively. All of our executives are at-will employees or consultants. Each of Messrs. Ajjarapu and Patel are parties to an at-will executive employment agreement.

See related party debt activities in NOTE 2.

NOTE 7 – SUBSEQUENT EVENTS

In April 2018, 565,400 stock options were issued to employees and board members under the stock option plan at an exercise price of $0.50. All options may be exercised for a period up to 10 years following the grant date, after which they expire. Options are vested in 4 or 5 years from the grant date.

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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 and the Company’s most recent Annual Report on Form 10-K. 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 Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Report, and in other reports we file with the SEC, specifically our most recent Annual Report on Form 10-K. All references to years relate to the calendar year ended December 31 of the particular year.

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:

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, 2018 and 2017. 

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

Company Overview

We have designed and 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.

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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).  We have expanded rapidly and now have over 8,500 registered pharmacy members purchasing on our platform.

Company Organization

Trxade Group, Inc. (“Company”) owns 100% of Trxade, Inc., Integra Pharma Solutions, LLC and Alliance Pharma Solutions, LLC.

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

Integra Pharma Solutions, LLC, is intended to serve as a logistics company for pharmaceutical distribution, it has limited operations and no revenue at this time.

Alliance Pharma Solutions, LLC is intended to serve in a consulting capacity to wholesalers and manufacturers in the pharma industry, it has no operations or revenue at this time.

Liquidity and Capital Resources

Cash and Cash Equivalents

Cash and cash equivalents were $189,838 at March 31, 2018. We expect that our future available capital resources will consist primarily of cash generated from operations, remaining cash balances, borrowings, and any additional funds raised through sales of debt and/or equity.

Liquidity

Cash and cash equivalents, current assets,current liabilities, short term debt and working capital at the end ofeach quarterly period were as follows:

		March 31, 2018		December 31, 2017
Cash and cash equivalents	$	189,838	$	183,914
Current assets (excluding cash and cash equivalents)		481,073		423,562
Current liabilities (excluding short term debt)		267,342		263,045
Short term debt		201,725		262,312
Working Capital		201,844		82,119

As of March 31, 2018, we had cash and cash equivalents of approximately $189,838 and other current assets of $481,073.

The increase in our working capital was primarily due to payment of certain short – term debt and cash flow from operations.

Liquidity Outlook

Cash Requirements

Our primary objectives for 2018 are to continue the development of the Trxade Platform and increase our client base and operational revenue. Additional funds will be needed to continue to expand our platform and customer base and cover general and administrative expense. We expect to pursue raising capital to fund our operations and provide personnel to expand operations and required working capital. Through these efforts, management believes the Company will be able to maintain the liquidity necessary to fund company operations for the foreseeable future, however there is no assurance that our operations will generate significant positive cash flow, or that additional funds will be available to us, through borrowings or otherwise, on favorable terms when required, or at all. 

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

follows:

Expense	Amount
General and administrative (1)	$	2,425,000
Total	$	2,425,000

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

Since inception, we have funded our operations primarily through debt and equity capital raises and operational revenue. We expect to continue to seek additional outside funding 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.

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

Cash Flows

The following table summarizes our Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017:

	Three Months Ended
	March 31,	March 31,
	2018	2017
	($)	($)
Net cash provided by (used in):
Operating activities	66,663	(48,283)
Investing activities	-	-
Financing activities	(60,739)	203,600
Net increase in cash	5,924	155,317

Cash provided from operating activities for the three months ended March 31, 2018 was $66,663. This is an increase of $114,946 from same period in 2017 and was due to increased customers and revenue. Financing activities include $60,739 in payments to short term debt.

Results of Operations

Three Months Ended March 31, 2018 Compared to Three Months Ended March 31, 2017

Continuing Operations

	Three months ended March 31, 2018		Three months ended March 31, 2017
Revenues	$	852,923	$	745,943
Operating Expenses:
General and Administrative		716,739		524,856
Warrants and Options Expense		37,456		79,637
Total Operating Expenses		754,195		604,493
Income from operations		98,728		141,450
Amortization of Debt Discount		152		47,604
Interest Expense		16,307		14,120
Net Income	$	82,269	$	79,726

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Revenues increased for the three months ended March 31, 2018 to $852,923 compared to $745,943 for the comparable period in 2017. This increase was attributable to an increase of fee income from our web-based platform. Our sales department has continued to add customers in 2018 through direct marketing and customer training.

General and administrative expenses increased for the three months ended March 31, 2018 to $716,739 compared to $524,856 for the comparable period in 2017. A large component of general and administrative expenses in 2018 was affected by an increase in employee cash compensation expense in 2018.

Warrant and options expense in the 2017 and 2018 periods represent compensation cost related to the issuance of employee stock options.

Off-Balance Sheet Arrangements

We had no outstanding off-balance sheet arrangements as of March 31, 2018.

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

On January 1, 2018 we adopted the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09 (Topic 606) "Revenue from Contracts with Customers." Topic 606 supersedes the revenue recognition requirements in Accounting Standards Codification Topic 605, “Revenue Recognition”, and requires entities to recognize revenue when they transfer control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The adoption of Topic 606 did not require prior periods to be retrospectively adjusted. In addition, the adoption of Topic 606 did not have a material impact to our consolidated financial statements, including the presentation of revenues in our Consolidated Statements of Income.

Trxade, Inc. generates net transaction fee income as a percentage of the total transactions between the seller (wholesaler) and the buyer (independent pharmacies), S2P. Step One: Identify the contract with the customer – Trxade, Inc. Terms and Uses Agreement is acknowledged between the Wholesaler and Trxade, Inc. which outlines the transaction fee amount based on the type of product. Fee amount is based on the selling price purchased on the Trxade platform. The transaction fee is higher for generic drugs and lower for brand named drugs. The transaction fees are collectible based on evaluation of the quality of the wholesaler and the payable experience. Step Two: Identify the performance obligations in the contract – Agreement requires the wholesaler to provide a catalog of pharmaceuticals for posting on the Trxade Platform for purchase by Pharmacies. Deliver the pharmaceuticals and upon shipment remits the stated platform fee to Trxade, Inc. Trxade, Inc. is required to upload the catalogs and provide the order information to the wholesalers. Step Three: Determine the transaction price – The transaction fees to be paid on the Trxade platform that the wholesalers have are outlined in the Terms and Uses Agreement. Step Four: Allocate the transaction price – 100% of the transaction fee is earned at the time the wholesaler has shipped the order to the buyer. Step Five: Recognize revenue when or as the entity satisfies a performance obligation – the revenue is recognized at the date of the sale consummated on the Trxade Platform.

Stock-Based Compensation

The Company accounts for stock-based compensation to non-employees in accordance with the provision of ASC 505-50, “Equity Based Payments to Non-Employees” (“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 to employees 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.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

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 three months ended March 31, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

No change in risk factors since the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on March 2, 2018.

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

During the past quarter, other than those securities previously reported on Form 10-K or Form 10-Q or on a Current Report on Form 8-K, we issued and sold the following securities without registration under the Securities Act of 1933, as amended (the “Securities Act”):

In April 2018, options to purchase 565,400 shares of Common Stock were issued to employees, contractors and board members under our 2014 Equity Incentive Plan. All options may be exercised for a period of up to 10 years following the grant date, after which they expire. Options are vested from terms ranging from 4 to 5 years from the grant date.

The use of proceeds associated with the above listed sales of unregistered securities was for general working capital purposes.  The issuances and grants described above were exempt from registration pursuant to Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving any public offering pursuant to benefit plans and contracts relating to compensation as provided under Rule 701, or were exempt private placements under Section 4(2), Rule 506 of Regulation D and/or Regulation S of the Securities 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 take appropriate measures to restrict transfer, and the recipients were (a) “accredited investors”; (b) had access to similar documentation and information as would be required in a Registration Statement under the Act; (c) were non-U.S. persons; and/or (d) were officers or directors of the Company.

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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 

31.1Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 

31.2Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 

32.1Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 

32.2Certification 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.
Date: April 27, 2018	By:	/s/ SUREN AJJARAPU
		Suren Ajjarapu
		Chief Executive Officer
Date: April 27, 2018	By:	/s/ HOWARD DOSS
		Howard Doss
		Chief Financial Officer

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